by John J. Metzler
Weirs Times Contributing Writer
UNITED NATIONS—Amid modest economic growth worldwide, East Asia still leads the way.
That’s according to the UN’s updated “World Economic Situation Prospects” where the global economic growth is expected to register 2.8 percent this year, a downward revision of 0.3 percent from an earlier forecast. Yet East Asian states such as China “will remain a key driver of global growth,” according to the newly released survey.
East Asian growth is expected at 6 percent in 2015 and 2016; economic growth in Mainland China is expected to reach 7 percent this year and dip slightly to 6.8 percent in 2016. Not surprisingly India, especially with Prime Minister Modi’s market oriented government, is expected to surpass China and gain a 7.6 percent growth this year and reach 7.7 percent next year.
Yet, Japan despite the shock therapy of “Abenomics” still only has a projected growth of 1.2 percent this year and 1 percent in 2016.
According to Pingfan Hong, Director of the UN’s Department of Economic and Social Affairs, “The current world economic situation is characterized by five ‘lows’: low growth, low trade flows, low inflation, low investment, and low interest rates combined with two ‘highs’: high equity prices and high debt levels.”
The United States economy, though experiencing a dismal negative growth of 0.7 percent in the first quarter, is expected to reach 2.8 percent growth this year and 2.7 in 2016. Still the survey points to a slack in demand for American exports and high debt levels.
The European Union is slated to see 2 percent growth in 2015 and 2016 but the report warned, “The Greek crisis cast a shadow over an otherwise improving outlook in much of Europe.”
Russia’s economy faced tough times both as a result of the fall in petroleum prices as well as the geopolitical situation, especially with Ukraine. The report stated bluntly, that “The Russian economy will likely shrink in 2015, as low oil prices, weak business sentiment and high interest rates weigh on domestic demand.” Mr. Hong warned that Russia’s economy could decline by 2 percent this year. Ukraine’s economy is also expected to “contract sharply.”
Lower petroleum and commodity prices are also impacting on Latin American economies where prospects have “worsened noticeably”. The region is expected to grow 0.5 percent this year and and 1.7 in 2016. The report warns that Venezuela is falling into a deeper recession and Argentina and Brazil are experiencing contractions.
Africa equally faces the downdraft of falling commodity and oil prices. Average growth is pegged at 4 percent this year and 4.8 percent in 2016, a significantly lower estimate.
But beyond the report, while there’s mystery in the markets as to how to spur economic growth, there also lot’s of deliberately overlooked common sense. Most governments, and increasingly the USA, have created disincentives to economic growth; a web of bureaucracy, regulatory red tape, and high corporate taxes which will hinder entrepreneurialism rather than encourage it. Equally high debt levels in the USA, Europe and Japan remain a drag to new investments.
Developed economies such as the United States and most European countries, still face an overall economic climate which does not favor incentives for significant new private investments which would in turn create new and higher-paying jobs and to counter deep under-employment rates.
As in the past, UN officials are using the phrase “new normal” to describe subdued global economic growth. Thus the question becomes whether we should simply settle for a kind of global mediocrity as an economic benchmark? I hardly think so.
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).