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Emerging markets are off the boil after a stellar run last year, though their fate hangs largely on the biggest economies, the dollar and the outlook for monetary policy in the developed world.
Emerging markets are off the boil after a stellar run last year, though their fate hangs largely on the biggest economies, the dollar and the outlook for monetary policy in the developed world.

UN Forecast: Rising Risks May Trigger Sharp Downfall in 2019

The UN report not only highlights the risks to economic growth but the need to urgently address a number of policy challenges, including threats to the multilateral trading system and high inequality

UN Forecast: Rising Risks May Trigger Sharp Downfall in 2019

The United Nations is forecasting that the global economy will expand by more than 3% this year and next year—but it warns that increasing risks could trigger “a shock to investment and trade” and a sharp drop to 1.8% growth in 2019.
The UN’s mid-year report on the World Economic Situation and Prospects launched Thursday says growth in the world economy is surpassing expectations, reflecting further economic expansion in developed countries and broadly favorable investment conditions, AP reported.
However, the report said, “downside risks” have increased including “a rise in the probability of trade conflicts between major economies.”
Dawn Holland, chief of the UN’s Global Economic Monitoring Branch, cited the (US President Donald) Trump administration’s imposition of tariffs in January and proposed new tariffs against China as well as the renegotiation of the US trade agreement with Mexico and Canada, which has left “a void of uncertainty”.
There are also negotiations between the European Union and the United States partly linked to tariffs on steel, she said, and an increasing number of disputes have been raised with the World Trade Organization over the last six months.
The report said other factors also pose risks including uncertainty over monetary policy, increasing debt levels, and greater geopolitical tensions including in the Korean peninsula, Middle East, South China Sea and Ukraine.
India’s economic growth is expected to climb to 7.5% in 2017-18 and 7.6% in 2018-19 supported by robust private consumption, a more supportive fiscal stance and benefits from past reforms, the report said.
Upbeat Over Several Months
But the UN’s assessment was generally upbeat citing continued economic improvements over the last several months including accelerating wage growth, improved investment prospects, and the short-term impact of the US fiscal stimulus package.
“Many commodity-exporting countries will also benefit from the higher level of energy and metal prices,” the report said.
According to the UN, world growth is now forecast to reach 3.2% in both 2018 and 2019, up from its forecast in December of 3% growth this year and 3.1% next year.
While many countries will experience growth, the report said output is expected to decline in central Africa and southern Africa, the report said. And the forecast for economies in transition including Russia and the world’s poorest countries have been revised “marginally downward” for 2018.
Assistant secretary general for economic development, Elliott Harris, cautioned, however, that “there is a strong need not to become complacent in response to upward trending headline figures”.
The report not only highlights the risks to economic growth but “the need to urgently address a number of policy challenges, including threats to the multilateral trading system, high inequality and the renewed rise in carbon emissions,” he told a press conference launching the report.
And it warned that if trade tensions and barriers were “to spiral over the course of 2018, through widespread retaliations and extensive disruption to global value chains, this could trigger a sharp drop in global investment and trade.”

No Panicking
For much of the past year, "global upswing" was a compelling way to describe the economic picture. A new understanding is needed, but no one will be sure just what is happening until Japan and the eurozone can convincingly bounce back from a string of disappointing numbers. If they can't rally as most economists predict, more of the burden for the global expansion will fall to the US and China, Bloomberg reported.
Their fate also has consequences for the great secondary narrative of the past year: the tapering of monetary stimulus across jurisdictions, certainly in the US and Europe and, just possibly, a trace of something on the distant horizon in Japan.
Not that Japan is in crisis. Gross domestic product shrank at an annualized rate of 0.6% in the first quarter—but a shallow contraction in GDP was widely anticipated. Private consumption was flat, and capital spending dipped. Still, the jobless rate remains extremely low and production is tipped to pick up this quarter.
The cooling growth across Europe also doesn't call for panic just yet. The most consequential tailing off has been in Germany, where the economy expanded 0.3% in the first quarter—half the clip of the preceding three months. Observers attribute that to fleeting causes like poor weather. Critically, European Central Bank officials are mostly dismissing this as a blip.
It may well be. But in combination with Japan's slip, it starts to feel as though something is going on, like the world economy has shifted down a gear—far from a recession, but not as ebullient in the outlook as in 2017.
Emerging markets are off the boil after a stellar run last year, though their fate hangs largely on the biggest economies, the dollar and the outlook for monetary policy in the developed world. They are also dependent on China, which is hanging in there with growth shy of 7%. A bust in China—it's been predicted for years without materializing—would be painful for everyone.

 

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