2023 World Economic Situation and Prospects World Economic Situation and Prospects The World Economic Situation and Prospects 2023 is a report produced by the United Nations Department of Economic and Social Affairs (UN DESA), in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions: Economic Commission for Africa (UNECA), Economic Commission for Europe (UNECE), Economic Commission for Latin America and the Caribbean (UNECLAC), Economic and Social Commission for Asia and the Pacific (UNESCAP) and Economic and Social Commission for Western Asia (UNESCWA). The United Nations World Tourism Organization (UNWTO) also contributed to the report. For further information, visit UNECLAC https://www.un.org/en/desa or contact: José Manuel Salazar-Xirinachs, Executive Secretary Economic Commission for Latin America and the Caribbean UN DESA Av. Dag Hammarskjöld 3477 Li Junhua, Under-Secretary-General Vitacura Department of Economic and Social Affairs Santiago, Chile Room S-2922 Chile United Nations +56-2-22102000 New York, NY 10017 secepal@cepal.org USA +1-212-9635958 UNESCAP undesa@un.org Armida Salsiah Alisjahbana, Executive Secretary Economic and Social Commission for Asia and the Pacific UNCTAD United Nations Building Rebeca Grynspan, Secretary-General Rajadamnern Nok Avenue United Nations Conference on Trade and Development Bangkok 10200 Room E-9042 Thailand Palais de Nations, 8–14 +66-2-2881234 1211 Geneva 10 escap-scas@un.org Switzerland +41-22-9175806 UNESCWA sgo@unctad.org Rola Dashti, Executive Secretary Economic and Social Commission for Western Asia UNECA P.O. Box 11-8575 Antonio Pedro, Acting Executive Secretary Riad el-Solh Square, Beirut United Nations Economic Commission for Africa Lebanon Menelik II Avenue +961-1-981301 P.O. Box 3001 https://www.unescwa.org/contact Addis Ababa Ethiopia +251-11-5511231 ISBN: 978-92-1-109184-7 ecainfo@uneca.org PDF ISBN: 978-92-1-002461-7 UNECE Print ISSN: 1995-2074 Olga Algayerova, Executive Secretary Online ISSN: 2411-8370 United Nations Economic Commission for Europe United Nations publication Palais des Nations Sales No. E.23.II.C.1 CH-1211 Geneva 10 Switzerland Copyright @ United Nations, 2023 +41-22-9174444 All rights reserved unece_info@un.org Foreword This 2023 edition of the United Nations flagship that exacerbates inequality, increases suffering report, World Economic Situation and Prospects, and could put the SDGs farther out of reach. comes at a pivotal moment for the global economy. The growth of the world’s population to 8 billion Instead, the report argues that our unprecedented people is a testament to improved nutrition, times demand unprecedented action. public health and sanitation. But as our human This action includes a transformative SDG stimulus family grows larger, it is more unequal and package, generated through the collective and divided than ever. concerted efforts of all stakeholders. Government Billions of people are struggling; hundreds of spending, especially focused public investments, millions face hunger and even famine. People in the would help to reinvigorate growth and support richest countries can expect to live up to 30 years an inclusive and sustainable recovery. This longer than those in the poorest. Countries in the report shows that such spending can boost Global South are drowning in debt, with poverty and investment in physical and social infrastructure, hunger increasing as they face the growing impacts ease supply-side constraints and create jobs, of the climate crisis – a case study in inequality. reducing inflationary pressures. Vast swathes of the world have no chance of During these challenging times, Governments investing in a sustainable recovery from the around the world must also strengthen fiscal pandemic, a transition to renewable energy, support to protect vulnerable groups, increasing or education and training so their people investment in health and education to build can benefit from the digital revolution. human capital and social cohesion for the future. Against this backdrop, World Economic Situation Most importantly, Governments must step up and Prospects presents a grim economic outlook the fight against climate change, accelerating the for the near-term. transition to clean energy and building resilience against future crisis. Without this transformation, A broad-based and severe slowdown of the the climate emergency could overwhelm all efforts global economy looms large amid high inflation, to achieve the SDGs. aggressive monetary tightening, and heightened uncertainties. Many economies are at risk of falling This report shows that bold, targeted and timely into recession, having barely recovered from fiscal measures, coupled with strong international the shock of the pandemic. support and debt restructuring, can help turn around the world economy and accelerate The fiscal space of developing countries is under progress towards sustainable development. siege from exchange rate depreciation, high It is an important contribution as we continue borrowing costs and rising debt distress. Tightening to work closely with Member States to build global monetary conditions will make it even more a more resilient, inclusive, and sustainable difficult to finance investments in the 2030 Agenda world economy for the benefit of all. and the Sustainable Development Goals. While taming inflation remains a key near-term objective, policymakers must also consider trade- offs with slower growth, employment losses and international spillovers. This is not the time for António Guterres short-term thinking or knee-jerk fiscal austerity United Nations Secretary-General III Explanatory notes Symbols used in the tables Abbreviations ... Three dots indicate that data are not available Btu British thermal units or are not separately reported. CIS Commonwealth of Independent States – A dash indicates that the amount is nil or negligible. COP27 Twenty-seventh Conference of the Parties to the United Nations Framework Convention on Climate Change - A hyphen indicates that the item is not applicable. ECA United Nations Economic Commission for Africa − A minus sign indicates deficit or decrease, ECE United Nations Economic Commission for Europe except as indicated. ECLAC United Nations Economic Commission for Latin America . A full stop is used to indicate decimals. and the Caribbean / A slash between years indicates a crop year ESCAP United Nations Economic and Social Commission or financial year, for example, 2022/23. for Asia and the Pacific – Use of a hyphen between years, for example, ESCWA United Nations Economic and Social Commission 2022–2023, signifies the full period involved, for Western Asia including the beginning and end years. EU European Union G7 Group of Seven References and terms G20 Group of Twenty Reference to “dollars” ($) indicates United States dollars, GCC Gulf Cooperation Council unless otherwise stated. GDP gross domestic product Reference to “billions” indicates one thousand million. ILO International Labour Organization Reference to “tons” indicates metric tons, unless otherwise stated. IMF International Monetary Fund Annual rates of growth or change, unless otherwise stated, refer to annual compound rates. NAIRU Non-accelerating inflation rate of unemployment Details and percentages in tables do not necessarily add to totals, ODA Official development assistance because of rounding. OECD Organisation for Economic Co-operation and For country classifications, see statistical annex. Development Data presented in this publication incorporate information OPEC Plus Organization of the Petroleum Exporting Countries Plus available as of 15 December 2022. PPP purchasing power parity The Government of Ukraine has advised the United Nations that it is not in a position to provide statistical data concerning the SDGs Sustainable Development Goals Autonomous Republic of Crimea and the city of Sevastopol. SDRs Special drawing rights TRIPS Trade-related aspects of intellectual property rights UNCTAD United Nations Conference on Trade and Development UN DESA United Nations Department of Economic and Social Affairs UNWTO United Nations World Tourism Organization WHO World Health Organization Acknowledgements The World Economic Situation and Prospects Zhenqian Huang, Danyira Perez, Ingo Pitterle, 2023 is a report produced by the United Sebastian Vergara and Yasuhisa Yamamoto. Nations Department of Economic and Social Affairs (UN DESA), in partnership with the The contributions of Rachel Babruskinas, United Nations Conference on Trade and Matthias Bruckner, Peter Chowla, Kenneth Development (UNCTAD) and the five United Iversen, Leah C. Kennedy, Marcelo LaFleur, Nations regional commissions: Economic Suzette C. Limchoc, Poh Lynn Ng, Gerard Commission for Africa (UNECA), Economic Francis Reyes, Gabe Scelta, Oliver Schwank Commission for Europe (UNECE), Economic and Shari Spiegel from UN DESA; Regina Commission for Latin America and the Caribbean Asariotis, Stefan Csordas, Richard Kozul-Wright, (UNECLAC), Economic and Social Commission Nicolas Maystre and Janvier Nkurunziza for Asia and the Pacific (UNESCAP) and from UNCTAD; Medhat Elhelepi, Lee Everts, Economic and Social Commission for Western Chaoyi Hu and Hopestone Kayiska Chavula Asia (UNESCWA). The United Nations World from ECA; José Palacín Lucio from ECE; Tourism Organization (UNWTO) also contributed Claudio Aravena, Michael Hanni, Noel Perez, to the report. The forecasts presented in the Ramon Pineda, Daniel Titelman and Cecilia report draw on the World Economic Forecasting Vera from ECLAC; Shuvojit Banerjee, Kiatkanid Model of UN DESA as well as inputs from the Pongpanich and Vatcharin Sirimaneetham from United Nations regional commissions. ESCAP; Arpy Atamian, Jan Gaska, Mohamed El Moctar Mohamed El Hacene, Ahmed Moummi, Under the general guidance of Li Junhua, Niranjan Sirangi and Souraya Zein from Under-Secretary-General for Economic ESCWA; Sandra Carvão, Michel Julian and and Social Affairs; Navid Hanif, Javier Ruescas from UNWTO; and Susanna Wolf Assistant Secretary-General for Economic from UN-OHRLLS are duly acknowledged. Development; and Shantanu Mukherjee, Director of the Economic Analysis and Policy The report benefited from research by Division (EAPD) of UN DESA, Hamid Rashid, independent experts Matilda Dedeke, Chief of the Global Economic Monitoring Branch Clarissa Hahn, Ivonne Lara, Juan Pradelli and in EAPD, led and coordinated the writing of Tai Young-Taft, and from discussions at an the report with a core team of authors from expert group meeting held in New York on the branch. They comprised Helena Afonso, 3–4 October 2022. Grigor Agabekian, Ian Cox, Andrea Dominovic, The report was edited by Gretchen Luchsinger. V End poverty in all its forms Reduce inequality within everywhere and among countries End hunger, achieve food security Make cities and human settlements and improved nutrition and inclusive, safe, resilient and sustainable promote sustainable agriculture Ensure healthy lives and promote Ensure sustainable consumption and well-being for all at all ages production patterns Ensure inclusive and equitable Take urgent action to combat climate quality education and promote change and its impacts lifelong learning opportunities for all Achieve gender equality and Conserve and sustainably use the oceans, empower all women and girls seas and marine resources for sustainable development Ensure availability and sustainable Protect, restore and promote sustainable use management of water and of terrestrial ecosystems, sustainably manage sanitation for all forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss Ensure access to affordable, Promote peaceful and inclusive societies for reliable, sustainable and modern sustainable development, provide access to energy for all justice for all and build effective, accountable and inclusive institutions at all levels Promote sustained, inclusive and Strengthen the means of implementation sustainable economic growth, full and revitalize the Global Partnership for and productive employment and Sustainable Development decent work for all Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation Executive summary Multiple shocks costs, constraining fiscal space and increasing to the world economy sovereign credit risks. Rising interest rates and diminishing purchasing power have weakened A series of severe and mutually reinforcing consumer confidence and investor sentiment, shocks struck the world economy in 2022 as it further clouding near-term growth prospects for approached the midpoint for achieving the 2030 the world economy. Global trade has softened Sustainable Development Goals (SDGs). With due to tapering demand for consumer goods, the the impacts of the COVID-19 pandemic still protracted war in Ukraine and continued supply reverberating worldwide, the war in Ukraine chain challenges. ignited a new crisis, disrupting food and energy markets, and worsening food insecurity and Against this backdrop, world output growth is malnutrition in many developing countries. High projected to decelerate from an estimated 3 per inflation unleashed an erosion of real incomes cent in 2022 to only 1.9 per cent in 2023, marking and a global cost-of-living crisis that has pushed one of the lowest growth rates in recent decades. millions into poverty and economic hardship. Global growth is forecast to moderately pick At the same time, the climate crisis continued to up to 2.7 per cent in 2024, if, as expected, some impose a heavy toll, with heat waves, wildfires, macroeconomic headwinds begin to subside floods and hurricanes inflicting massive next year. Inflationary pressures are projected economic damages and generating humanitarian to gradually abate amid weakening aggregate crises in many countries. demand in the global economy. This should allow the Federal Reserve and other major central All these shocks will weigh heavily on the world banks to slow the pace of monetary tightening economy in 2023. Persistently high inflation, and, eventually, shift to a more accommodative which averaged about 9 per cent in 2022, has monetary policy stance. The near-term economic prompted aggressive monetary tightening in outlook remains highly uncertain, however, as many developed and developing countries. myriad economic, financial, geopolitical and Rapid interest rate hikes, particularly by the environmental risks persist. Federal Reserve in the United States of America, have had global spillover effects, triggering capital outflows and currency depreciations A sharp downturn in in developing countries, increasing balance most developed economies of payment pressures and exacerbating debt sustainability risks. Financing conditions have The current global economic slowdown cuts tightened sharply amid high levels of private across both developed and developing countries, and public debt, pushing up debt-servicing with many facing risks of recession in 2023. ExcEcutivE SummARy VII Growth momentum has weakened in the United The war in Ukraine heavily impacts near-term States, the European Union and other developed economic prospects for the Commonwealth of economies, adversely affecting the rest of the Independent States and Georgia. The contraction world economy. In the United States, gross of the economy of the Russian Federation and domestic product (GDP) is projected to expand the significant loss of output in Ukraine are by only 0.4 per cent in 2023 after estimated having spillover effects on the rest of the region. growth of 1.8 per cent in 2022. Consumers are Nonetheless, the Russian economy shrank expected to cut back spending given higher less than initially expected in 2022, with GDP interest rates, lower real incomes and significant declining by only about 3.5 per cent due to a declines in household net worth. Rising massive current account surplus, the continued mortgage rates and soaring building costs will stability of the banking sector and the reversal likely continue to weigh on the housing market, of initially sharp monetary tightening. Several with residential fixed investment projected to of the region’s economies have benefited from decline further. the relocation of businesses and residents as well as capital inflows, experiencing The short-term economic outlook for Europe faster-than-expected growth in 2022. Improved has deteriorated sharply as the war in Ukraine terms of trade supported growth in the region’s continues. Many European countries are energy exporters. Overall, aggregate GDP of projected to experience a mild recession, with the Commonwealth of Independent States and elevated energy costs, high inflation and tighter Georgia (excluding Ukraine, for which this financial conditions depressing household report is not presenting a forecast due to the consumption and investment. The European uncertainties involved) is expected to contract Union is forecast to grow by 0.2 per cent in 2023, by 1 per cent in 2023, following an estimated down from an estimated 3.3 per cent in 2022, decline of 1.6 per cent in 2022. when further easing of COVID-19 restrictions and release of pent-up demand boosted economic activities. As the European Union A worsening outlook in continues its efforts to reduce dependence on most developing regions fossil fuels from the Russian Federation, the region remains vulnerable to disruptions in Growth in China is projected to moderately the energy supply, including gas shortages. improve in 2023 after weaker-than-expected The prospects for the economy of the United performance in 2022. Amid recurring COVID-19- Kingdom are particularly bleak given the sharp related lockdowns and prolonged stress in the decline in household spending, fiscal pressures real estate market, the economy expanded by and supply-side challenges partly resulting from only 3 per cent in 2022. With the Government Brexit. A recession began in the United Kingdom abandoning its zero-COVID-19 policy in late in the second half of 2022; GDP is projected to 2022 and easing monetary and fiscal policies, contract by 0.8 per cent in 2023. economic growth is forecast to accelerate to 4.8 per cent in 2023. But the reopening of the Despite growing at a moderate pace, Japan’s economy is expected to be bumpy. Growth will economy is expected to be among the better- likely remain well below the pre-pandemic rate performing developed economies in 2023. Unlike of 6 to 6.5 per cent. in other developed economies, monetary and fiscal policy remain accommodative. Prolonged Economic recovery in East Asia remains fragile, chip shortages, rising import costs (driven by a although average growth is stronger than in weakening Japanese yen) and slowing external other regions. In 2023, GDP growth in East Asia demand are, however, weighing on industrial is forecast to reach 4.4 per cent, compared output. GDP is forecast to increase by 1.5 per to 3.2 per cent in 2022, mainly reflecting the cent in 2023, slightly lower than the estimated modest recovery of growth in China. Yet many growth of 1.6 per cent in 2022. economies in the region (other than China) are VIII WORLD ECONOMIC SITUATION AND PROSPECTS 2023 losing steam amid fading pent-up demand, rising growth is projected to slow from an estimated 4.1 living costs and weakening export demand from per cent in 2022 to 3.8 per cent in 2023. the United States and Europe. This coincides with a tightening of global financial conditions, The outlook in Latin America and the Caribbean and countries adopting contractionary remains challenging given unfavourable external monetary and fiscal policies to curb inflationary conditions, limited macroeconomic policy pressures. Although the expected recovery of space and stubbornly high inflation. Regional China’s economy will support growth across the growth is projected to slow to only 1.4 per cent region, any surge in COVID-19 infections may in 2023, following an estimated expansion of 3.8 temporarily create slowdowns. per cent in 2022. Labour market