The United Nations slightly lowered its forecasts for global economic growth in 2014 and 2015 on Wednesday citing a variety of reasons including the exceptionally cold winter in the United States, the escalating political crisis in Ukraine, and financial turbulence earlier this year.
The new forecasts predict economic growth of 2.8 per cent in 2014 and 3.2 per cent in 2015, down from U.N. forecasts in December of 3 per cent growth this year and 3.3 per cent growth next year.
Pingfan Hong, the head of the U.N.’s Global Economic Monitoring Unit, told a news conference launching the report that “more than five years after the financial crisis, the world economy has not recovered back to running at full capacity.”
Hong said one reason the U.N. lowered its forecasts was because it did not take into account the colder than usual winter in North America, which significantly impeded economic activity in the United States.
Nonetheless, the U.S. forecasts remained unchanged — 2.5 per cent in 2014 and 3.2 per cent in 2015.
The escalating political crisis in Ukraine and Russia’s takeover of Crimea also had an impact on the U.N. forecast because they seriously hurt Ukraine’s economy and sparked “a massive outflow of capital” from Russia, and further weakened business and consumer confidence in the country, the report said.
Ukraine’s economy was initially projected to grow by 2.1 per cent this year, but the new forecast projects that it will shrink by 2 per cent.
Russia’s economy, which had been expected to grow by 2.9 per cent this year, will also be hard-hit, with the new forecast projecting just 1 per cent economic growth.
Hong said the U.N. had also largely discounted the impact of the U.S. Federal Reserve’s decision to taper its bond-buying stimulus program, which had injected more than $2 trillion into financial markets since late 2008 and kept borrowing costs down.
The impact on the growth of a few emerging economies “was larger than we anticipated,” he said.
Hong said one of the key risks for continued global growth and financial stability is the possible shock to the world economy when the Federal Reserve phases out the program, which the U.N. expects in late 2014, and then starts increasing interest rates, which the U.N. expects to start in mid-2015.
The report cites other risks including vulnerabilities in emerging economies, fragilities in European countries using the euro currency, geopolitical tensions in many parts of the world, extreme climates, and environmental disasters.
According to the report, for the first time since 2011, the developed economies of North America, Europe and Asia are all expected to grow in the next two years, with overall growth projected at 2 per cent in 2014 and 2.4 per cent in 2015.