UN forecasts slow global growth in 2013; austerity hurts Europe, US spending cuts a risk

Global economic growth is projected to gain slow momentum for the rest of the year, a United Nations economic forecast said Thursday.

The U.N.’s Development Policy and Analysis Division released a mid-year update forecasting world gross product growth at 2.3 per cent in 2013, “a subdued pace” characterized by sub-par expansion and weak employment prospects. The U.N. forecast improving growth in 2014 at 3.1 per cent.

“In the United States, the avoidance of the fiscal cliff and the expansion of monetary easing, along with a continued recovery in the housing sector, have improved growth prospects,” the forecast said, but “the automatic spending cuts and uncertainties associated with budget issues will continue to weigh on aggregate demand.” U.S. growth was forecast at 1.9 per cent in 2013, down from last year’s 2.2 per cent. The report forecast U.S. growth to rise to 2.6 per cent in 2014.

In Europe, the forecast said, “the real economy is held back by austerity programs, weak bank lending and continued uncertainty, and only a very gradual recovery is expected as these factors diminish.”

“In Japan, the bold expansionary policy actions adopted by the monetary and fiscal authorities are expected to provide some support for economic activity in the short run. They may, however, create heightened medium-term uncertainties regarding the sustainability of public debt,” the report said.

Developing countries are showing much stronger growth than the developed world, it said. “The pick-up in growth will, however, be slower than previously estimated as many large economies in the group, including Brazil, China, India and Russia, face significant structural challenges,” it said. It forecast 5 per cent growth in 2013.

The least-developed countries will see faster growth, but with commodity demand moderating and official economic aid falling, the pace of expansion will be “notably slower” than in 2004-2008, the report said. It forecast 2013 growth at 5.8 per cent.