prospects are challenging. Reductions in poverty across the In South Asia, the economic outlook has region are unlikely in the near term. The region’s significantly deteriorated due to high food and largest economies – Argentina, Brazil and Mexico energy prices, monetary tightening and fiscal – are expected to grow at very low rates due vulnerabilities. Average GDP growth is projected to tightening financial conditions, weakening to moderate from 5.6 per cent in 2022 to 4.8 exports and domestic vulnerabilities. per cent in 2023. Growth in India is expected to remain strong at 5.8 per cent, albeit slightly The least developed countries, many of which lower than the estimated 6.4 per cent in 2022, are highly vulnerable to external shocks, will as higher interest rates and a global slowdown confront significant challenges in 2023. Growth weigh on investment and exports. The prospects is projected at 4.4 per cent in 2023, about the are more challenging for other economies same rate as last year and significantly below the in the region. Bangladesh, Pakistan and Sri 7 per cent growth target set in SDG 8. In many Lanka sought financial assistance from the of these countries, the risk of a lost decade is International Monetary Fund (IMF) in 2022. rising on the back of limited productive capacity, insufficient fiscal space, large macroeconomic In Western Asia, oil-producing countries have imbalances and intensifying debt vulnerabilities. emerged from the economic slump, benefitting For the small island developing States, the short- from high prices and rising oil output as well term outlook remains bleak. Tourist arrivals have as the recovery of the tourism sector. Recovery not fully recovered, and many of these countries in non-oil-producing countries, by contrast, are disproportionately affected by growing has remained weak given tightening access climate risks and natural disasters. to international finance and severe fiscal constraints. Average growth is projected to slow from an estimated 6.4 per cent in Central banks are vigorously 2022 to 3.5 per cent in 2023, given worsening fighting inflation external conditions. After a long period of price stability, high In Africa, economic growth is projected to inflation has returned in many countries, remain subdued with a volatile and uncertain disproportionately affecting low-income global environment compounding domestic households. Pandemic-induced inflationary challenges. The region has been hit by multiple pressures, with demand recovering quickly and shocks, including weaker demand from key supply lagging amid continued disruptions in trading partners (especially China and Europe), a supply chains, have been persistent. Soaring sharp increase in energy and food prices, rapidly food and energy prices and renewed supply rising borrowing costs and adverse weather shocks caused by the war in Ukraine have events. As debt-servicing burdens mount, a driven a surge in inflation and pushed up growing number of governments are seeking short- and medium-term inflation expectations. bilateral and multilateral support. Economic Average global inflation in 2022 reached the highest level in two decades. Upward price ExcEcutivE SummARy IX pressures will likely ease due to aggressive debt-servicing burdens are constraining much monetary tightening and slowing demand, needed expenditures to support economic but global inflation is still projected to remain recovery, protect the most vulnerable population elevated in 2023. groups during the cost-of-living crisis and finance sustainable development. In 2022, central banks worldwide raised interest rates in quick succession to bring inflation In Africa, debt servicing on public and publicly under control and anchor inflation expectations. guaranteed external debt averaged 10 per cent This shift towards tighter monetary policy was of government revenues in 2021, up from 3 per exceptionally broad-based. Over 85 per cent of cent in 2011. Moreover, tightening financial monetary authorities worldwide hiked rates in conditions make it more difficult for many the past year. The Federal Reserve led global developing countries to roll over and restructure monetary tightening, lifting its key policy rate their existing debt, raising the risks of debt six times from 0 to 0.25 per cent in March to 4.25 defaults. A growing number of developing to 4.5 per cent in December 2022. This was the countries, including several with large numbers largest cumulative rate increase in any given year of people living in poverty, find themselves in since 1980. As inflation is likely to have peaked precarious debt situations. in late 2022, central banks, especially in the developed countries, are expected to slow the pace of interest rate hikes in 2023, particularly Another blow to the if inflation approaches respective national Sustainable Development Goals target rates. Jobs continued to recover from the pandemic in 2022 but with significant differences across Mounting debt and balance countries. In many developed economies, of payment vulnerabilities labour markets became exceptionally tight as evidenced by record-low unemployment and Sharp and rapid interest rate increases, elevated record-high employment and job vacancy rates. geopolitical tensions and a weakening global Sectors such as construction, information and economic outlook have triggered a “flight communication, and food and accommodation to safety” in many countries, marked by a continued to suffer from severe labour shortages. reversal of non-resident portfolio flows and the Most developing countries, however, have depreciation of domestic currencies against the seen a slower job recovery with considerable dollar. Weaker domestic currencies pushed up employment slack. The average unemployment import bills and further amplified inflationary rate in developing countries in 2022 was still pressures in many developing countries. Tighter notably higher than before the pandemic. financial conditions in international capital Disproportionate losses in women’s employment markets raised financing costs and rollover in 2020 have not been fully reversed; recent risks, adversely affecting investment and improvements mainly stem from a recovery growth prospects. in informal jobs. With a deteriorating global outlook, employment prospects for 2023 Rapidly tightening global financial conditions and 2024 have weakened in a vast majority have exacerbated balance of payment and debt of countries. vulnerabilities in many developing countries. Several commodity-importing countries have Slower growth, elevated inflation and mounting seen a significant increase in gross external debt vulnerabilities threaten to further set financing needs in recent years. Amid rising back hard-won SDG achievements, deepening sovereign borrowing costs, servicing external the already negative effects of the COVID-19 debt has become more expensive, absorbing pandemic. A prolonged period of economic a growing share of fiscal revenues. Higher weakness and slow income growth would X WORLD ECONOMIC SITUATION AND PROSPECTS 2023 undermine poverty eradication efforts by non-economic shocks. Policy missteps could constraining national capacities to invest aggravate economic downturns and inflict in health, education, physical and digital further socioeconomic harm, especially on infrastructure, and energy transition. vulnerable groups. The global food and energy crisis unleashed by the war in Ukraine is hitting many developing The risk of overtightening countries hard. In addition, severe droughts and monetary policy floods have damaged crops, especially in parts of Africa and South Asia, pushing millions into Monetary policy faces major challenges and poverty. Amid soaring food and fertilizer prices trade-offs. Many developed country central and supply disruptions, the number of people banks, including the Federal Reserve and the facing severe food insecurity more than doubled European Central Bank, were initially reluctant between 2019 and 2022. to raise policy rates, perceiving rising inflation as transitory. As it became clear that inflationary Some relief has come from the Black Sea Grain pressures were more persistent and risked Initiative brokered by the United Nations and de-anchoring inflation expectations, the banks Türkiye. It has ensured the resumption of food embarked on an aggressive monetary tightening exports from Ukraine to the rest of the world, path, raising rates at a very fast clip in 2022. with more than 15 million metric tons of grain Central banks now find themselves at a critical and other foods transported between August juncture as economic prospects have weakened and mid-December 2022. In addition, through a while inflation is not yet fully under control and memorandum of understanding signed in July fiscal challenges remain. Rapid and synchronized 2022, the Russian Federation and the Secretariat monetary tightening by the world’s major of the United Nations agreed to facilitate the central banks has pulled too much liquidity out unimpeded access to global markets for food of markets too quickly, generating significant and fertilizers, including materials required negative spillover effects on the global economy for producing fertilizers, originating from the and weakening the economic prospects of Russian Federation. Nevertheless, uncertainty vulnerable countries. over the duration and intensity of the conflict, along with potential export restrictions in food- Overtightening of monetary policy would drive exporting countries, mean that food supply the world economy into an unnecessarily harsh challenges will likely persist in 2023. slowdown, an outcome that could be avoided if rate increases by individual central banks accurately consider the reciprocal impacts of New challenges for similar rate hikes by others. This will require macroeconomic policymaking more effective coordination among the major central banks, supported by clear policy Policymakers face difficult trade-offs in messages to manage and moderate inflationary steering their economies through current crises expectations. and supporting an inclusive and sustainable recovery. Macroeconomic policies need to be carefully calibrated to strike a balance between Revisiting inflation targets stimulating output and taming inflation, with effective coordination between monetary Given the policy challenges of maintaining and fiscal policies to minimize chances of a price stability while supporting growth, central prolonged and severe economic downturn. banks need a maximum degree of policy The risks of policy mistakes are significant, flexibility to anchor longer-term inflation especially since macroeconomic policy expectations. The current inflation crisis, once responses have limited capacity to address abated, presents an opportunity to revisit their ExcEcutivE SummARy XI monetary frameworks and reconsider overly to austerity would also stifle growth, delay rigid inflation targets. Various options exist that recovery from current crises and undermine may enable central banks to exercise greater much needed financing for achieving sustainable policy flexibility while ensuring the continued development and fighting climate change. credibility of monetary policy. Raising inflation targets in developed countries from 2 per cent Amid an increasingly challenging to 3 or 4 per cent may provide more room to macroeconomic and financial environment, stimulate employment and growth in difficult many developing countries are at risk of times. Other options are to move to a target entering a vicious cycle of weak investment, range, for example, between 2 and 3.5 per cent, slow growth and rising debt-servicing burdens. or to target the price level rather than the annual Any rapid fiscal consolidation, through inflation rate. significant expenditure cuts or tax hikes, would likely push economies into recession or lead While reforming existing frameworks could to protracted slow growth. This will worsen yield considerable benefits, central banks rather than improve debt sustainability in will also need to pursue a deliberate and developing countries. comprehensive process to avoid losses in credibility and the de-anchoring of inflation Fiscal expenditures, when properly directed, expectations. A reappraisal and recalibration are particularly effective in supporting growth of monetary policy tools based on experiences and development in times of economic slack accumulated since the global financial crisis may due to the large multiplier effects of public help better support price stability and policy spending. In most developing countries, actual credibility while promoting full employment and output is still below potential output, implying economic growth. persistent economic slack. In such a situation, public investment does not crowd out private investment but can instead be a powerful tool The imperative of avoiding to generate jobs and reinvigorate growth. Public fiscal austerity investment not only boosts short-term aggregate demand but also stimulates capital formation, Persistent fiscal deficits and elevated public expanding productive capacities and lifting debt levels have prompted calls for rapid potential growth. Especially at a moment of fiscal consolidation even as recovery from the many uncertainties, strategic public investment COVID-19 recession remains incomplete and signals policy commitment and will likely fragile. But this is not the time for socially crowd in private investment, which will remain painful and potentially self-defeating fiscal critical for mitigating the scarring effects of the austerity. On the one hand, fiscal retrenchment pandemic. By expanding productive capacities, tends to be associated with painful cuts to public investment can also lessen supply-side social spending that disproportionately hurt constraints and reduce inflationary pressures in the most vulnerable groups, including women the medium term. As fiscal space is constrained and children. Public budget cuts often reduce in most countries, public expenditures need to or eliminate programmes and social services be well managed, targeted and efficient. that benefit women more than men, resulting in income losses for women, restricting their access Current challenges demand a transformative to health care and education, and increasing SDG stimulus package as recently proposed unpaid work and time poverty. Such impacts by the United Nations Secretary-General. further exacerbate the already dire situation This would help offset deteriorating financing of those who have yet to regain employment conditions and allow developing countries and livelihoods due to a weaker-than-expected to scale up investment in sustainable economic recovery. At the same time, an development. The package addresses both excessively early or larger-than-needed shift urgent short-term needs and requirements for XII WORLD ECONOMIC SITUATION AND PROSPECTS 2023 long-term sustainable development finance. developing countries are testing the limits of It calls for a massive increase in such finance, existing multilateral frameworks. International including for humanitarian support and cooperation has never been more important than climate actions, through concessional and non- now to face multiple global crises and bring the concessional funding. world back on track to achieve the SDGs. Since the start of the pandemic, the international Fiscal policy for stimulating community has offered financial support growth and SDG progress with a sharp increase in the provision of IMF emergency lending to developing countries, Developing countries do have some options most recently, for example, through a new food to protect and expand existing fiscal policy shock window. In August 2021, a $650 billion IMF space and maximize the positive impacts of special drawing rights (SDRs) allocation – the public spending on growth and sustainable largest in history – was approved to provide development. Governments will need to liquidity to the global financial system. Only a reallocate and reprioritize public expenditures small fraction – $21 billion – was allocated to to support vulnerable groups through low-income countries, however. Some countries direct policy interventions. This will require have reallocated a share of their SDRs to Africa, strengthening social protection systems and led by China, which has pledged $10 billion of ensuring continued support through targeted its $40 billion allocation to the continent. While and temporary subsidies, cash transfers the SDRs remain an important source of liquidity and discounts on utility bills, which can be support for countries facing balance-of-payment complemented with reductions in consumption challenges, the interest rate on them rose sharply taxes or custom duties. in 2022. The international community will need Governments may target, support and crowd in to cap interest and charge rates to ensure that private investment in critical sectors, including the poorest and most vulnerable countries in education, health, digital infrastructure, new can access the facility to meet near-term technologies, and climate change mitigation and financing needs. adaptation. Strategic public investment in these Stronger support from the international sectors can offer large social returns, accelerate community is also needed to resolve debt productivity growth, and strengthen resilience distress, where exogenous shocks constrain to economic, social and environmental shocks. countries’ abilities to meet their debt obligations. In addition, governments will need to redouble The Group of 20 Common Framework for Debt their efforts to expand the revenue base and Treatments remains the main international thus improve tax collection and strengthen debt relief mechanism available to the least fiscal sustainability. In the short term, the use developed countries and other low-income of digitalization and new technologies, for countries facing debt distress. The framework example, can reduce tax avoidance and evasion has, however, fallen short of expectations. and improve tax revenues. In the medium term, Only three countries have requested debt governments will need to implement tax reforms relief; none has concluded a restructuring and expand tax bases with progressive income since the framework came into effect over a and wealth taxes. year and a half ago. There is broad consensus that the framework is not working, especially in providing pragmatic, swift, comprehensive Stronger international and forward-looking solutions for all countries cooperation is imperative facing debt distress. Such solutions must include a standstill in debt-servicing payments, The pandemic, the global food and energy crises, engagement of official creditors with the climate risks and the looming debt crisis in many debtor and with private creditors, and a clearly ExcEcutivE SummARy XIII defined restructuring process. Beyond these several trillion dollars per year. Given already immediate measures, an international statutory limited fiscal space in developing countries mechanism for sovereign debt restructuring and growing needs for stimulating recovery needs to be established. There is also scope to and protecting the most vulnerable, these improve lending contracts, for example, through countries face significant challenges in making State-contingent debt instruments or enhanced such investments. At the same time, favourable collective action clauses. climate and SDG outcomes, initially realized through action in specific countries, can have The world is at a critical juncture as it significant positive spillover effects across the approaches the midpoint of the SDGs. A world. More robust international cooperation number of entities have estimated the financing in mobilizing the resources needed to secure requirements for developing countries to such outcomes is in the interest of all countries, reach the goals and address the climate crisis. developed and developing. Most predictions fall in a range amounting to XIV WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table of contents foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii better international partnerships for responding to Explanatory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv ongoing shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Sustainable Development Goals . . . . . . . . . . . . . . . . . . . . vi Chapter II Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Fiscal policy in times of crisis: The imperative of avoiding austerity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Chapter I Economic crisis and output gaps . . . . . . . . . . . . . . . . . . . . . 