MONTHLY BRIEFING

ON THE WORLD ECONOMIC SITUATION AND PROSPECTS

Economic Analysis No. 134 | 3 February 2020

GLOBAL ISSUES: WORLD ECONOMIC

SITUATION AND PROSPECTS 2020 WARNS SUMMARY
THAT WEAKER GROWTH THREATENS TO SET » According to the WESP 2020, sluggish global growth
BACK SUSTAINABLE DEVELOPMENT threatens sustainable development
The World Economic Situation and Prospects (WESP) 2020, » 1 in 5 countries will see per capita incomes stagnate
launched at UN Headquarters in New York on 16 January, notes or decline this year, notably in Africa, Latin America
that the global economy slowed to a decade-low last year, and parts of Western Asia
largely as a result of prolonged trade disputes and high policy
uncertainty. The broad-based deterioration threatens to impede » Across the world, many policies continue to encourage
the use of fossil fuels
efforts to reduce poverty, create decent jobs, broaden access to
affordable and clean energy, and achieve many other Sustainable
Development Goals. World gross product growth slipped to 2.3
Economic growth around the world remains very uneven.
per cent in 2019—the lowest rate since the global financial crisis
Despite significant headwinds from global trade tensions, East
of 2008–2009. This slowdown is occurring alongside growing
Asia remains the world’s fastest growing region and the largest
discontent with the social and environmental quality of economic
growth, amid pervasive inequalities and the deepening climate contributor to global growth. East Africa is also expected to
crisis. A modest uptick in global growth to 2.5 per cent is fore- continue to exhibit rapid income growth. However, 1 in 5 countries
cast for 2020. But policy uncertainties will continue to weigh on will see per capita incomes stagnate or decline this year, notably
investment plans, and the risks of a further deterioration in the in Africa, Latin America and parts of Western Asia (figure 1). Many
economic situation are high, amid trade tensions, escalating of these are commodity exporters, which are still ailing from the
geopolitical conflicts, elevated debt levels, as well as increasing effects of the commodity price downturn of 2014–2016. In one
climate risks. third of commodity-dependent developing countries—home to

Figure 1
GDP per capita growth, 2020

no data less than -0.5% -0.5% to +0.5% +0.5% to +2.0% +2.0% to +4.0% greater than +4.0%

Source: United Nations, World Economic Situation and Prospects 2020, Sales No. E.20.II.C.1, chap. I, p. 9. The boundaries and names shown and the designations used on this map do not imply
official endorsement or acceptance by the United Nations.

