By John J. Metzler, February 6, 2023The lingering aftermath of the COVID-19 pandemic, the widening war in Ukraine and the knock-on effects of food and energy shortages, alongside high inflation battered the world economy in 2022.
Reflecting these grim realities, the UN has issued its annual World Economic Situation and Prospects (WESP) report which presents a “gloomy and uncertain economic outlook for the near term.”
Global growth is projected to fall from an estimated 3 percent in 2022 to 1.9 percent this year, making it one of the lowest growth rates in recent decades the WESP warns. Significantly, slowing economic momentum in the United States and the European Union have “adversely impacted” the rest of the global economy, especially among developing countries.
The report presents a “very sobering” verdict on the current world economy.
Addressing correspondents, Mr. Hamid Rashid, Chief of Global Economic Monitoring, expects 2023 to be a “difficult year” with sharp declines in global growth. He cites the facts the Central Banks “underestimated” inflation, the Ukraine war, and the “monetarist response in the U.S. with a spike in interest rates,” which have especially added to a sharp decrease of growth in the USA.
Viewing developed economies, the WESP warns, “The near term outlook for the economy the United States began to deteriorate quickly during the second half of 2022 amid growing concerns about runaway inflation derailing output growth.” It warns, “As the risk of a recession looms large, the economy is forecasted to grow by only 0.4 percent in 2023.” This marks a significant reduction from 1.8 percent growth in 2022.
Conversely the Report says Japan, “is expected to be among the best performing developed economies in 2023.” GDP is forecast to increase to 1.5 percent. Interestingly inflation in Japan fell from 2 percent in 2022 to 1.2 percent his year. China has equally faced a slow comeback from the pandemic; growth of 8.1 percent in 2021 but slipped badly to 3 percent last year. Growth for 2023 is expected to reach 4.8 percent. Mainland China still confronts a dangerous threat from the COVID virus.
The European Union countries on the other hand weather a deteriorating economic forecast largely due to the Ukraine war. “Soaring energy prices have pushed inflation to multi-decade highs, ” the report adds. Europe's growth in 2023 is expected to be a tepid 0.2 percent, down from 3.3 percent last year.
Europe’s dangerous dependence on Russian natural gas supplies has hampered key economies like Germany, Italy and also the United Kingdom. Germany for example will see its GDP growth slip from 1.7 percent to minus 0.4 in 2023. The UK will slide from an impressive 4.3 percent last year to minus 0.8 percent in 2023!
Russia/Ukraine represents the region primarily impacted by geopolitical and economic jolts and a worsening economic outlook. Russia’s invasion of Ukraine last February opened the floodgates for massive destruction, refugees, and population dislocations, not seen in Europe since WWII. Ukraine faces a devastating economic hit with minus 36 percent growth down from a 3.4 percent the previous year. Given the complexities of the conflict, there’s no prediction for Ukraine this year. Tragically post-conflict reconstruction for Ukraine’s infrastructure and cities is estimated by the World Bank to cost between $350 and $500 billion.
Russia faced a minus 3.5 economic slip last year and expects an additional minus 2.9 percent slide in 2023. Moscow’s energy intensive export economy was hampered by European cutoffs of Russian energy supplies as well as widespread international trade sanctions. Interestingly WESP states that Russian energy exports actually increased last year, not from the traditional European buyers, but “trade with China, India and Turkey surged,” albeit at discounted prices.
East Asia offers some better news but with political cautions. “After rebounding to 7 percent in 2021, the region’s economic growth is expected to slow to 3.2 percent in 2022,” and accelerating to 4.4 percent in 2023.
Hong Kong suffered from economic turmoil and Beijing’s political meddling. Growth of 6.3 percent in 2021 fell to minus 3 percent last year and is expected to reach only 1.7 percent this year.
South Korea which saw 4.1 percent growth in 2021, slipped to 2.7 last year is expected to record 2 percent this year. Taiwan’s growth slipped from 6.6 percent in 2021, to 3.3 percent last year and is expected to settle to 2.2 percent this year.
One standout is India whose economic growth went from 8.7 in 2021, to 6.2 last year and is expected to maintain 6 percent growth this year.
Higher food and energy prices pushed more people into poverty with food insecurity facing 345 million people. Crippling debt remains the looming iceberg in the water for most economies.
John J. Metzler is a United Nations correspondent covering diplomatic and defense issues. He is the author of Divided Dynamism the Diplomacy of Separated Nations: Germany, Korea, China (2014). [See pre-2011 Archives]