37 Global economic outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 output losses from the pandemic . . . . . . . . . . . . . . . . . . 38 Global growth prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 large output gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 A deteriorating global outlook . . . . . . . . . . . . . . . . . . . . . . 5 Weak employment recovery . . . . . . . . . . . . . . . . . . . . . . . 39 Economic growth facing strong headwinds . . . . . . . . . . 6 Higher risks to food security . . . . . . . . . . . . . . . . . . . . . . . 40 Energy and food crises are hitting many developing Health and education needs . . . . . . . . . . . . . . . . . . . . . . . 41 countries hard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 investment in SDG progress . . . . . . . . . . . . . . . . . . . . . . . 41 Surging inflation is unleashing a cost-of-living crisis . . . 10 Shrinking fiscal space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Supply-side challenges spur high inflation . . . . . . . . . . . 11 Deteriorating fiscal balances . . . . . . . . . . . . . . . . . . . . . . . 45 central banks are expected to slow the pace of High inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 monetary tightening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Rapid monetary tightening . . . . . . . . . . . . . . . . . . . . . . . . . 46 Rising debt vulnerabilities in developing countries . . . . . 13 Weaker exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 the effect of the pandemic lingers . . . . . . . . . . . . . . . . . . 13 A rising debt-servicing burden . . . . . . . . . . . . . . . . . . . . . . 49 climate actions face setbacks . . . . . . . . . . . . . . . . . . . . . 14 Growing external financing needs . . . . . . . . . . . . . . . . . . 50 Employment, poverty and inequality . . . . . . . . . . . . . . . . . . . 15 Avoiding fiscal austerity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 tight labour markets in developed economies . . . . . . . . 15 Exploiting large fiscal multipliers . . . . . . . . . . . . . . . . . . . 55 the world is off track to eliminate extreme poverty . . . . 20 Inflation can temporarily reduce real domestic debt . . . 57 International trade, and commodity and financial markets 22 Continued fiscal support to stimulate recovery . . . . . . . . . . 57 Global trade facing significant challenges . . . . . . . . . . . . 22 Protecting the most vulnerable . . . . . . . . . . . . . . . . . . . . . 57 volatile commodity markets . . . . . . . . . . . . . . . . . . . . . . . 27 Spend better, spend more . . . . . . . . . . . . . . . . . . . . . . . . . 58 International financial flows: A flight to safety . . . . . . . . 29 better targeting public investments . . . . . . . . . . . . . . . . . 59 New challenges for macroeconomic policies . . . . . . . . . . . 30 Expanding the revenue base . . . . . . . . . . . . . . . . . . . . . . . 61 Monetary policies face difficult trade-offs . . . . . . . . . . . . 30 Enhancing liquidity support . . . . . . . . . . . . . . . . . . . . . . . . 62 Risks of overtightening on the rise . . . . . . . . . . . . . . . . . . 31 improving debt sustainability and reducing debt Revisiting inflation targets . . . . . . . . . . . . . . . . . . . . . . . . . 32 burdens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 the need for effective coordination between monetary Innovative financing of global public goods . . . . . . . . . . 65 and fiscal policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 tAblE of contEntS 1 Chapter III i .3 .1 Share of value addition across the microchip Regional developments and outlook . . . . . . . . . . . . . . . . . . . 69 supply chain, by country or country group, 2019 . . . 26 Developed economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 III.1.1 Armenia and Georgia: Personal money transfers united States of America . . . . . . . . . . . . . . . . . . . . . . . . . . 69 from the Russian federation . . . . . . . . . . . . . . . . . . . 81 Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 iii .1 .2 foreign currency reserves in Armenia and Georgia 82 Australia and new Zealand . . . . . . . . . . . . . . . . . . . . . . . . 71 iii .1 .3 monthly personal remittances in Kyrgyz Republic . 82 Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 iii .2 .1 food weight shares in consumer price indices, select countries, June 2022 . . . . . . . . . . . . . . . . . . . . 88 Economies in transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 III.3.1 Consumer confidence in selected countries . . . . . . 97 the commonwealth of independent States and Georgia 77 South-Eastern Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 III.3.2 Ten-year bond yield in selected economies in Asia and the Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Developing economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 iii .4 .1 Per capita wheat production (2020) and food Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 consumption of wheat (2019), by country . . . . . . . . 106 East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 iii .4 .2 Shares of the Russian federation and ukraine South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 in cereals imports to the Arab countries, latest Western Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 available data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 latin America and the caribbean . . . . . . . . . . . . . . . . . . . 109 III.5.1 Latin America and the Caribbean: Real annual investment growth and average growth by decade 112 Boxes i .1 changing worker preferences and policy challenges 16 Figures i .2 the strong recovery of international tourism in 2022 24 i .1 Growth of economic output in the world, developed and developing countries . . . . . . . . . . . . . . . . . . . . . . 6 i .3 microchip supply shortages ease in the short term but long-term pressures persist . . . . . . . . . . . . . . . . 26 i .2 manufacturing Purchasing managers’ index . . . . . . 6 ii .1 Graduating least developed countries face stiff i .3 brent oil price and European natural gas price . . . . 9 fiscal challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 i .4 unctAD food commodity price index . . . . . . . . . . . 10 II.2 Innovative mechanisms to enhance fiscal space I.5 Consumer price inflation, September 2021 and and improve debt sustainability in the Arab region . 66 September 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 iii .1 the dynamics of personal money transfers in the i .6 central bank policy rates in selected large commonwealth of independent States and Georgia economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 since the outbreak of the war in ukraine . . . . . . . . . 81 i .7 number of people per 100 who are fully iii .2 Poverty and food insecurity effects of the ukrainian vaccinated against COVID-19, regional average, crisis on Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 December 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 III.3 The war in Ukraine: Impacts, exposure and policy I.8 COVID-19 Stringency Index, regional average . . . . . 14 issues in Asia and the Pacific . . . . . . . . . . . . . . . . . . 96 i .9 Association between unemployment and economic iii .4 the war in ukraine and food security in the Arab activity in the united States . . . . . . . . . . . . . . . . . . . . 18 region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 i .10 Difference between job openings and the iii .5 latin America and the caribbean faces major unemployment level in the united States . . . . . . . . . 18 investment challenges . . . . . . . . . . . . . . . . . . . . . . . . 112 i .11 beveridge curve for the euro area . . . . . . . . . . . . . . . 19 I.12 Changes in minimum wages and inflation rates in Boxes figures Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 i .1 .1 labour market policies, unemployment insurance i .13 Growth of GDP per capita . . . . . . . . . . . . . . . . . . . . . 21 and short-time work take-up . . . . . . . . . . . . . . . . . . . 17 i .14 Average incomes of different income groups in the i .1 .2 voluntary resignations and job openings in sectors world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 with and without telework, percentage change i .15 World merchandise trade, by volume, January 2020 between 2015-2019 average and 2021-2022 to September 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 i .16 Global Supply chain Pressure index, January 2017 i .2 .1 international tourist arrivals and export revenues to november 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 from tourism, 2000 to 2022 . . . . . . . . . . . . . . . . . . . . 24 i .17 unctAD commodity price index, all groups . . . . . . 28 2 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 i .18 unctAD commodity price subindices . . . . . . . . . . . 29 III.10 Demand-side contributions to growth in select East i .19 nominal broad dollar index . . . . . . . . . . . . . . . . . . . . 29 Asian economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 I.20 Portfolio flows to emerging market economies . . . 30 III.11 Impact of a 1-percentage-point decline in China’s GDP growth on growth in other East Asian I.21 Inflation targets of selected central banks . . . . . . . 33 countries, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 II.1 Output losses in 2022 relative to pre-pandemic III.12 Inflation, inflation target and central bank policy projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 rates in East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 II.2 Output losses relative to pre-pandemic projections 39 III.13 Short-term external liabilities as a percentage of ii .3 Average output gaps . . . . . . . . . . . . . . . . . . . . . . . . . . 40 foreign reserves in selected East Asian countries . 95 II.4 Gross fixed capital formation per capita in iii .14 GDP growth in selected South Asian countries . . . . 99 developing regions . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 III.15 The public debt-to-GDP ratio in selected South ii .5 fiscal balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Asian countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 ii .6 fiscal balances of developing countries . . . . . . . . . 46 iii .16 Growth projections for Western Asia . . . . . . . . . . . . 103 II.7 Projected fiscal balance and inflation in 2022 . . . . . 47 III.17 Inflation for selected countries in Latin America II.8 Ten-year government bond yields in selected and the caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 developing countries . . . . . . . . . . . . . . . . . . . . . . . . . 47 iii .18 unemployment rates in selected countries II.9 Exchange rates vis-à-vis the dollar . . . . . . . . . . . . . . 48 in latin America and the caribbean . . . . . . . . . . . . . 110 ii .10 Estimated increase in external debt servicing due iii .19 Policy interest rates in selected countries to depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 in latin America and the caribbean . . . . . . . . . . . . . 111 ii .11 trends in debt servicing in developing countries . . 49 ii .12 Debt servicing as a share of government revenue, Tables 2019 and 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 i .1 Growth of world output and gross domestic II.13 Gross external financing needs in selected product, 2021 to 2024 . . . . . . . . . . . . . . . . . . . . . . . . 7 countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ii .14 African sovereign Eurobond maturities, by credit risk rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 ii .15 Debt service and social spending in selected Country classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 economies, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 A Developed economies . . . . . . . . . . . . . . . . . . . . . . . . 117 ii .16 Health coverage relative to health spending per b Economies in transition . . . . . . . . . . . . . . . . . . . . . . . 117 capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 c Developing economies by region . . . . . . . . . . . . . . . 118 ii .17 fiscal multipliers by economic regime and D Fuel-exporting countries . . . . . . . . . . . . . . . . . . . . . . 119 government impulse . . . . . . . . . . . . . . . . . . . . . . . . . . 56 E Economies by per capita Gni III.1 Inflation and central bank policy rates in Australia (as of 1 July 2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 and new Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 f least developed countries iii .2 natural gas price in the European union . . . . . . . . . 73 (as of December 2022) . . . . . . . . . . . . . . . . . . . . . . . . 120 iii .3 Real GDP in selected economies . . . . . . . . . . . . . . . 73 G Heavily indebted poor countries III.4 Components of HICP inflation in the European (as of march 2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 H Small island developing States . . . . . . . . . . . . . . . . . 121 iii .5 Selected labour market indicators in the i landlocked developing countries . . . . . . . . . . . . . . . 121 European union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 J international organization for Standardization iii .6 changes in the export directions of the Russian of country codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 iii .7 Dollar exchange rates of selected countries in the ciS and Georgia . . . . . . . . . . . . . . . . . . . . . . . . 80 Annex tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 iii .8 Real economic growth rates in Africa by subregion 85 A.1 Developed economies: growth of real GDP . . . . . . . 123 iii .9 total debt service, as a share of exports of goods, A.2 Economies in transition: growth of real GDP . . . . . . 125 services and primary income in selected African A.3 Developing economies: growth of real GDP . . . . . . 126 economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 tAblE of contEntS 3 A .4 Growth of world output and gross domestic A.12 World trade: Changes in value and volume of product by SDG regions . . . . . . . . . . . . . . . . . . . . . . . 131 exports and imports by major country group . . . . . 145 A.5 Developed economies: consumer price inflation . . 132 A .13 balance of payments on current accounts, by A.6 Economies in transition: consumer price inflation . 134 country or country group, summary table . . . . . . . . 147 A.7 Developing economies: consumer price inflation . . 135 A .14 net oDA from major sources, by type . . . . . . . . . . . 148 A.8 Developed economies: unemployment rates, A.15 Total net ODA flows from OECD Development 2013-2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Assistance committee countries, by type . . . . . . . . 149 A.9 Selected economies: real effective exchange rates, A.16 Commitments and net flows of financial resources, broad measurement . . . . . . . . . . . . . . . . . . . . . . . . . . 141 by selected multilateral institutions . . . . . . . . . . . . . 150 A .10 free market commodity price indices . . . . . . . . . . . 143 A .11 World oil supply and demand . . . . . . . . . . . . . . . . . . 144 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 4 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 cHAPtER i Global economic outlook Global growth prospects and sovereign default risks. Rising interest rates and diminishing purchasing power have eroded A deteriorating global outlook consumer confidence and investor sentiment, The world economy faced a series of severe further weakening the near-term growth and mutually reinforcing shocks in 2022 as it prospects of the world economy. approached the midpoint of the 2030 deadline Against this backdrop, global economic growth for achieving the Sustainable Development Goals is projected to slow to only 1.9 per cent in 2023, (SDGs). While the COVID-19 pandemic receded sharply lower than the 3 per cent in 2022 (table in many regions, the war in Ukraine unleashed a I.1). Global growth is forecast to moderately new crisis, disrupting food and energy markets, pick up to 2.7 per cent in 2024. The slowdown and escalating food insecurity and malnutrition is broad-based, unfolding across developed in many developing countries. Surging inflation and developing countries (figure I.1). While the across the world reduced real income, triggering lifting of COVID-19-related restrictions in most a global cost-of-living crisis, particularly for the countries in 2022 supported domestic demand most vulnerable groups. At the same time, the recovery, rising inflation weakened household climate crisis continued to impose a heavy toll, and business spending. Trade growth slowed with heat waves, wildfires, floods and hurricanes sharply amid continued supply chain weakness, inflicting massive economic damages and tapering demand for consumer goods and a generating humanitarian crises in many countries. protracted war in Ukraine. These shocks and the monetary policy responses The economic outlook for 2023 and 2024 remains to inflation have put the world economy on a notably uncertain. It is highly susceptible to slippery slope. High inflation has prompted the pace and sequence of further monetary aggressive monetary tightening in many tightening, the course and consequences of developed and developing countries. Rapid the war in Ukraine and other geopolitical interest rate hikes by major developed country tensions, and the possibility of further supply central banks have triggered capital outflows and chain disruptions. The global manufacturing currency depreciations in developing countries, Purchasing Managers’ Index, a leading indicator increasing balance-of-payment pressures. of economic activities, declined steadily in Financing conditions have tightened sharply 2022, remaining in contraction territory from amid high levels of debt and rising debt servicing September to November (figure I.2). Slow global costs, increasing fiscal consolidation pressure growth in 2023 would mean that output losses cHAPtER i . GlobAl Economic outlooK 5 Figure I.1 Figure I.2 Growth of economic output in the world, Manufacturing Purchasing Managers’ Index developed and developing countries Global Developed markets Emerging markets World Developed economies Developing economies Index, seasonally adjusted Percentage 65 8 6 60 4 55 2 50 0 45 -2 40 -4 35 -6 Dec May Oct Mar Aug Jan Jun Nov 2019 2020 2021 2022e 2023f 2024f 2019 2020 2020 2021 2021 2022 2022 2022 Source: UN DESA, based on estimates and forecasts produced with the Source: CEIC data. World Economic Forecasting Model. Note: For the manufacturing Purchasing Managers’ Index , a value below Note: e = estimates, f = forecasts. 