World Economy

Global Investments Essential to Limit Declining Growth

Global Investments Essential to Limit Declining Growth Global Investments Essential to Limit Declining Growth

Without a revival in global investment, the world economy’s low growth trajectory is unlikely to change. That was among the sobering messages contained in the mid-year review of the United Nations World Economic Situation and Prospects report.

The report cuts the 2016 forecast for global growth to 2.4%, a half-percentage-point drop from its forecast in December.

Warning of a bleak state of the world economy, the report points to persistent weakness in aggregate demand in developed economies, while low commodity prices, mounting fiscal and current account imbalances combined with policy tightening have further dampened prospects in commodity-exporting economies in Africa and elsewhere, SABC quoted the UN report published Thursday as saying.

The global growth trajectory continues downwards and that’s bad news for countries embarking on the implementation of the 2030 sustainable development agenda, as Assistant Secretary General for Economic Development Lenni Montiel explains.

“While commodity prices have largely stabilized, they are expected to remain at low levels for the next two years. The report underscores that a further deterioration in commodity prices would increase fiscal and currency pressures in the commodity-exporting economies, and could potentially undermine the sustainability of their government finance.”

The report warns that economic growth in Africa continues to lose momentum. And despite countries beginning the process of economic diversification, many remain heavily reliant on commodities.  

Montiel says, “Many developing economies, especially commodity-dependent economies with large current-account deficits or high levels of external debt, continue to face the risks of heightened capital flow volatility. The reduced and more volatile capital flows, including falling foreign direct investment to Africa, Latin America and the economies in transition, can further undermine the growth prospects in these regions.”

Risks Persist

Risks to the world economy continue to be weighted on the downside with low commodity prices, large capital outflows, fiscal and current account pressures, tighter policy stances, weather-related shocks like El Nino combined with policy challenges and uncertainty–a perfect storm.  

Senior Economic Affairs Officer Dawn Holland explains, “The report highlights the fact that the prolonged period of weak productivity and weak investment growth that we’ve seen for the best part of the last decade, may threaten the longer-term prospects of the global economy. Without investment, the existing capital stock deteriorates; atrophies become obsolete, the workers who are using that capital become less productive as a result of that and it compounds itself and leads to a situation where there is a lower productive capacity in the world economy.”

Additionally, southern Africa faces inflationary pressures from widespread currency depreciation leading to calls for governments to exploit available fiscal space and broaden the tax base so as to reinvest additional revenue back into the economy. This, with a call on developed countries to act collectively amidst warnings that further monetary stimulus on its own will not lift growth and with that demand.

Forecasts suggest Africa will grow at 2.8% in 2016, up to 3.4% in 2017.

Southern Africa should expect an economic expansion of just 1.3% in 2016.

In the CIS region of the former Soviet Union, the report said, Azerbaijan, Kazakhstan and Russia will likely see declines in gross domestic product this year and said international sanctions are among the major negative factors for Russia's economy.

The rich developed countries are not expected to see an improvement in GDP over last year, and in the United States the UN is predicting a drop in growth from 2.4% in 2015 to 2.2% this year due to weak business investment and low exports. Next year, the US economy is forecast to rise slightly to 2.5%.

Latin America and the Caribbean are expected to see the region's economies contract by 0.6% for the second straight year, according to the report.

Concerns about the upcoming referendum on European Union membership in Britain also pose a potential risk for the global economy.