The World Economic Situation and Prospects Monthly Briefing is prepared by the Global Economic Monitoring Branch of UN DESA’s Economic Analysis and Policy Division.
It is published on the first business day of the month. We welcome your feedback and comments.
Contact email: pitterle@un.org. The full series is available from: http://www.bit.ly/wespbrief
870 million people—average real incomes are lower today than increased demand for their metal and mineral resources that are
they were in 2014. This includes several larger economies, such as used in low-carbon technologies. But countries that continue to rely
Angola, Argentina, Brazil, Nigeria, Saudi Arabia and South Africa. on fossil-fuel exports to finance government spending or essential
Africa has experienced a decade of near stagnation in per capita imports face risks of stranded assets and job losses. The uneven
GDP, notwithstanding some bright spots such as Côte D’Ivoire, nature of these returns emphasizes the need for cooperative and
Ethiopia and Rwanda. Meanwhile, average per capita incomes in coordinated global policies to make progress on energy transition.
Latin America and the Caribbean are about 4 per cent lower today Measures to compensate those who are negatively impacted are
than in 2014. essential, both to protect the vulnerable and to safeguard the polit-
The extended period of stagnant or declining average ical viability of difficult but urgently needed policy actions.
incomes has seen rising levels of poverty in the affected regions,
despite progress towards poverty eradication at the global level.
Sustained progress towards poverty reduction will require both a
DEVELOPED ECONOMIES
significant boost to productivity growth and firm commitments North America: Fossil fuel sector plays important roles
to tackle high levels of inequality. In the absence of steep declines in both economic and environmental spheres
in inequality, estimates in the WESP 2020 indicate that to eradi-
According to estimates in the WESP 2020, GDP growth in the
cate poverty in Africa, annual per capita growth of over 8 per cent
United States moderated to 2.2 per cent in 2019. Economic activity
would be needed in the majority of countries. This compares to the
is expected to continue to decelerate towards 1.7 per cent this year,
woefully inadequate average rate of just 0.5 per cent recorded over
largely reflecting the toll on investment of prolonged trade policy
the past decade.
uncertainty and the impact of tariffs on specific sectors. Business
The deteriorating economic outlook has prompted monetary
confidence has been on a steady downward trend since the escala-
easing around the world. A total of 67 central banks around the
tion of trade disputes in August 2018. Although trade tensions have
world loosened their monetary stance in 2019, marking the broadest
eased along some fronts, the potential for setbacks are high, and
shift in monetary policy since the global financial crisis. However,
firms and households are expected to remain cautious. At the same
it has become clear that monetary stimulus alone is insufficient to
time, the effects of fiscal stimulus measures introduced in 2018 are
revive the world economy. Moreover, further monetary easing may
fading and a lower global oil price has discouraged investment in
also entail significant costs, including the exacerbation of finan-
the fossil fuel industry.
cial stability risks. Low global interest rates and ample liquidity
Investment in the United States is increasingly sensitive to
conditions have contributed to the underpricing of risks, pushing
the oil price, reflecting the short-term nature of investment in the
up asset prices and encouraging the rise in global debt.
shale industry, which now accounts for over 60 per cent of United
Meanwhile, investors continue to underestimate climate
States oil and gas production. The important role of the fossil fuel
risks, encouraging short-sighted decisions that expand investment
sector in the economy acts as an obstacle to more rapid progress
into carbon-intensive assets. This is partly a result of policies that
towards environmental goals. Progress towards a cleaner energy
continue to encourage the use of fossil fuels. Fossil-fuel subsidies
mix is lagging behind most of Europe, and there has been a steady
remain in place across the world and are more than double the level
unwinding of environmental regulation over the last few years.
of global subsidies to support renewable energy. Emitting carbon
In contrast, Canada has set ambitious targets to meet emis-
and other greenhouse gases remains cost-free in most of the world,
sions commitments under the Paris Agreement. But the federal
despite the heavy environmental and health burden that it poses
Government and individual provinces continue to provide various
to society. Where a form of carbon pricing has been introduced,
types of subsidies to the fossil fuel industry, which remains an
carbon-intensive sectors often remain exempt and prices are
important sector of the Canadian economy. These subsidies,
generally set far too low to deliver change.
conflict with the incentives and targets of the nationwide carbon
The energy sector accounts for about three quarters of global
tax. Removing this double standard would accelerate progress
greenhouse gas emissions. Therefore, the only way to decisively
towards the country’s environmental targets.
break the link between emissions and economic activity is to move
away from burning fossil fuels. Without a significant change in the
energy mix, global goals of reaching net zero emissions by 2050 Developed Asia: Resilient investment sustains growth
will be missed by a large margin. For example, global CO2 emis- in Japan against weakening consumption and exports
sions would rise by over 250 per cent if developing countries were In Japan, real GDP growth is estimated at 0.7 per cent for 2019 and
to follow consumption and production patterns in the developed is forecast to remain below 1 per cent in 2020 for the third year
world. in a row. While domestic demand has remained more resilient,
The transition to a cleaner energy mix has the potential to the country’s weak economic performance reflects weak external
bring not only environmental benefits but also economic benefits demand. Slowing demand from China, in particular, has impacted
for many countries. For example, heavy importers of fossil fuels exports of the automotive and electronics sectors. Although
stand to benefit from the development of local renewable energy corporate profits are in decline as a result of sluggish export earn-
sources, leading to improvements in energy supply security and ings, capital investments remain firm, particularly in software,
their balance of payments. Meanwhile, some countries will see information technology and R&D. Private consumption has been