50 signals a contraction of activities compared to the previous month. compared with the pre-COVID-19 growth activity, is expected to soften considerably, trajectory will further increase, especially in despite a still buoyant labour market that made developing countries (see chapter II). a full recovery, in numerical terms, from the 22 million jobs lost at the outset of the pandemic. Economic growth facing With a still tight labour market in the United strong headwinds States, average hourly earnings in the private sector rose by 4.7 per cent year-on-year in Amid high inflation and tighter monetary policy, October 2022.1 But with inflation averaging about the United States of America and the European 7.7 per cent during the same period,2 households Union (EU) face sharp growth slowdowns in 2023. saw their purchasing power erode and are In China, growth is projected to pick up in 2023 projected to cut spending. Meanwhile, a strong due to the easing of COVID-19-related restrictions dollar will hurt exports and exacerbate the trade but will likely remain below the pre-crisis trend. deficit of the United States, negatively impacting After expanding by 5.7 per cent in 2021, growth GDP growth. The housing market has taken a of gross domestic product (GDP) in the United hit due to higher mortgage rates and soaring States fell to 1.8 per cent in 2022 and is forecast building costs, with residential fixed investment at only 0.4 per cent in 2023. Consumer spending, and home sales declining. The house price index which accounts for about 70 per cent of economic has trended downward since June 2022. The net 1 US Bureau of Labor Statistics, Economic News Releases. 2 Ibid. 6 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table I.1 Growth of world output and gross domestic product, 2021 to 2024 Change from World Economic Situation and Prospects as of mid-2022 Annual percentage change 2021 2022a 2023b 2024b 2022 2023 World 5.8 3.0 1.9 2.7 -0.1 -1.2 Developed economies 5.2 2.6 0.4 1.6 -0.2 -1.7 United States of America 5.7 1.8 0.4 1.7 -0.8 -1.4 Japan 1.7 1.6 1.5 1.3 -1.1 -0.7 European Union 5.3 3.3 0.2 1.6 0.6 -2.2 Euro area 5.3 3.2 0.1 1.6 0.5 -2.2 United Kingdom of Great Britain and Northern Ireland 7.4 4.3 -0.8 1.0 1.1 -1.8 Other developed countries 4.6 3.4 1.2 1.8 -0.2 -1.4 Economies in transitionc 4.9 -3.0 -0.8 2.3 5.2 .. South-Eastern Europe 7.4 2.8 2.3 2.8 -0.4 -1.2 Commonwealth of Independent States and Georgiac 4.8 -3.3 -1.0 2.3 5.5 .. Russian Federation 4.7 -3.5 -2.9 1.5 7.1 -2.9 Developing economies 6.7 3.9 3.9 4.1 -0.2 -0.6 Africad 4.1 4.1 3.8 3.8 0.4 0.0 North Africad 3.7 5.1 4.1 3.7 1.2 0.3 East Africa 5.5 5.1 5.1 4.9 0.3 -0.6 Central Africa 1.4 3.4 3.4 3.4 0.1 0.1 West Africa 4.2 3.6 3.8 4.0 -0.4 -0.2 Southern Africa 4.1 2.5 2.3 2.7 0.1 -0.2 East and South Asia 7.1 3.6 4.4 4.6 -0.9 -0.6 East Asia 7.0 3.2 4.4 4.3 -1.2 -0.6 China 8.1 3.0 4.8 4.5 -1.5 -0.4 South Asiae 7.2 5.6 4.8 5.9 0.1 -0.6 Indiae 8.9 6.4 5.8 6.7 0.0 -0.2 Western Asia 6.2 6.4 3.5 3.4 1.9 -0.1 Latin America and the Caribbean 6.6 3.8 1.4 2.5 1.7 -1.4 South America 7.0 3.9 1.1 2.5 2.1 -1.6 Brazil 4.6 2.9 0.9 2.0 2.4 -1.3 Mexico and Central America 5.8 3.3 1.6 2.5 1.1 -1.6 Caribbean 6.4 10.7 7.9 5.8 -0.5 4.0 Least developed countries 2.4 4.3 4.4 5.4 0.0 -0.9 Memorandum items World tradef 10.5 6.0 -0.4 2.5 1.9 -5.2 World output growth with PPP weightsg 5.9 3.2 2.3 3.2 0.1 -1.2 Source: UN DESA, based on estimates and forecasts produced with the World Economic Forecasting Model. Notes: (a) estimated, (b) forecast, (c) excludes Ukraine in 2023 and 2024 forecasts, (d) excludes Libya, (e) growth rates are on a calendar year basis (for fiscal year growth figures, please refer to the statistical annex), (f) includes goods and services and (g) based on a 2015 benchmark. cHAPtER i . GlobAl Economic outlooK 7 worth of households in the United States fell monetary and fiscal policies, the economy is from $142 trillion in the first quarter of 2022 to projected to expand by 4.8 per cent in 2023. $135 trillion in the third quarter.3 Diminished Bucking the trend in the developed economies, household net worth and the wealth effect are the Chinese monetary authorities cut the key likely to lead to a further reduction in household lending rate in August and have since kept the spending in 2023. rate4 unchanged at 3.65 per cent to ease credit constraints in the economy. Growth is still The economic outlook for Europe is grim due significantly lower than the pre-pandemic rate to the fallout from the war in Ukraine. Many of 6 to 6.5 per cent, however. Moreover, the European countries are projected to experience a reopening from zero COVID-19 is expected to mild recession during the winter of 2022 to 2023, be bumpy. Increases in COVID-19 cases could as high inflation reduces household purchasing continue to disrupt business activities and lower power and increases production costs for firms, consumer sentiment. interest rate hikes tighten financial conditions, and sizeable fiscal deficits and elevated debt Growth prospects in many transition and levels constrain governments’ ability to developing economies have deteriorated due to provide further fiscal support to the economy. protracted geopolitical tensions, high inflation, Growth in the GDP of the European Union is waning monetary and fiscal support, rising forecast at only 0.2 per cent in 2023, after a borrowing costs and projected slowdowns in surprisingly strong expansion of 3.3 per cent major trading partners. The contraction of the in 2022, when further relaxation of COVID-19 economy of the Russian Federation and Ukraine’s restrictions and the release of pent-up demand significant loss of output are expected to affect boosted household spending. Despite massive the rest of the Commonwealth of Independent policy efforts, the region is still vulnerable to States (CIS). disruptions in energy supplies and gas shortages. In Africa, slowing demand from China and the The economy of the United Kingdom is estimated European Union, its main trading partners, to have entered recession in the second half of and waning monetary and fiscal support are 2022, with GDP projected to contract by 0.8 per weighing on near-term growth prospects. Amid cent in 2023. Lower real incomes, rising interest elevated levels of debt and rising borrowing rates and elevated uncertainty are depressing costs, several governments are seeking bilateral aggregate demand in the economy. In addition, and multilateral support to finance public external demand is expected to weaken amid investment. A few African countries are still slowing growth in the European Union and coping with substantial public health concerns the United States. Fiscal austerity measures, such as the Ebola virus and low shares of people including cuts to public services, will likely fully vaccinated against COVID-19. deepen or prolong the downturn. East and South Asian countries face In contrast, growth in China is expected to headwinds similar to those in other regions. moderately improve in 2023. The Chinese Moderate improvement in growth in 2023 economy is estimated to have grown by 3 per mainly reflects the recovery of China’s economy. cent in 2022, marking a significant downward Weaker external demand will adversely affect revision from earlier projections, due to manufacturing activities and investment recurring COVID-19-related lockdowns in in export-dependent economies, such as different cities and prolonged stress in the real Malaysia and Viet Nam. Economic growth in estate market. With the Government abandoning India is projected to moderate in 2023, with its zero-COVID-19 policy in late 2022, and easing higher interest rates weighing on investment 3 Based on the Board of Governors of the Federal Reserve System, Households; Net Worth, Level, retrieved from FRED, the Federal Reserve Bank of St. Louis. Available at https://fred.stlouisfed.org/series/BOGZ1FL192090005Q. 4 China’s policy rate refers to the one-year loan prime rate. 8 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 and slower global growth weakening exports. Energy and food crises are hitting While economic growth prospects in oil- many developing countries hard producing countries in Western Asia have slightly improved through high energy prices, a less The war in Ukraine has had significant negative favourable external environment and rising fiscal spillover effects globally. Regional security constraints will negatively impact growth in the concerns, shipment restrictions through the region’s non-oil producing economies in 2023. Black Sea ports and economic sanctions against the Russian Federation have adversely affected The outlook in Latin America and the Caribbean energy and food supplies. Since the Russian remains challenging amid unfavourable external Federation is one of the leading energy exporters, conditions, limited macroeconomic policy and both the Russian Federation and Ukraine space, and elevated and persistent inflation. are major suppliers of grains and fertilizers,5 Growth in Brazil is projected to slow sharply the war accelerated the upward trend in oil given monetary tightening, fiscal consolidation and natural gas prices along with food prices, pressures and slower export growth. In Mexico, among other commodities, particularly during GDP growth will remain anaemic considering the first half of 2022. the slowdown in the United States, tightening monetary policy and supply chain disruptions In the second half of the year, energy and food hampering industrial activity. prices receded amid a deteriorating global outlook for economic growth. In particular, The least developed countries, many of which Brent crude oil prices increased from about are highly vulnerable to external shocks, will face continuing challenges in 2023. As most of these countries are food and oil importers, Figure I.3 disruptions in global food supplies and rising Brent oil price and European natural gas price prices are intensifying food insecurity and Netherlands TTF natural gas price, per million metric British thermal unit adding to balance-of-payment pressures. Brent spot price per barrel Growth is estimated at 4.3 per cent in 2022 and projected at 4.4 per cent in 2023, significantly United States dollars below the 7 per cent target set in SDG 8, on 140 decent work and economic growth. Limited productive capacity, insufficient fiscal space, 120 large macroeconomic imbalances and rising debt vulnerabilities propel rising risks of a lost decade 100 for many least developed countries. For the small island developing States, the short-term 80 outlook also remains bleak, as tourist arrivals have not fully recovered from the pandemic, and 60 many of these countries are disproportionately affected by growing climate risks and natural 40 disasters. The landlocked developing countries, which have transport costs that are 50 per cent 20 higher than other countries in normal times (UNECE, 2019), confront additional logistical 0 challenges as steeper energy prices exacerbate 2020 2021 2022 intrinsically greater transport costs and Source: Energy Information Administration (Brent) and Trading Economics connectivity gaps (UNCTAD, 2022a). (natural gas). Note: TTF indicates title transfer facility. 5 Sanctions also impacted exports of potash from Belarus, the third largest producer of potash after Canada and the Russian Federation. cHAPtER i . GlobAl Economic outlooK 9 $78 per barrel at the beginning of 2022 to a peak of Figure I.4 $130 per barrel in June, before declining to around UNCTAD food commodity price index $85 per barrel in late November. In Europe, natural Index, 2015 = 100 gas prices surged from about $5 per million British 180 thermal units (Btu) before the pandemic to $99 per million btu on 26 August 2022, before dropping 150 to $35 per million Btu in November (figure I.3). 120 The food commodity price index of the United Nations Conference on Trade and Development 90 (UNCTAD) rose steeply during March and May 60 2022. Despite some easing afterwards, food prices have remained close to the record highs 30 experienced during the 2008–2011 global food 0 crisis (figure I.4). Currency depreciations against 2000 2004 2008 2012 2016 2020 the dollar in many developing countries have Source: UNCTADstat. further contributed to higher food and energy prices in domestic currencies. many developing countries but particularly those Although grain shipments through Black Sea that are net food importers. Food insecurity ports have generally resumed through the Black has worsened in Ethiopia, Nigeria and South Sea Grain Initiative brokered by the United Sudan, for example. According to the World Food Nations and Türkiye,6 food supply challenges Programme (WFP, 2022), the number of people, persist as the duration and intensity of the particularly women, facing severe food insecurity conflict between the Russian Federation and soared from 135 million in 53 countries before the Ukraine remain highly uncertain. Furthermore, pandemic to 345 million in 82 countries in 2022. food export restrictions implemented in a few developing countries have contributed to further diminishing supplies and increasing the cost of Surging inflation is unleashing food imports. As of June 2022, export restrictions a cost-of-living crisis had pushed prices of wheat, rice and soybean oil After a long period of price stability, inflation has up by 9 per cent or more (Espita, Rocha and Ruta, returned in many countries (figure I.5). Pandemic- 2022). While a few countries ended food export induced inflationary pressures have proven restrictions as of October, about 7 per cent of persistent, with demand recovering quickly and traded calories remained restricted due to a ban, supply lagging amid significant disruptions in licensing or tax (IFPRI, 2022).7 Other pressures supply chains. Soaring food and energy prices come from higher fertilizer and energy prices, and renewed supply shocks, caused by the war in which will likely reduce fertilizer imports and Ukraine, have not only fuelled a surge in inflation crop yields in many developing countries. More but also pushed up short- and medium-term frequent and catastrophic climate disasters could inflation expectations.8 In 2022, global inflation also diminish agricultural output in the near term. reached an estimated 9 per cent, the highest level Higher food and fertilizer prices and food supply in the past two decades. Upward price pressures disruptions present food security concerns in will likely ease due to aggressive monetary 6 In connection with the Black Sea Grain Initiative, the United Nations Secretariat signed a Memorandum of Understanding with the Russian Federation to ensure that grain and fertilizers from the Russian Federation and Ukraine reach global markets. As of 17 November 2022, the Black Sea Grain Initiative had enabled the movement of over 11.18 million metric tons of grain and other foodstuffs (United Nations, 2022a). 7 The share of traded calories restricted due to a ban or licensing fell from 16.6 per cent in April 2022 to 6.8 per cent in July, then edged up to 7.2 per cent in September and 7 per cent in October. As of 3 October 2022, about 7 per cent of traded calories are restricted due to a ban, licensing or tax (IFPRI, 2022). 8 In the euro area, inflation expectations have been revised up for 2023 and 2024. Longer-term inflation expectations, referring to 2027, have risen from 1.6 per cent in 2021 to currently 2.2 per cent. See the ECB Survey of Professional Forecasters, Fourth Quarter 2022. Available at www.ecb.europa.eu/stats/ecb_surveys/survey_ of_professional_forecasters/html/ecb.spf2022q4~eb4b9aa2c2.en.html#toc3. 10 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 tightening, but global inflation is projected to Figure I.5 remain elevated at 6.5 per cent in 2023. Consumer price inflation, September 2021 and September 2022 In developed countries, nominal wages have risen amid tight labour markets, contributing G20 LDCs Others to headline inflation and sparking concerns September 2022, percentage about “wage-price” spirals. In the United States, 85 TUR inflation is projected to moderate from an ARG estimated 8.1 per cent in 2022 to 4.8 per cent in 75 2023. In the European Union, consumer prices LKA 65 rose by an estimated 8.6 per cent in 2022 and are forecast to grow by 6.6 per cent in 2023. 55 In developing countries, external factors, 45 including greater import bills due to rising SUR LAO GHA CUB commodity prices and currency depreciations 35 MDA ETH against the dollar, have added extra inflationary SLE25 RWA MWI pressures. Argentina, the Bolivarian Republic of AGO Venezuela, Lebanon, Sri Lanka, Sudan, Türkiye 15 and Zimbabwe saw particularly high inflation as ZMB 5 TCD rates soared around the world (figure I.5). BEN -5 -5 5 15 25 35 45 55 65 75 85 Supply-side challenges spur high September 2021, percentage inflation Source: UN DESA, based on data from Trading Economics. The pandemic prompted many countries, Note: Consumer price inflation refers to year-on-year growth of consumer especially China and other Asian export-oriented price index. The figure does not include the Bolivarian Republic of Venezuela (157 per cent), Lebanon (160 per cent), Sudan (107 per cent), economies, to introduce measures restricting or Zimbabwe (280 per cent), where the numbers in parentheses are mobility. This disrupted global supply chains inflation rates in September 2022. LDCs = least developed countries. in manufacturing. With the expectation of slowing global demand, businesses quickly market altogether. This resulted in acute labour laid off workers and scaled back production at shortages, especially in the United States, adding the outset of the crisis. Unprecedented fiscal to inflationary pressures. Then came the war in packages, however, ignited a strong and swift Ukraine, which further disrupted global supply recovery of consumer demand in the developed chains and pushed up energy prices. Oil prices economies. As pandemic-related restrictions were already on an upward trend before the war persisted in 2021, households reduced spending as declining demand during the pandemic led the on contact-intensive services such as restaurant Organization of Petroleum Exporting Countries meals and recreational activities and increased Plus (OPEC Plus) to agree to cut output in 2020. spending on goods, particularly durables. The supply of these goods, often involving complex Price pressures broadened throughout 2022. Yet supply chains, failed to keep pace with surging in most countries, especially in the developing demand. At the same time, shipping bottlenecks world, nominal wages have not kept pace. This increased transportation costs, intensifying has diminished household purchasing power and price pressures. triggered a cost-of-living crisis for many. Rapidly rising costs are taking a heavy toll on low-income Firms struggled to return to pre-COVID-19 households struggling to afford necessities such levels of staffing and operation in developed as rent, gasoline and food. The impact is higher in economies. Many laid-off workers chose to delay the least developed countries, where large shares their return to the workforce or leave the labour of people already live in extreme poverty. cHAPtER i . GlobAl Economic outlooK 11 Figure I.6 Central bank policy rates in selected large economies a) Developed countries b) Developing countries Euro area Japan United Kingdom United States Brazil China India Mexico South Africa Percentage Percentage 5 14 4 12 10 3 8 2 6 1 4 0 2 -1 0 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 2019 2020 2021 2022 2019 2020 2021 2022 Source: CEIC data. Central banks are expected to slow the Federal Reserve’s highest rate increase in the pace of monetary tightening any given year since 1980. It has also accelerated its balance sheet reduction since September Since late 2021, many central banks have 2022.10 The European Central Bank increased been raising interest rates in quick succession its key interest rates by a cumulative 250 basis to bring inflation under control and anchor points between July and December 2022 while inflation expectations. This shift towards tighter also discontinuing its net asset purchases. As monetary policy is exceptionally broad-based; inflation likely peaked in late 2022, central banks over 85 per cent of central banks worldwide in the developed countries are expected to slow increased interest rates in 2022.9 The main the pace of interest rate hikes in 2023. exceptions to this trend are the People’s Bank of China and the Bank of Japan (figure I.6). Higher interest rates in developed countries, coupled with a strong dollar, have further Central banks in many developed countries seek increased pressure on central banks in a “soft landing” for their economies, expecting to developing countries to tighten monetary policy. tame inflation without causing a recession. The In many cases, most notably in Latin America, Federal Reserve in the United States has taken central banks had already started raising interest an aggressive stance, raising its key policy rate rates in 2021, taking an increasingly aggressive six times from 0 to 0.25 per cent in March 2022 tightening stance in 2022. In comparison, many to 4.25 to 4.50 per cent in December. This marks Asian central banks started later and accelerated 9 According to CEIC data (accessed on 4 December 2022), among the 105 central banks with available data, 92 increased policy rates in 2022. 10 The Federal Reserve is reducing its balance sheet by no longer reinvesting up to $60 billion in maturing Treasury securities and up to $35 billion in maturing mortgage-based securities per month. 12 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 their interest rate hikes during the second half and Inveen, 2022). This includes $13.1 billion of 2022. If supply-side constraints, including the country owes to private creditors (see more challenges in the labour market, are largely discussion in chapter II). responsible for current inflationary pressures, however, aggressive monetary tightening may have limited success in curbing inflation. Central The effect of the pandemic lingers banks around the world are therefore facing With increasing vaccination and immunity to difficult trade-offs between lowering inflation COVID-19 in 2022, more countries eased mobility and sacrificing growth, with lower growth restrictions. The World Health Organization delaying recovery and raising unemployment. (WHO) estimates that at least 90 per cent of people globally now have some level of Rising debt vulnerabilities in immunity due to prior infection or vaccination. Gaps in surveillance, testing, sequencing and developing countries vaccination, however, could continue to create The current global environment, with slowing conditions for a new variant to emerge, resulting economic growth, rapidly tightening global in spiking mortality rates (WHO, 2022a). Vaccine financial conditions and a strong dollar, inequality among countries – and among people threatens to exacerbate fiscal and debt within countries – remains a major concern. As vulnerabilities in developing countries. figure I.7 shows, the number of fully vaccinated Sovereign borrowing costs escalated people in economies in transition and Africa across developing countries in 2022. As a lagged compared with other regions. result, servicing external debt is becoming The COVID-19 Stringency Index11 declined increasingly expensive, taking up a larger share sharply in 2022 (figure I.8) yet the pandemic of fiscal revenues and limiting much needed continues to weigh on the global economy. expenditures to support recovery and finance Some effects could last over the longer term. sustainable development. Moreover, tightening For instance, businesses in contact-intensive financial and capital market conditions make it sectors in the developed countries may find more difficult for many developing countries to it persistently difficult to recruit and retain roll over and restructure existing debt, pushing workers as worker preferences have shifted to up risks of debt defaults. remote and less contact-intensive work. People A growing number of developing countries still suffering from COVID-19-related symptoms find themselves in precarious debt situations. face constraints on a full return to the workforce. According to estimates by the International Unpredictable staff absenteeism due to sickness Monetary Fund (IMF), nearly 60 per cent of or the need to take care of sick family members countries that are eligible for the Group of can affect business activities, including delaying Twenty (G20) Debt Service Suspension Initiative manufacturing. New mobility restrictions in were in debt distress or at high risk of debt some locations may disrupt domestic logistics distress in 2022, doubling from 27 per cent and supply chains, with a high likelihood of in 2015 (Chabert, Cerisola and Hakura, 2022). spillover effects on regional or global supply Lebanon, Sri Lanka, Suriname and Zambia are networks that are already under pressure. already in default, after the COVID-19 crisis While COVID-19 is still a threat, other health exacerbated long-standing debt problems. On crises may be in the making. For instance, in July 19 December 2022, Ghana announced it would 2022, the WHO declared the escalating global suspend its payments on all external debt, with monkeypox outbreak a public health emergency an outstanding amount of $28.4 billion (Akorlie of international concern (WHO, 2022b). Uganda 11 The COVID-19 Stringency Index is a composite measure based on nine response indicators, including school closures, workplace closures and travel bans, rescaled to a value from 0 to 100 (100 = strictest). It is part of the Oxford Coronavirus Government Response Tracker, created and maintained by Hale and others (2021). cHAPtER i . GlobAl Economic outlooK 13 Figure I.7 Figure I.8 Number of people per 100 who are fully COVID-19 Stringency Index, regional average vaccinated against COVID-19, regional average, December 2022 01 January 2022 15 December 2022 Fully vaccinated Index, between 0 and 100 (100 = strictest) World total 70 Percentage 100 60 50 80 40 60 30 40 20 20 10 0 0 Source: UN DESA, based on data from Our World in Data. Source: UN DESA, based on data from Our World in Data. Note: The regional groupings correspond to the World Economic Situation Note: The regional groupings correspond to the World Economic Situation and Prospects 2023. and Prospects 2023. imposed lockdown measures in three regions (WMO, 2022). Climate-change-related risks from October to December to cope with an and extreme weather events such as droughts, Ebola outbreak (WHO, 2022c). Since October floods and storms have become more frequent 2022, concerns over respiratory syncytial and intense, imposing rising socioeconomic virus have risen, with some 20 countries and costs. According to the International Disaster areas experiencing intensified case activity Database,12 climate and weather disasters in (WHO, 2022d). Although the prospects of a new the last decade (2012 to 2021) were over four pandemic and worldwide lockdowns are low, times more frequent than 50 years ago. Over 150 new global health crises could deepen human million people per year in the last decade were capital scarring, weighing on productivity severely affected (killed, injured, disabled or growth and global economic prospects. losing homes). Annual average economic damage topped $175 billion. By comparison, from 1970 to 1979, about 55.6 million people per year were Climate actions face setbacks affected and the annual average economic loss The world has plunged into a climate emergency. was estimated at around $27 billion. Floods in The past seven years were the warmest on record Pakistan in 2022 damaged nearly all the country’s 12 See EM-DAT. Available at www.emdat.be (accessed on 29 December 2022). 14 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 North America Europe Economies in transition Africa East Asia and thePacific South Asia Western Asia Latin America and the Caribbean North America Europe Economies in transition Africa East Asia and thePacific South Asia Western Asia Latin America and the Caribbean crops along with thousands of livestock and Employment, poverty stocks of wheat and fertilizer. Droughts reduced crop production in parts of Southern, Eastern and inequality and Northern Africa and cut yields of major Tight labour markets in developed crops in Argentina and Brazil. economies Carbon dioxide emissions rebounded in Labour market recovery from the pandemic- 2021, exceeding 2019 levels after a temporary related crisis that began in 2021 continued reduction globally due to mobility restrictions in 2022, albeit at a somewhat slower pace. during the pandemic (UNEP, 2022). In 2022, Most countries, with the notable exception of global carbon emissions continued to rise but at China, removed COVID-19-related restrictions a slower pace. Carbon dioxide emissions from (China ended its zero-COVID-19 policy in early fossil fuel combustion grew just under 1 per December). In most countries of the Organisation cent in the year, based on the latest estimates, for Economic Co-operation and Development compared to over 5 per cent in 2021 (IEA, 2022a). (OECD), employment returned to pre-pandemic High natural gas prices amid the global energy levels. Many developing countries also made crisis increased the use of coal for power notable progress in job recovery in 2022. generation,13 especially in Europe. But a strong expansion of renewable energy and electric Total working hours globally are still below vehicles and a reduction in carbon intensity pre-pandemic levels, however. The war in partly offset such adverse effects (IEA, 2022a). Ukraine, through dampening global growth Additional impetus towards adopting renewables prospects and introducing production chain was evident with the uptick in clean energy disruptions, has created additional challenges for investment, which in 2022 exceeded an estimated employment recovery, especially in developing $1.4 trillion, accounting for nearly three quarters countries. According to the International Labour of the growth in overall energy investment14 Organization (ILO, 2022a), in the third quarter (IEA, 2022c). of 2022, total hours worked were still around 1.5 per cent below the level at the end of 2019, The push for renewables should not mask with developing countries accounting for most insufficient global action to tackle the climate gaps. Most employment deficits were confined to emergency, however. Policies that are currently low- and medium-skill occupations. in place without additional measures will likely result in global warming of about 2.80C, relative In most developed economies, labour markets to pre-industrial levels, by the turn of the next tightened in 2022, with significant declines in century. The world remains far off track in inactivity rate and unemployment often hitting efforts to limit global warming to well below 20C, record lows. Despite the decline in inactivity, and preferably to 1.50C, as agreed in the Paris vacancy rates, especially in the services sector, Agreement on climate change. Implementation of remained very high. Among other factors, various unconditional and conditional nationally this phenomenon possibly reflects a shift in determined contributions15 could keep warming workers’ preferences (box I.1), especially in to 2.60C and 2.40C, respectively, although this is economies that did not implement active labour still insufficient to avoid catastrophic impacts retention policies. (UNEP, 2022). 13 According to the International Energy Agency (IEA, 2022b), global coal use increased by 1.2 per cent and surpassed 8 billion tonnes in a single year for the first time in 2022. 14 Despite being an important step in the right direction, the growth of investment in clean energy is still short of what is required to reach international climate goals (IEA, 2022c). 15 Conditional nationally determined contributions mean that countries will meet goals contingent on a range of possible conditions, such as the ability of national legislatures to enact the necessary laws, ambitious action from other countries, realization of financial and technical support, or other factors. Unconditional nationally determined contributions imply that countries will implement their goals without any conditions, based on their own resources and capacities. cHAPtER i . GlobAl Economic outlooK 15 Box I.1 pre-pandemic levels.c Employers’ abilities to hire Changing worker preferences and workers and fill vacancies have declined sharply. in Europe, labour force participation has not only policy challenges recovered but improved since the pandemic .d there is little evidence that employers in Europe are finding the pandemic in 2020 jolted labour markets in it difficult to fill vacancies. both the European union and the united States . these two large economies, however, experienced Protecting income during an economic crisis, markedly different job losses and unemployment while necessary, may not be sufficient to signal rates, explained by starkly different policy choices . job security and reassure workers amid rising job in the united States, job losses peaked at 22 million, risks . Workers in the united States understood with the unemployment rate reaching 14 .7 per that income support through unemployment cent .a in contrast, job losses touched 6 million insurance and direct cash transfers would be in the European union, with the unemployment temporary. Laid-off workers also realized, during rate reaching a high of 7 .8 per cent .b in Europe, acute uncertainties, that they needed to find a job governments implemented job retention measures as soon as the pandemic ended. The switch-and- such as short-time work programmes that prevented search cost of obtaining new employment weighed a sharp rise in unemployment . more importantly, heavily, as workers took into account future job wage subsidy schemes maintained relationships risks from another pandemic or economic crisis . between employees and firms and provided job unsurprisingly, sectors that were less amenable security to millions of workers (Shin, 2021) . to telework and more contact intensive accounted for most job losses (famiglietti, leibovici and the united States, on the other hand, relied on Santacreu, 2020; tüzemen and tran, 2020) . unemployment insurance and cash transfer individuals have subsequently chosen to move schemes to protect household income but not away from riskier and less flexible sectors, where jobs during the pandemic . Absent job protection the numbers of people quitting their jobs as well as programmes, employers responded to pandemic labour shortages have risen more significantly. shocks by laying off workers, causing a sharp the large shock to job security has resulted in a rise in unemployment. By mid-2020, about 12 discernible shift in job preferences in the united per cent of the working-age population collected States . According to a recent survey, 48 per cent unemployment benefits, up from 1.2 per cent in of interviewed workers are rethinking the type of January 2020 (figure I.1.1). In Europe, only about job they want post-pandemic (Prudential, 2021). 4.8 per cent of working-age people received A preference for more flexible and remote work is unemployment benefits in mid-2020, representing driving this shift . the same survey found that 26 per only about a 0 .7 per cent increase between January cent of respondents wanted to switch jobs primarily and June 2020 . to work remotely . the share of people quitting jobs in the united States, the policy of protecting in sectors less conducive to telework has reached household income but not jobs likely contributed to more than double the share in sectors that readily the post-pandemic disruptions in its labour market. allow telework (figure I.1.2). Shortages have resulted While unemployment has fallen to 3 .7 per cent, in contact-intensive sectors where remote work is it masks significant challenges confronting both not feasible . vacancies have increased at a higher employers and employees . the job market remains rate in sectors with less telework . persistently tight . vacancies have been on the Policymakers in the united States and other rise, and labour force participation persists below developed economies would need to look beyond a United States Bureau of Labor Statistics. b Based on Eurostat data. The Euro area job loss peak was 5.2 million and the unemployment rate peak was 8.6 per cent. c According to the United States Bureau of Labor Statistics up to October 2022. d Based on ILOStat for the Eurozone-19. Figure I.1.1 Figure I.1.2 Labour market policies, unemployment insurance Voluntary resignations and job openings in and short-time work take-up sectors with and without telework, percentage change between 2015-2019 average and United States unemployment insurance United States short-time work 2021-2022 average Europe unemployment insurance Europe short-time work Teleworkable Less teleworkable Percentage of the working-age population 15 Percentage points 60 13 50 11 40 9 30 7 20 5 10 3 0 1 Quit rate Job opening rate -1 Source: UN DESA, based on United States Bureau of Labor Statistics. Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Note: Sectors are classified based on the definition of contact-intensive 2019 2020 2021 jobs in Kaplan, Moll and Violante (2020) and the definition of teleworkable jobs in Dingel and Neiman (2020). Teleworkable sectors include: Source: UN DESA, based on Giupponi, Landias and Lapeyre (2022), using information, finance and insurance, and professional and business OECD data. The United Kingdom is included in the Europe data series. services. Less-teleworkable sectors comprise retail trade, transportation, Note: The Europe data series involves the three largest economies warehousing and utilities, health care and social assistance, (France, Germany and Italy), weighted by the working-age population. accommodation and food services. unemployment rates – or even labour force preferences . monetary policy frameworks may need participation rates – to pursue the twin objectives to consider the lower non-accelerating inflation rate of full employment and price stability . the standard of unemployment (nAiRu) to set optimal policy Phillips curve trade-offs between inflation and interest rates, while also factoring in vacancy rates unemployment may not hold when unemployment and shifting worker preferences . rates also reflect underlying changes in workers’ Authors: Clarissa Hahn and Matilda Rachel Dedeke In the United States, the unemployment rate stronger domestic demand in part explained declined rapidly in the first half of 2022, at a by labour market recovery, it introduced a speed faster than predicted by the stylized degree of business uncertainty) and tighter relationship between the level of economic credit conditions, with the number of vacancies activity and unemployment (known as Okun’s exceeding the number of unemployed persons law) (figure I.9). The rate fell to a record low by a ratio of almost 2 to 1 (figure I.10). The 3.5 per cent in September. The economy labour force participation rate, however, still continued to generate jobs despite stubborn remains well below its pre-pandemic level, inflation (although the inflation reflected with millions of workers reluctant to rejoin cHAPtER i . GlobAl Economic outlooK 17 Figure I.9 Figure I.10 Association between unemployment Difference between job openings and and economic activity in the United States the unemployment level in the United States 1.5 1,000 persons Difference in the quarterly unemployment rate, 10,000 percentage points 1 5,000 0.5 y = -0.31x + 0.12 0 R² = 0.31 0 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 -5,000 Q2 2022 Quarterly change in seasonally Q1 2021 -0.5 -10,000 adjusted GDP, percentage -1 -15,000 -20,000 -1.5 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 Source: UN DESA, based on FRED database, data for the period from the first quarter of 2000 to the third quarter of 2022. Source: UN DESA, based of United States Bureau of Labor Statistics. the workforce. A moderate increase in the In developing economies, job market recovery unemployment rate is likely in 2023 in line with from the pandemic presents a mixed picture. In aggressive monetary tightening to weaken South Africa, the unemployment rate remains domestic demand. among the highest globally despite some decline in late 2022. Youth unemployment exceeds 60 per In Europe, the unemployment rate has fallen cent. Some improvements were observed in Asia to record lows in some countries, including in in the second half of 2022, as lockdowns in China Czechia (2.3 per cent), Germany (3 per cent) were partially relaxed and eventually lifted. and Poland (3 per cent). Many European economies are struggling with worker shortages, Among the large economies, the unemployment as shown by the Beveridge curve for the rate dropped to a four-year low of 6.4 per cent European Union, which describes an inverse in India, as the economy added jobs both in relationship between the unemployment rate urban and rural areas in 2022. In Brazil the and vacancies that businesses attempt to fill unemployment rate decreased to a multi-year low (figure I.11). The further the Beveridge curve of 8.7 per cent in the third quarter. The number is from the origin, the less efficient the labour of workers without a formal contract contributed market is in matching worker supply and to that decline. It reached a record high of 13.2 demand. The shortage of workers since 2021 million, underscoring long-term structural was especially prevalent in low-pay sectors. problems in the Brazilian labour market. As the spillover effects of the war in Ukraine may lead to a recession in some EU countries in In the Commonwealth of Independent the first half of 2023, European labour market States, the unemployment rate in the Russian conditions will likely worsen amid reduced Federation declined to a record low in 2022, but economic activities. actual working hours have shrunk due to the downscaling of industrial output. Ukraine saw a 18 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure I.11 monetary authorities, and possible fiscal slack Beveridge curve for the euro area (Boissay and others, 2022). Vacancy rate, percentage Currently, most of those conditions are not in 3.3 place, with the exception of increasing nominal 2022-Q2 wages, which are nevertheless growing below the 3.1 2022-Q1 inflation rate in most OECD countries. Although wage growth has accelerated most notably 2.9 2021-Q4 in the United States, the bargaining power of 2.7 workers remains weak, diminishing prospects to 2021-Q3 effectively bargain for higher wages. 