2 Monthly Briefing on the World Economic Situation and Prospects

constrained by declining real wages and a hike in the consumption is expected to continue; in Central Asia, the implementation of the
tax rate in October 2019. A modest acceleration in GDP growth to Belt and Road Initiative should further support the development of
1.3 per cent is expected for 2021 as the impact of the consumption energy and transport infrastructure.
tax rise dissipates and real wages stabilize. However, economic prospects of the CIS region are subject to
a number of risks. The share of hydrocarbons in the region’s exports
Europe: External conditions, policy uncertainty and remains high and a global slowdown could weaken commodity
prices and expose banking sector vulnerabilities. Several CIS econ-
structural changes take a toll on growth
omies face large debt servicing costs over the period 2019–2021; all
The European Union (EU) is expected to see only limited growth of them face challenges associated with the transition to “green”
of 1.6 per cent in 2020 and 1.7 per cent in 2021. Against the back- energy.
drop of heightened global trade tensions, exporters face numerous In South-Eastern Europe, growth slowed in the largest coun-
challenges, including tariffs, weaker or delayed demand, and having tries in 2019, due in part to base effects as well as weaker demand
to make corporate decisions under greater policy uncertainty. In from main trading partners in the EU. The region still remains
addition, structural challenges and changes in significant sectors dependent on foreign financing. Faltering economic performance
such as the car industry put long-established business models in in the EU remains a major risk factor. Average GDP in South-
doubt and create the need for companies and policymakers to Eastern Europe is expected to grow by 3.4 per cent both in 2020
develop new economic paradigms. As these factors will suppress and in 2021.
the contribution of exports to economic performance, domestic
demand will remain the mainstay of growth. Lower unemployment,
DEVELOPING ECONOMIES
solid wage gains and additional monetary stimulus on top of the
already supportive monetary stance will underpin solid household Africa: Growth rates are insufficient for meaningful
consumption. The very accommodative monetary policy stance development progress
will continue to drive investment in domestically oriented sectors The economic situation in Africa remains challenging amid the
such as residential construction, creating positive knock-on effects slowdown in the global economy, lingering effects from the
for many small and medium-sized companies. The outlook remains collapse in commodity prices and protracted fragilities in some
subject to numerous risks and challenges that could lead to a large countries. Situations are widely divergent across subregions,
significant slowdown in growth, including a renewed escalation in however. While economic conditions remain robust in East Africa
trade tensions, a disorderly exit of the United Kingdom from the and are improving in North Africa, growth in West, Central and
EU and financial instability stemming from the loose monetary Southern Africa remains inadequate to meet mounting develop-
policy stance. As in the previous years, economic growth in the ment challenges. GDP growth for the region as a whole is projected
countries that joined the EU in 2004–2013, is expected to outpace to increase moderately from 2.9 per cent in 2019 to 3.2 per cent in
the EU average. 2020 and it is set to accelerate to 3.5 per cent in 2021, contingent
on the implementation of effective reforms and subject to large
downside risks.
ECONOMIES IN TRANSITION Africa continues to face difficulties in achieving the more
Commonwealth of Independent States: Policy easing robust and sustained growth path that is needed to enhance living
will likely support growth in the CIS, but downside risks standards across the continent. GDP per capita growth is unlikely
are high to reach much above 1 per cent in the near term. More broadly,
average GDP per capita growth in 2010 — 2019 was only 0.5 per
Growth slowed in the CIS countries and Georgia in 2019, driven cent—well below the average growth of the previous decade and
by a marked growth deceleration in the Russian Federation and only marginally higher than average per capita growth in the 1980s
weaker terms of trade. Average GDP growth for the region declined and 1990s. A step change in the rate of economic growth is needed
to 1.8 per cent in 2019 but is expected to increase modestly to 2.3 if the region hopes to make meaningful progress towards achieving
per cent in 2020 and 2.4 per cent in 2021. The economy of the the Sustainable Development Goals.
Russian Federation is estimated to have expanded by just around
1 per cent in 2019, as a result of base effects and persistently weak East Asia: Growth prospects have softened amid
consumer demand. Looking forward, increased fiscal spending in strong external headwinds
the Russian Federation in line with the implementation of national Against the backdrop of an increasingly challenging external
development projects and the impact of monetary easing should environment, the short-term growth outlook for East Asia has
support stronger growth in 2020–2021. Among other energy weakened. In 2019, regional GDP growth slowed to 5.2 per cent
exporters, Kazakhstan grew by an estimated 4 per cent, driven by from 5.7 per cent the previous year, as high trade tensions and policy
strong domestic demand. Most of the energy-importing CIS coun- uncertainty weighed on exports and domestic demand. Looking
tries, with the exception of Belarus, enjoyed relatively solid growth ahead, the region is projected to sustain a more moderate growth
in 2019. In the outlook, strong growth in most of those countries pace of 5.2 per cent in 2020 and 2021. As business sentiments