2.5 In many other developed economies, the share of 2.3 2019-Q2 2021-Q2 workers covered by automatic wage indexation is 2019-Q3, Q4 2019-Q1 lower than during past episodes of high inflation. 2.1 2021-Q1 2020-Q1 Overall, employers both in the United States and 1.9 2020-Q4 also in many European countries will continue to control market power, further preventing the 1.7 2020-Q2 prospect of a wage-price spiral. Although the 2020-Q3 risks of a protracted spiral cannot be discounted, 1.5 6 6.5 7 7.5 8 8.5 9 the recently observed acceleration in nominal Unemployment rate, percentage wages is likely to stabilize at a lower level within several quarters (Alvarez and others, 2022). Source: UN DESA, based on Eurostat. High inflation is disproportionately impacting lower-income households. A number of countries, huge loss of employment in 2022 caused by the including Germany, Greece and Spain, have been war and the displacement of the population; the implementing exceptional increases in minimum unemployment rate skyrocketed to over 30 per wages to mitigate those effects (figure I.12). While cent. The conflict has also triggered an intra-CIS in principle it is possible that higher minimum reallocation of businesses and labour, which wages limit employment opportunities in contributed to job creation in host countries low-skill occupations and create disincentives but led to some job losses in countries of origin to acquire more advanced professional skills (see chapter III). (Neumark and Wascher, 2010), recent research Tight labour markets across developed finds that the empirical evidence is less economies, the United States in particular, conclusive. In monopsonic labour markets,16 and in some developing economies in Asia are minimum wages can curb the negative effects raising concerns about a wage-price spiral. Apart of monopsony and concentration, with higher from adding to already high inflation, this may minimum wages even increasing employment eventually become a major trigger of inflation (OECD, 2022). Higher minimum wages do not and entrench high inflation expectations necessarily add to inflationary pressures as (Domash and Summers, 2002; IMF, 2022a). Such the impact of the increase on average wages concerns may be premature, however, as a is believed to be only marginal (while there is protracted wage-price spiral requires other a positive impact on lower-wage segments of preconditions, including rapid nominal wage the labour market, there is little to no impact in growth, a de-anchoring of inflation expectations, higher-paid occupations) (Belman and Wolfson, low credibility and a passive response from 2014). Moreover, in most developed economies, 16 Monopsony arises where firms have the power to set wages unilaterally, leading to inefficiently low employment and wages, below the levels that would prevail in a competitive market. cHAPtER i . GlobAl Economic outlooK 19 Figure I.12 Every additional 1 per cent rise in food prices Changes in minimum wages and inflation rates could propel nearly 10 million additional people in Europe into extreme poverty (Mahler and others, 2022). Research by the United Nations Development Increase in minimum wage, October 2022 compared with the second half of 2021 Programme (UNDP, 2022) suggests a similar scale Annual inflation in October 2022 of impact, with soaring food and energy prices Percentage adding 71 million people to the ranks of the poor. Belgium Lower-income countries such as those in sub- Estonia Saharan Africa are the worst affected, given that France food and energy account for a larger share of Germany household expenditures. Children are particularly Greece vulnerable, as childhood nutritional deficits can have life-long impacts. Further, poorer Ireland households can have larger numbers of children. Latvia Lithuania Subdued global economic growth is slowing Luxemburg income growth. Growth in GDP per capita is Portugal estimated to have declined to 2.1 per cent in 2022, Spain from 4.9 per cent in 2021, and is predicted to fall 0 5 10 15 20 25 further to 1.0 per cent in 2023. GDP per capita growth in developing countries in 2022 and 2023 Source: UN DESA, based on Eurostat. is estimated to be below the average growth before the pandemic. In economies in transition, increases in minimum wages have not kept pace it is expected to be muted by the impact of the with accelerating inflation, with the exception war (figure I.13). Still weak employment recovery, of Germany, which is implementing a 22 per cent especially in low-income and lower-middle- minimum wage increase in 2022. In the United income countries, constrains income growth. States, only 6 states increased minimum wages in If the current trend continues, and GDP 2022; 21 plan to do so in 2023. per capita growth in developing countries remains well below pre-pandemic rates, 574 The world is off track to eliminate million people, nearly 7 per cent of the world’s population, will still be living on less than $2.15 a extreme poverty day in 2030 (World Bank, 2022a). The world is not on track to eliminate extreme poverty by 2030. Rising food and energy prices, The recent crises have also exacerbated income surging inflationary pressure, and more frequent inequalities. Globally, the average income for and severe climate shocks are eroding real the bottom 40 per cent was $2,935 in 2021, a incomes, exacerbating a reversal in poverty slight decline from $2,951 in 2019. The average reduction that was evident as early as 2019 and income for the top 10 per cent income group worsened in the pandemic. The World Bank increased from $124,668 in 2019 to $126,153 in estimates that combined crises pushed an 2021, 18 signalling widening income inequality additional 75 million to 95 million people into (figure I.14). extreme poverty in 2022,17 compared to pre- Many countries are experiencing greater pandemic projections. If food prices continue income inequality, with the Gini coefficient to climb, the impact could be even more severe. rising since the outbreak of the pandemic. The 17 Extreme poverty here refers to those living on less than $1.90 (in 2011 prices) per day. In September 2022, the World Bank updated the cut-off to $2.15 per person per day, based on 2017 PPP. 18 See the World Inequality Database. 20 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure I.13 in response to the pandemic largely explain Growth of GDP per capita widening inequality across countries. According e f to the IMF (2021b), advanced economies spent 2015-2019 2020 2021 2022 2023 an average additional 11.7 per cent of GDP in Percentage response to the pandemic as of September 2021, 8 compared to 5.7 per cent for emerging market economies and 3.2 per cent for low-income 6 countries. As many developing countries face tighter constraints on public spending to 4 stimulate recovery and long-term sustainability, their growth may remain subdued compared to a 2 quicker recovery in the developed countries. 0 Persistent fiscal challenges in developing countries could further exacerbate income -2 disparities between developed and developing countries. Crises may not necessarily lead -4 to rising poverty and inequalities, however, if governments in developing countries can -6 World Developed Developing Economies provide necessary fiscal support to poor economies economies in transition households. For instance, given current fiscal challenges, developing countries would need Source: UN DESA, based on estimates and forecasts produced with the World Economic Forecasting Model. Note: e = estimates, f = forecasts. Economies in transition exclude Ukraine for 2023 forecasts. Figure I.14 Average incomes of different income groups in the world unequal impacts of crises reflect labour market weaknesses, as employment is the main source Bottom 40% Middle 40% Top 20% Top 10% Top 1% of income for most households, especially the Index, 2019 = 100 poorest. Vulnerable groups are often employed 103 informally or temporarily. They were affected severely when mobility restrictions were 102 stringent. It was also more difficult for poorer 101 workers to regain employment after the relaxing of COVID-19-related restrictions. Employment 100 declines were consistently larger among youth, 99 women and low-skilled workers in developing countries (World Bank, 2022a). 98 97 Income inequality among countries has also increased since the pandemic. The World 96 Bank (ibid.) suggests that differences in the 95 impact of the pandemic on average incomes across countries play a bigger role in driving 94 2019 2020 2021 global inequality than increasing inequality within countries.19 The fiscal policies enacted Source: UN DESA, based on the World Inequality Database. 19 This is because negative shocks to income in countries with large populations and incomes well above or well below the global median are more likely to exert a disproportionate influence on changes in global inequality (World Bank, 2022a). cHAPtER i . GlobAl Economic outlooK 21 to reorient spending to provide targeted the consumption of services as economies began support to protect poor and vulnerable groups. to emerge from lockdowns. Countries should also avoid hurting the poor when mobilizing government revenues and Trade patterns varied across regions and other financial resources to boost long-term countries in 2022. The war in Ukraine severely hit development.20 This process needs to be backed world trade in goods, as many global industries by more robust global efforts to reduce liquidity rely on supplies of key commodities produced risks and improve access to low-cost financing in the Russian Federation and Ukraine, such and grants for developing countries (see more as energy, food and fertilizers, even though discussion in chapter II). these two countries’ account for less than 3 per cent of global trade.22 The adverse impact was particularly evident in Eastern Europe and International trade, and the Commonwealth of Independent States. In commodity and financial contrast, the consequent energy crunch drove markets higher fuel exports from Africa and the Middle East, where exports in volume terms recovered Global trade facing significant to the pre-pandemic level in mid-2022. Although challenges China’s exports exhibited a quick rebound after major lockdowns linked to the Omicron International trade flows are projected to further variant of COVID-19 were lifted in May, the weaken in 2023. The baseline scenario projects recurrent imposition of restrictions disrupted that the volume of global trade in goods and manufacturing and exports. The slowdown in services21 will nearly stagnate in 2023, contracting China in 2022 also cut back its imports, affecting slightly by 0.4 per cent, down from 6 per cent in commodity exporters in Africa and Latin 2022, and compared to the average growth rate of America (figure I.15b). 4.5 per cent between 2000 and 2021. The already weak trade outlook is subject to a high degree Pent-up demand in developed countries of uncertainty, including the pace and depth of and parts of the developing world, such as monetary tightening in the major economies and developing Asia (excluding China) and Latin the duration and intensity of the war in Ukraine. America, largely boosted merchandise imports If new, highly transmissible and vaccine-evading in early 2022. Policy measures to curb surging variants of COVID-19 result in new temporary inflation, however, started to hit consumer closures of factories and key ports, delivery spending and fixed investment in both times would lengthen again, causing global developed and developing countries during the supply shortages and affecting manufacturing second half of 2022. In particular, goods imports production and trade activities. Unresolved trade in the United Kingdom and United States began tensions between China and the United States to trend downward, starting in the second continue to threaten the global trading system quarter of the year (figure I.15c). through market fragmentation. World services trade has regained its pre- International merchandise trade grew at a slower pandemic level. In the second quarter of 2022, pace in 2022 compared to 2021 (figure I.15a). services trade grew by 17 per cent over the Despite unexpected shocks, this growth same quarter in 2021 and totalled about $1.7 moderation was partially anticipated, due to trillion.23 Among different services, the growth waning base effects and the shift in demand of international tourism has been particularly from more durable goods during the pandemic to strong due to improved economic conditions, the 20 For instance, when phasing out energy subsidies, countries could provide targeted subsidies for the poor. 21 The growth of world trade in goods and services is a simple average of export and import growth in volume terms. 22 As of 2019, based on data from the World Bank’s World Integrated Trade Solution platform. 23 UNCTADstat (accessed on 1 November 2022). 22 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure I.15 World merchandise trade, by volume, January 2020 to September 2022 a) World trade volume index and b) Emerging economies: exports c) Advanced economies: imports its growth Emerging economies Euro area World merchandise trade in volume (LHS) Africa and the Middle East United States Annual growth of world merchandise Eastern Europe/CIS United Kingdom trade in volume (RHS) Emerging Asia excl. China Japan China Advanced Asia excl. Japan Latin America Other advanced economies Index, 2010 = 100 Percentage Index, 2010 = 100 Index, 2010 = 100 140 40 180 160 130 30 160 140 120 20 140 120 110 10 120 100 100 0 90 -10 100 80 80 -20 80 60 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 2020 2020 2021 2021 2022 2022 2020 2020 2021 2021 2022 2022 2020 2020 2021 2021 2022 2022 Source: UN DESA, based on data from the CPB Netherlands Bureau for Economic Policy Analysis. Note: Regional groupings are not strictly comparable to those in the World Economic Situation and Prospects 2023 but illustrate regional tendencies. LHS = left-hand scale, RHS = right-hand scale. release of pent-up demand and gradual removal World trade growth is projected to soften, with of pandemic-related restrictions (see box I.2). risks to the outlook remaining largely on the downside. As fiscal and monetary policy stances Transport services exports exhibited a strong tighten, global demand for goods and services upward trend, with a 34 per cent year-on-year is expected to weaken. The manufacturing rise in the second quarter of 2022, reflecting Purchasing Manager’s Index slipped to the the recovery of a few types of international contraction zone in both developed and transport and rising unit costs (UNCTAD, developing countries in October and November 2022b; IATA, 2022b). In particular, air passenger 2022, amid declines in export orders and rising transport services increased notably in the inventories.26 Although China’s growth pick-up in first eight months of 2022. By August, global air 2023 could provide some positive news for trade passenger traffic24 was just 26 per cent below activities, high uncertainties remain around how 2019 levels (IATA, 2022b). Marine transport the reopening will shape the country’s domestic services recovered to pre-pandemic levels by demand and economic activities. September 202225 yet air cargo services have contracted since late 2021 (IATA, 2022c). Prolonged supply chain disruptions could continue to hinder trade performance. Global 24 Air passenger traffic is measured by revenue passenger-kilometres, an airline industry metric reflecting the number of kilometres travelled by paying passengers. 25 UN Comtrade Database (accessed on 3 November 2022). 26 Based on CEIC data (accessed on 9 December 2022). cHAPtER i . GlobAl Economic outlooK 23 Box I.2 Figure I.2.1 The strong recovery of International tourist arrivals and export revenuesfrom tourism, 2000 to 2022 international tourism in 2022 International tourist arrivals, millions Export revenues from tourism, billions of United States dollars After an unprecedented plunge in international travel in 2020 and 2021 due to the COVID-19 pandemic, Billions of United States dollars/millions people international tourism experienced a major rebound 2,000 in 2022, particularly during the summer in the 1,800 1,750 northern Hemisphere . 1,600 1,445 1,466 Provisional estimates based on united nations World 1,400 tourism organization (unWto) scenarios indicate 1,200 1,173 1,200-1,300 that 2022 could close with roughly 950 million inter- 1,2081,000 950 national tourist arrivals (overnight visitors), more than 854 957 800 double the number recorded in 2021 or 65 per cent of 673 809 729651 pre-pandemic levels. Export revenues from tourism 600 601 could reach $1 .2 trillion to $1 .3 trillion in 2022, a 60 to 400 409 447 70 per cent increase over 2021, but 20 to 30 per cent 200 below the $1.8 trillion recorded in 2019 (figure I.2.1). 0 The recovery reflects strong pent-up demand 2000 2005 2010 2015 2020 combined with a widespread lifting of travel Source: UNWTO. restrictions in all world regions, except for some Note: Data for 2022 are preliminary estimates, based on the data available countries in Asia and the Pacific where non-essential as of November 2022. travel is still limited . over 100 countries around the world had lifted all COVID-19-related travel Europe and the middle East saw the fastest recovery restrictions by november 2022 (unWto, 2022a) .a from January to September 2022, with international arrivals climbing to 81 per cent and 76 per cent of ARRIVALS UP 133 PER CENT 2019 levels, respectively . in the Americas, arrivals FROM JANUARY TO SEPTEMBER 2022 reached 66 per cent of pre-pandemic levels; in Africa, international tourist arrivals more than doubled 63 per cent; and in Asia, only 17 per cent due to the (up 133 per cent) from January to September 2022 prolonged shutdown of many international borders . compared to the same period in 2021 . An estimated Data for Asia and the Pacific improved in the second 700 million tourists travelled internationally during half of 2022 after major destinations started to those nine months, with arrivals reaching 63 per cent reopen or ease restrictions in August . of the numbers recorded in 2019 .b Some destinations around the world have seen this comes after an approximately arrivals exceed pre-pandemic levels in the first 70 per cent decline in arrivals in both 2020 and 2021 . seven to nine months of 2022, including Albania international arrivals dropped from 1 .5 billion in (up 18 per cent), Andorra and Puerto Rico (both up 2019 to 0 .4 billion in both 2020 and 2021 . Export 14 per cent), the Dominican Republic (up 7 per cent), revenues from tourism fell from $1 .8 trillion to $650 Ethiopia and Honduras (both up 15 per cent) and St . billion and $730 billion in those years, respectively . maarten (up 16 per cent), among others . tourism direct GDP, which accounted for $3 .5 trillion the recovery is also clear from data related in 2019, decreased to $1 .7 trillion in 2020 and $2 .2 to spending on outbound tourism, with values trillion in 2021, according to preliminary estimates . from January to September 2022 coming a For the latest information on travel restrictions, see the UNWTO/IATA Destination Tracker. Available at www.unwto.org/tourism-data/unwto-iata-destination- tracker-easy-travel. b Find more information at the UNWTO Tourism Dashboard. Available at www.unwto.org/tourism-data/unwto-tourism-dashboard. close to pre-pandemic levels in major source the rebound is expected to continue in 2023, markets such as belgium (down 9 per cent although at a slower rate depending on the extent over 2019), france (down 8 per cent) and and duration of the economic crisis and mounting Germany (down 12 per cent) . international geopolitical tensions . the Americas and Europe tourism expenditure fell 19 per cent in italy and could see arrivals reach pre-pandemic levels in the 21 per cent in the united States compared to the second half of the year, while Asian destinations will same months of 2019 . gradually rebound as restrictions are lifted . the latest survey among unWto’s Panel of tourism only 27 per cent of unWto Panel Experts foresee Experts shows a downgrade in confidence levels international arrivals reaching 2019 levels in 2023, from September to December 2022, reflecting more according to the survey at the end of 2022, compared cautious optimism after a strong period from may to 48 per cent in a survey the previous may . About 40 to August . the challenging economic environment, per cent now expect a return to pre-pandemic levels including persistently high inflation and a spike in in 2024 and 21 per cent in 2025 or later . energy prices, aggravated by the Russian federation Authors: Sandra Carvao, Michel Julian and Javier offensive in ukraine, could slow the pace of recovery . Ruescas, United Nations World Tourism Organization supply chains were already under pressure they remain at much higher levels than before due to trade tensions before the pandemic. the pandemic.27 Possible further escalations in The pandemic-induced lockdowns and the global energy prices caused by the protracted war in Ukraine have led to severe physical and war in Ukraine may prevent shipping costs from logistical dislocations and worsened pre-existing returning to pre-crisis levels. bottlenecks. While pressures on global supply chains have largely eased since April 2022, due to reduced backlogs and declining delivery Figure I.16 times, pressures remain above the pre-pandemic Global Supply Chain Pressure Index, January 2017 level, suggesting that supply chains have not to November 2022 yet fully recovered (figure I.16). In particular, Standard deviations from average value near-term easing of microchip supply shortages 5 should not mask the high likelihood of persistent supply chain constraints in the long term, 4 potentially disrupting the production of related 3 manufacturing goods such as automobiles and consumer electronics (see box I.3). 2 1 Furthermore, elevated transport costs due to fuel price volatility and supply chain 0 disruptions could boost merchandise prices -1 and constrain demand. Global shipping rates Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul have dropped significantly since late 2021, 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 reflecting decreasing goods demand; however, Source: Federal Reserve Bank of New York. 27 The Global Container Freight Index dropped from above 10,000 in September 2021 to under 4,000 in October 2022. The index was below 2,000 before the pandemic, however. Based on CEIC data (accessed on 4 November 2022). cHAPtER i . GlobAl Economic outlooK 25 Box I.3 above the pre-pandemic level (S&P Global, 2022). Microchip supply shortages ease The recent easing mainly reflects a decline in demand, as central bank interest rate hikes to curb in the short term but long-term inflation have lowered consumer purchasing power. pressures persist in the near term, demand is expected to drop further . microchip supply shortages have prevailed over the While short-term microchip supply shortages could past few years . During the pandemic, demand for be relieved to some extent, long-term challenges electronic goods surged with increases in telework remain . on the one hand, demand for microchips is and home schooling, but the supply of microchips expected to grow given the continuing digital trans- lagged amid worldwide shutdowns of factories and formation of every aspect of life . microchips will staff shortages . more recently, the war in ukraine be increasingly used in a multitude of applications, has threatened the supply of a few raw materials for including the cloud, servers, the internet of things, microchip manufacturing, such as neon .a As micro- 5G, automotive and artificial intelligence. Demand chips are widely used in manufactured goods,b dis- for artificial intelligence chips is forecast to double ruptions to the supply chain and microchip shortages from 2020 to 2025 . c have delayed the production of cars, home applianc- on the other hand, structural weaknesses hamper es and consumer electronics, among other goods . the microchip supply chain. As figure I.3.1 shows, overall microchip shortages have gradually eased the supply chain is extremely interconnected across since the second half of 2022, although they remain the world with a high geographical concentration .d Figure I.3.1 Share of value addition across the microchip supply chain, by country or country group, 2019 China Europe Japan Republic of Korea United States Taiwan Province of China Others Percentage 0 20 40 60 80 100 Silicon productiona Raw material Logic chips Memory chips Design EDA and core IP Manufacturing equipment Front end Materials Wafer fabrication Back end Assembly, packaging & testing Source: UN DESA, based on BCG and SIA (2021) and Statista. Note: a = "silicon production" refers to the share of silicon production worldwide in 2021. "Logic chips" that process information to complete a task, such as computer central processing units; "memory chips" that store information; "EDA" or electronic design automation software tools; and "IP" for intellectual property. a Ukraine produces about 70 to 80 per cent of the global supply of neon, which is used in the lithography process of microchip manufacturing (Clark and Jones, 2022). b Leibovici and Dunn (2021) estimate that about 25 per cent of 226 manufacturing industries use semiconductors as a direct input; these industries represent 39 per cent of all manufacturing output. c Based on data from Statista. Available at www.statista.com/statistics/1100690/ai-semiconductor-market-size-worldwide/ (accessed on 31 October 2022). d In particular, the United States enjoys a clear advantage in intellectual property and chip design; the European Union and Japan play major roles in providing equipment and materials for manufacturing; Taiwan Province of China accounts for a lion’s share of chip manufacturing; the Republic of Korea has advantages in memory chip design, manufacturing, assembly and testing; and China is a major exporter of silicon metal (the raw material to produce chips) and one of the major manufacturers of mature microchips. Manufacturing This means acute events, such as COVID-19 lock- and möbert (2022) suggests that global supply may downs and extreme weather in a few places, could not keep up with the growth in demand . by 2030, the easily disrupt entire supply chains . moreover, microchip supply shortage is predicted to rise above the microchip supply chain has become vulner- $200 billion in market value . Supply is catching up able to geopolitical fragmentation and tensions slowly as microchip production approaches its across countries . technological frontier . Substantial investment in new to counter these vulnerabilities and enhance re- production facilities and equipment will be needed silience, countries plan increased investments to to increase productivity . moreover, breakthroughs in diversify and re-shore the microchip supply chain. microchip innovation will require highly skilled talent, for instance, the united States introduced the cHiPS yet a recent survey shows that about 80 per cent of and Science Act 2022, which will direct $280 billion semiconductor companies face shortages of candi- over the next 10 years into microchip research and dates in technological roles (bcG and SiA, 2021) . development, manufacturing and human resourc- to conclude, microchip shortages in recent years es, as well as into tax credit incentives for firms have encouraged countries to shift supply chains (united States, White House, 2022) . the European and enhance resilience . newly announced invest- commission proposed the European chips Act in ments may only partially reduce supply shortages february 2022, aiming to mobilize €43 billion in in the long term, however, as demand will grow at public and private investment to double the semi- a faster pace . Persistent supply shortages require conductor market share in the European union from sustained high-level investment in research and 10 to 20 per cent by 2030 (European Parliament, development and capital expenditure . As developed 2022) . countries in Asia, such as china, Japan and countries re-shore or near-shore microchip supply the Republic of Korea, have also adopted national chains, developing countries need to strengthen strategies and increased fiscal spending to improve strategic planning to identify their niches, upgrade or national capacity across the microchip supply chain . build needed infrastructure, and provide transparent Even with newly announced investments, however, incentives for firms, all while evaluating the risks and global microchip supply shortages may not be en- costs involved . tirely eliminated in the long term . Research by Rapp Authors: Zhenqian Huang and Clarissa Hahn Amid the gloomy trade outlook, the conclusion to be seen how conference outcomes might of the Twelfth Ministerial Conference of the boost international trade in the near future World Trade Organization provides some (UNCTAD, 2022c). positive elements. It reaffirms countries’ commitment to strengthening a rules-based, non-discriminatory, open, fair, inclusive, Volatile commodity markets equitable and transparent multilateral trading Commodity prices surged during the first system. The conference agreed to implement half of 2022, mainly driven by supply-side a package of emergency responses addressing constraints and the spillover effects of the war food insecurity, the COVID-19 pandemic and in Ukraine. The all-commodity index increased trade-related aspects of intellectual property by 27.7 per cent during the first six months rights (TRIPS) (WTO, 2022). Many details, of 2022 (figure I.17), supported by higher fuel however, including TRIPS legislation that prices as well as rising prices of grains and could help developing countries combat the oilseeds, given that the Russian Federation and pandemic, remain pending. It also remains cHAPtER i . GlobAl Economic outlooK 27 Figure I.17 Lower demand from China has pushed down the UNCTAD commodity price index, all groups minerals and non-precious metals price index since May 2022, particularly in terms of copper Index, 2015 = 100 and aluminum prices. Prices of precious metals 250 dropped significantly during the second and third quarter of 2022, reflecting the impact of 200 higher interest rates and the surging dollar. 150 The fuel price index rose by 53.4 per cent during the first eight months of the year, mainly due 100 to surging natural gas prices. Disruptions in the gas supply from the Russian Federation to 50 Europe and rising uncertainty were key factors behind this significant increase. Even though 0 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul natural gas prices eased markedly during 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 the last quarter of 2022, continued supply disruptions and the need to fill storage facilities Source: UNCTAD. ahead of the 2023–2024 winter may push prices up again. Ukraine are key exporters of these goods. In the second half of 2022, however, most commodity Oil prices also receded from record highs prices receded amid concerns about a global during the second half of 2022, reflecting recession, tighter monetary conditions and a a deteriorating global economic outlook. surging dollar. Food commodity prices followed Between July and December, the West a downward trend during the second half of Texas Intermediate spot price of crude oil the year, after rising since 2020 and peaking dropped around 26 per cent and Brent crude at record highs in early 2022.28 Between June oil prices fell about 25 per cent. Although and October, the all-food price index29 fell 12.7 renewed concerns around global supplies per cent on the back of a deteriorating global added volatility to the oil market and drove 32 outlook, high global interest rates and the up prices in October, prices continued to resumption of grain exports and other food trend downward in the last quarter of 2022. commodities from Ukrainian ports under the The world oil supply is expected to decrease Black Sea Grain Initiative (figure I.18). Prices as OPEC Plus production cuts and the EU ban in domestic currency remained high, however, on Russian crude come into effect (IEA, 2022d). due to currency depreciations against the But global demand for oil will likely remain dollar in many countries, exacerbating food and weak because of a sharp slowdown of growth, energy insecurity, particularly in developing especially in Europe. Overall, oil prices are countries.30 Continuing geopolitical tensions, expected to trend downward in 2023 amid lower crop production owing to unfavourable multiple risks to the outlook. weather conditions, limitations to fertilizer access, renewed fears of food shortages and new export restrictions31 present significant risks to the outlook. 28 In March 2022, the all-food price index reached 159.3 points, its highest level since January 1995. 29 Includes food commodities, tropical beverages, and vegetable oilseeds and oils. 30 According to the World Bank, in 2021, rising food commodity prices were a major factor in pushing nearly 30 million additional people in low-income countries towards food insecurity. 31 According to the Food and Agriculture Organization, as of 21 October 2022, 20 countries had implemented 25 food export bans. Eight had implemented 12 export- limiting measures. 32 OPEC Plus announced a cut in production quotas of 2 million barrels per day starting in November 2022. 28 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure I.18 Developing economies experienced highly UNCTAD commodity price subindices volatile portfolio capital flows in 2022. Between March and July 2022, the 25 emerging economies All food Agricultural raw materials tracked by the Institute of International Precious metals Minerals, ores and non-precious metals Fuels Minerals, ores and metals Finance cumulatively experienced portfolio outflows for five consecutive months. While Index, 2015 = 100 these economies saw a rebound of $37.4 billion 300 in portfolio inflows in November, the outlook remains highly susceptible to sudden shifts in 250 sentiment (figure I.20). Trends were mixed across 200 regions and countries. China experienced large debt and equity outflows during the year, given 150 concerns over COVID-19 restrictions and slowing economic activity. While several economies in 100 Latin America and Western Asia benefited from high global commodity prices, domestic political 50 and policy uncertainty exacerbated capital 0 outflows in a few cases. Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 A further rise in risk aversion and a sharper tightening of global interest rates could trigger Source: UNCTAD. disorderly financial market corrections, amplifying financing risks and increasing International financial flows: borrowing costs for many developing countries. Countries with structural vulnerabilities, such A flight to safety as elevated debt levels and weak external Global financial conditions tightened sector positions, could experience larger capital significantly in 2022 as interest rate hikes outflows with destabilizing effects on financial worldwide, elevated geopolitical tensions and a stability and growth. A further appreciation weakening global economic outlook triggered of the dollar would also increase the cost of a “flight to safety” in international capital markets. Amid heightened investor risk aversion and market volatility, developing countries Figure I.19 experienced increased financial market pressures, which intensified in the second half Nominal broad dollar index of the year. This was reflected in a depreciation Index, January 2016 = 100 in domestic currencies against the dollar and a 140 reversal of non-resident portfolio flows, albeit with large differences across regions. 130 With sharp monetary tightening in the United 120 States, the dollar experienced a broad-based 110 strengthening against developed and developing country currencies. Notably, the nominal broad 100 dollar index appreciated to its highest level on record in September. As of mid-December, the 90 index is still over 6 per cent higher than at the 80 end of 2021 (figure I.19). 2007 2012 2017 2022 Source: FRED database. cHAPtER i . GlobAl Economic outlooK 29 Figure I.20 also increased significantly, with almost 40 per Portfolio flows to emerging market economies cent having yields above 10 per cent (IMF, 2022c). In tandem, debt default risks have increased. Equity flows Debt flows As of 30 November 2022, more than half of least Billions of United States dollars developed and other low-income countries 80 were already at high risk of, or in, debt distress (IMF, 2022d). Weak external demand will likely reduce exports from many developing countries 60 and exacerbate balance-of-payment pressures. Imports remaining high and international reserves falling quickly will impede their 40 abilities to import essential items such as food, energy and pharmaceuticals. 