Monthly Briefing on the World Economic Situation and Prospects 3

remain subdued, a strong revival of private investment appears Western Asia: Economic prospects are clouded by oil
unlikely. Nevertheless, the easing of monetary and fiscal policies price, real estate and geopolitical risks
across many economies in the region is likely to support growth.
In 2019, the region experienced a sharp decline in the rate of
In China, growth is projected to moderate at a gradual pace.
economic expansion owing to both sluggish domestic demand and
The implementation of policy stimulus measures will partially
weakening external demand, with average GDP growth estimated
offset the adverse effects of the trade dispute on the economy.
to have dropped to 1.0 per cent from 2.3 per cent in 2018. The slump
However, some of these measures may exacerbate domestic finan- in the real estate sector dampened both consumption and invest-
cial vulnerabilities, leading to higher financial stability risks. ment through a negative wealth effect. Energy-importing countries
Despite a weaker exports outlook, the growth prospects of faced tightening fiscal and balance-of-payments constraints. For
several other large East Asian economies, including Indonesia, the member countries of the Gulf Cooperation Council (GCC), the
Malaysia, the Philippines and Thailand remains favourable, contribution of the energy sector to GDP growth is estimated to
underpinned by resilient domestic demand. Private consumption have been negligible. While oil prices have fallen from their latest
will be supported by healthy labour market conditions and policy peak in October 2018, the level of crude oil production has barely
measures to boost household disposable income. In most of these changed since that time due to OPEC-led supply ceiling coordina-
countries, public investment growth is expected to strengthen, tion. Non-energy exports have also faced weakening demand from
driven by the implementation of large infrastructure projects. Europe, South Asia and East Asia. Moreover, ongoing conflict and
Risks to East Asia’s growth outlook are strongly tilted to an unstable security situation in the Syrian Arab Republic and
the downside. Continued high uncertainty surrounding global Yemen have suppressed the recovery in intraregional trade.
trade policies would not only prolong weaknesses in the external Average GDP growth for Western Asia is forecast at 2.4 per
sector but could also generate significant spillovers to the domestic cent in 2020 and 2.8 per cent in 2021. While weak external demand
economy. In addition, financial markets in the region remain will continue to weigh on the region, recovering credit growth,
susceptible to abrupt changes in investor sentiment, potentially a stabilization of the real estate sector, and ongoing economic
triggering large capital outflows. In several economies, high reform are expected to support domestic demand growth. The
indebtedness poses a risk to domestic financial stability. main downside risks are a substantial decline in oil prices, further
deterioration in the real estate sector, and the intensification of
South Asia: Economic growth rebounds but structural geopolitical risk events.
challenges loom
Latin America and the Caribbean: The region is mired
Growth in South Asia is projected to rebound in 2020, but
in a prolonged economic slump
the region will continue to face daunting challenges to sustainable
development, according to the WESP 2020. Economic growth in Latin America and the Caribbean is undergoing a prolonged eco­
South Asia is forecast to recover to 5.1 per cent in 2020, after falling nomic slump that is undermining progress towards the Sustainable
to a decade-low of 3.3 per cent in 2019, but will remain well below Development Goals. Amid challenging external con­di­tions, height­
the rates seen in the recent past. The region struggled in 2019 with ened policy uncertainty and country-specific headwinds, the
region’s GDP grew by only 0.1 per cent in 2019. A slow and uneven
a combination of external headwinds, notably the global economic
recovery is projected over the next two years, with regional growth
slowdown and falling trade, and country-specific domestic
averaging 1.3 per cent in 2020 and 2.0 per cent in 2021. Since
challenges. As the effects of one-off shocks wane and some govern-
the end of the commodity boom in 2014, the region has failed to
ments respond with vigorous fiscal expansion, economic activity
achieve meaningful economic growth. Average per capita GDP
will rebound in most of the South Asian countries. Fiscal stimulus
today is nearly 4 per cent below the 2014 level. Lower average
in India is expected to boost economic growth in the short-term,
incomes and persistently high inequality have led to an increase in
but a number of structural barriers will need to be addressed to
poverty levels in recent years.
achieve sustainable economic growth.
In 2020, economic growth will likely be supported by
The risks to South Asia’s economic outlook are heavily tilted accommodative monetary policy as inflationary pressures remain
to the downside. The region remains exposed to external shocks, generally contained. Consumer and business sentiment are
notably trade shocks and climate change, due to insufficiently expected to improve gradually in many countries, including Brazil
climate-resilient infrastructure and a lack of economic diversifi- and Mexico. The risks to the outlook are skewed to the downside,
cation in most countries. Structural challenges also include the however. On the external front, the region is vulnerable to a further
low quality of employment, with gender barriers to the labour slowdown in global trade and lower commodity prices. In addition,
market among the highest in the world. High-quality formal abrupt changes in investor sentiment could trigger renewed finan-
employment continues to be a distant dream for most people in cial volatility and large capital outflows. On the domestic front,
South Asia, hampering the region’s long-term development pros- policy uncertainty, political turmoil and social unrest threaten
pects. Improved access to clean and affordable energy, moreover, to weigh on growth in several economies. In many cases, these
will be needed to generate jobs and reduce the region’s dependence challenges are compounded by a lack of fiscal policy space as
on fossil fuels. As economic growth recovers, policymakers will governments continue to grapple with sizeable public deficits and
urgently need to address these structural barriers to development. elevated debt burdens.

4 Monthly Briefing on the World Economic Situation and Prospects