20 New challenges for 0 macroeconomic policies Monetary policies face difficult -20 trade-offs Oct Jan Apr Jul Oct Jan Apr Jul Oct 2020 2021 2021 2021 2021 2022 2022 2022 2022 An extraordinary sequence of shocks has challenged policymakers in calibrating Source: UN DESA, based on Institute of International Finance. macroeconomic policies in a timely, appropriate and sufficient manner. To start, extraordinary servicing foreign currency debt, compounding monetary and fiscal easing was introduced to debt sustainability challenges (see chapter II). cope with the unprecedented economic damages wrought by the pandemic. Next, while many As global financial conditions continue to countries were still struggling with economic tighten, fiscal space has narrowed further for a recovery, the war in Ukraine hit, exacerbating majority of developing countries, particularly inflationary pressures. Surging inflation those with already weak fundamentals or in prompted central banks to change policy vulnerable situations. For developing countries, direction to aggressively hike policy interest borrowing costs have risen sharply; many have rates. Spillovers from interest rate increases been effectively shut out of international capital in the major economies have imposed further markets. The IMF has highlighted that local constraints on many developing countries. At the currency bond markets of emerging economies same time, many governments are withdrawing have seen large net non-resident portfolio fiscal support due to shrinking fiscal space and outflows with yields surging to the highest level risks of debt distress. Policymakers are now at a in a decade, reflecting weak investor sentiment difficult point where economic prospects have around the outlook for these sovereign bonds softened yet inflation is not fully under control (IMF, 2022a). From January to November 2022, and fiscal challenges remain. 20 emerging economies (excluding China) collectively experienced outflows of $27 billion Current policy dilemmas illustrate the challenges from local currency non-resident government and limitations faced by macroeconomic policy debt, in contrast to the $25.6 billion in inflows responses in a context of recurrent crises. received in the previous year (IMF, 2022b). Monetary policy, in particular, may be inherently limited in addressing non-economic shocks Yields on foreign currency-denominated that have divergent economic impacts within a sovereign bonds of developing countries have relatively short period of time, due to the lag in 30 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 its impacts on the real economy. Research on the anxiety that central banks in developed United Kingdom suggests that monetary policy’s countries are sucking too much liquidity out of effect on inflation peaks after two to three financial markets too quickly. years (Cloyne and Hürtgen, 2014). Changing policy directions too quickly and too abruptly While it is still too early to determine whether could send wrong signals to markets and impair central banks in developed countries, in policy credibility. particular in the United States and European countries, have overtightened monetary policy, Moreover, shocks in the past few years may this risk should not be ignored. The “taper have highlighted structural features of the world tantrum” in 2013 remains fresh in memory, economy that blunt the impact of monetary where the Federal Reserve’s announcement that measures, undermining the effectiveness of it would taper bond purchases immediately led further monetary tightening. As discussed to sharp increases in government bond yields. above, despite improvements in 2022, supply Treasury bond sell-offs spilled into corporate chain pressures remained higher than before bond markets and disrupted equity markets. the pandemic. If the damage or constraints to The abrupt tightening of financial conditions the supply side are persistent and significant, a created major negative spillovers for many notable slowdown in aggregate demand brought developing countries, including in terms on by further monetary tightening may have of capital outflows, currency depreciations limited impact on lowering prices (Schnabel, and declines in asset prices. In fact, market 2022). While having a limited impact on inflation, participants have expressed concerns about the such a slowdown could be accompanied by longer-term implications of the Federal Reserve’s higher levels of unemployment and income stance. An inverted yield curve, where shorter- inequality (Stiglitz and Regmi, 2022). term government bonds have higher yields than long-term ones, typically signals a recession but also, in the current context, declining inflation. Risks of overtightening on the rise As of the end of November 2022, the short-term The risk of making costly policy mistakes (1-year) government bond yield in the United has been increasing. While central banks in States stood at 4.74 per cent, whereas the long- major developed countries are likely to slow term (10-year) bond yield was 3.89 per cent.34 the pace of future interest rate hikes, the pace of quantitative tightening, a monetary policy Although the economy of the United States tool to reduce liquidity and shrink central accounts for just about a quarter of global GDP bank balance sheets, has continued or even and has around half that share in world trade, accelerated. For instance, in September 2022, the dollar is the predominant international the Federal Reserve raised the monthly caps currency. Around 85 per cent of all foreign on maturing Treasury securities and mortgage- exchange transactions take place against the backed securities from $30 billion to $60 billion dollar, and it accounts for over 60 per cent of and from $17.5 billion to $35 billion, respectively. official foreign exchange reserves. About half This has lowered the Federal Reserve’s total of all cross-border loans and international assets from a peak of $8.97 trillion in April 2022 to debt securities are dollar denominated; the $8.58 trillion in early December.33 The European dollar holds a similar share of international Central Bank is expected to announce its plan trade invoicing (BIS, 2020). The dollar’s global to unwind bond purchases, after discontinuing dominance results in an exceptional degree of its net asset purchases in July. There is growing simultaneous cross-border spillovers across the world if the dollar appreciates, as happens 33 Data from the Board of Governors of the Federal Reserve System. Available at www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm (accessed on 13 December 2022). 34 Based on CEIC data (accessed on 13 December 2022). cHAPtER i . GlobAl Economic outlooK 31 when the Federal Reserve raises interest rates. may conduct foreign exchange interventions Obstfeld and Zhou (2022) report that from 2001 and use macroprudential and capital flow to 2021, dollar appreciation negatively correlated management tools to stabilize their currencies with output growth in both emerging and and capital flows. developing economies (a correlation coefficient of -0.59) and advanced economies (a correlation coefficient of -0.36). Revisiting inflation targets Since the mid-1980s, following the curbing While the spillover effects of interest rate of a prolonged period of high inflation in increases by the Federal Reserve are relatively the United States and many other developed well documented, uncoordinated monetary economies, central banks in these countries policy tightening across countries in response started to narrow their objective to maintaining to a global shock is an additional risk. Although price stability. Authorities determined that interest rate rises could effectively slow price achieving price stability would be the major increases and anchor inflation expectations in contribution of monetary policy to economic each individual country, they could collectively stability and growth. go too far and drive the world economy into an unnecessarily harsh contraction – an outcome This was accompanied by a shift in the that could be avoided if rate increases by theoretical and empirical understanding of the individual countries accurately account for the determinants of inflation itself, in particular, reciprocal impacts of such moves by others. how expectations about future inflation fuelled Developing countries will be particularly anticipatory behaviour by firms, workers vulnerable not only to a global economic and consumers, leading to such expectations recession but also to heightened financial becoming self-fulfilling. Hence, a sudden period instabilities. As discussed above, over the of high inflation could become self-sustaining past two years, interest rate hikes and global if it led to higher price (and wage) setting in liquidity tightening have exacerbated fiscal and anticipation of higher costs and pre-emptive debt vulnerabilities in developing countries purchases by consumers seeking to stay ahead of and triggered volatile portfolio capital flows. high prices in the future. A deeper-than-expected global slowdown, particularly in the developed world, could have Central banks could counter such inflationary even more significant negative spillovers to spirals by credibly and publicly committing to developing countries, leaving much longer- maintaining inflation at a pre-determined target term and greater scarring effects on their level, which would then function as an anchor economic recovery. for the price level. Therefore, the inflation target would shape public expectations of what One way to avoid such a downside scenario is actual inflation would be. Through behaving joint action by major central banks coupled consistently with such an expectation, people with clear public communication to moderate would help to bring it about – provided that inflationary expectations globally. Central banks central banks were perceived as being in a effectively coordinated policies during the 2008 position to set interest rates to achieve target global financial crisis. A similar approach is levels. For inflation targeting to be effective, needed at the current inflationary conjuncture one precondition is that the central bank can (Obstfeld, 2022). Moreover, developing countries conduct monetary policy independently of need to mitigate financial vulnerability based the political executive. Being unable to keep on their specific circumstances. For those inflation at the target level runs the risk of with deep foreign exchange markets and low expectations becoming “de-anchored”, with external debt, a flexible exchange rate regime the potential for rendering the entire mechanism and policy rate could help cushion the impacts. ineffective and incurring the risk of runaway For those without such conditions, central banks 32 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure I.21 Inflation targets of selected central banks Inflation target in 2022 Inflation target: lower bound Inflation target: upper bound Percentage 12 10 8 6 4 2 0 Source: UN DESA, based on Central Bank News. inflation, which would require a sustained of 6 per cent. The range of values indicates economic contraction to bring it under control. that countries choose targets based on individual circumstances. One survey indicated The Reserve Bank of New Zealand was the first that apart from inflation itself, countries to adopt an explicit inflation target in 1990. considered inflation volatility, GDP growth The Bank of England followed suit in 1992. and external inflation in setting the target Over the last 30 years, an increasing number of (Matějů and Horváth, 2011). central banks have adopted inflation targeting as the nominal anchor. By 2022, 74 countries, Both the Federal Reserve and the European including 44 developing countries, had adopted Central Bank pursue a 2 per cent inflation target. explicit inflation targets for their economies. A The Federal Reserve argues that with a target significant number followed monetary policy of 2 per cent, households and businesses can regimes classified as “exchange rate targeting”, reasonably expect inflation to remain low and “monetary targeting” and “other”. stable and thus are able to make sound decisions regarding saving, borrowing and investing, A majority of inflation-targeting central banks which contributes to a well-functioning have set their targets between 2 and 4 per cent economy. In contrast, rising and volatile inflation (figure I.21), with some notable exceptions, reduces the public’s ability to make accurate such as Ghana, which has an inflation target of economic and financial choices. From another 8.5 per cent or Serbia with an inflation target perspective, a lower inflation rate could push an cHAPtER i . GlobAl Economic outlooK 33 Canada Euro area Israel New Zealand Republic of Korea Thailand United States Poland Chile Indonesia Serbia South Africa Brazil India Gambia Kenya United Republic of Tanzania Mongolia Pakistan Egypt Zambia Nigeria Ghana Liberia economy towards deflation, a phenomenon that that the slope of the Phillips curve has not only can have a far worse impact on the economy. decreased but that the relationship may have Having at least some inflation makes it less become statistically insignificant (Blanchard, likely that the economy will experience harmful Cerutti and Summers, 2015). Blanchard (2016) deflation if economic conditions weaken (Federal finds that given expected inflation, an increase Reserve, 2022). in the unemployment rate was associated with a decrease in inflation of 0.7 per cent in the The 2 per cent inflation target has near iconic mid-1970s, while the effect in 2016 is closer to status, being associated with the steady growth 0.2 per cent. Hence, it is likely that a limited and low inflation in developed countries during increase in an inflation rate would be associated the “great moderation” period that ended with with a smaller increase in unemployment the financial crisis of 2007. Yet observers such now than in the past. At the same time, as Blanchard, Dell’Ariccia and Mauro (2010) have the rate of unemployment consistent with noted that no sound economic research shows 2 stable inflation (the so-called NAIRU or non- per cent to be the economically optimal inflation accelerating inflation rate of unemployment) rate nor that the costs of 3 per cent or 4 per cent itself has evolved. Weiner (1993) and Tootell inflation are significantly greater than the costs (1994) have found evidence that the NAIRU of 2 per cent inflation. has changed over the post-war period. While The primary rationale for raising the inflation there is consensus that it fell during the 1980s target is that setting it at a low value limits and 1990s, this consensus took some time to the scope for monetary policy to stimulate develop. Historically, unemployment values employment and growth in difficult times. ranging from less than 4 per cent to up to 9 Monetary policy is incapable of stimulating per cent have been consistent with changes the economy once interest rates reach the zero in inflation of less than one-half percentage lower bound as they cannot be lowered further. point in the following year. Thus, a range of Krugman (2014) and others have argued that the unemployment levels would appear to be zero lower bound of the policy rate is a more consistent with stable inflation. difficult constraint than the wage rigidity that Presently, proposals for a higher inflation target is assumed in standard models. Indeed, nominal are in the range of 3 to 4 per cent (Gagnon and wages fall only in exceptional circumstances. But Collins, 2019). More flexible arrangements have when the inflation target is too low, it can limit also been proposed. Former President of the the scope of downward adjustment in real wages Federal Reserve Bank of Boston Rosengren before a central bank reaches the zero lower (2018) suggested that the Federal Reserve should bound for its policy rate. Rogoff (2016) proposes set a medium-term goal within an inflation an “escape clause” from rigid inflation targets range between 1.5 and 3 per cent and revisit so that central banks can lower policy rates to it annually to account for changing economic fight an economic emergency without hitting the circumstances, calling this “an inflation zero lower bound. range with an adjustable inflation target”. His Rises in inflation, however, can be expected approach would give the Federal Reserve more to be accompanied by greater unemployment, flexibility. Bernanke (2017), among others, has through the Phillips curve. Any rise in inflation advocated a variant of price-level targeting has to take such a trade-off into account. The instead of raising inflation targets permanently. IMF (2013) shows that the Phillips curve is Bloesch (2022) has proposed a range of 2 to considerably flatter today than in the past, 3.5 per cent inflation, arguing that this would and the inflation consequences of changes in generate, on average, higher employment, and economic slack are therefore much smaller. that international evidence indicates that ranges Inflation expectations are also much better with upper bounds of 3 to 4 per cent lead to anchored now. There is empirical evidence generally stable inflation outcomes. 34 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Given the global dominance of the dollar, a effective coordination between monetary and higher inflation target could restrain interest rate fiscal policies, without compromising central hikes and therefore negative spillovers for the bank operational independence and credibility. rest of the world. Simulation exercises carried out at the Federal Reserve show that in an open Monetary and fiscal policies could and should economy model that incorporates a dominant be complementary. As discussed above, energy role for the dollar, a 100-basis-point increase and food price inflation and a broad cost-of- in the Federal funds rate lowers foreign output living crisis have disproportionately affected by 0.3 per cent (Caldara, Ferrante and Queralto, vulnerable groups of people. Policy tightening 2022). Any moderation in the policy rate has weakened the global economic outlook increases in the United States could therefore and will slow income growth, which will affect deliver commensurate benefits to the rest of the the poor the most. Fiscal policy can play a world, particularly developing countries. major role in protecting the most vulnerable, including through targeted cash transfers, Moving to a higher inflation target, however, food and energy subsidies, child credits and carries the risk of undermining the credibility of unemployment insurance. With effective central banks, which is of paramount importance targeting, such programmes are not expected to in maintaining the effectiveness of inflation stimulate aggregate demand or be inflationary. targeting. Should inflationary expectations As discussed in chapter II, monetary tightening become more prone to de-anchoring, the threat is contributing to higher borrowing costs, of runaway inflation would increase. Since a increasing rollover costs and debt-servicing rise in the inflation target would trim the public costs, and prompting governments to cut much debt and provide a one-time benefit to the needed fiscal spending to stimulate recovery. government, it could be challenging to convince Monetary policy decisions will need to pay far bond holders to hold public debt without greater attention to how higher policy rates providing an additional risk premium, thus impact output losses. There can be significant introducing an element of long-term uncertainty. trade-offs between inflation and output – often A deliberate and well-thought-out process far greater than the trade-offs between inflation would be needed to make any revisions in the and unemployment. Such considerations must inflation target while minimizing the risk of be taken into account when central banks set adverse outcomes. their policy rates. The need for effective coordination Better international partnerships for between monetary and fiscal policies responding to ongoing shocks Monetary and fiscal policies in most countries The pandemic, the global food and energy have moved in the same direction in the past crisis, the worsening climate catastrophe and three years. To mitigate the economic impact the looming debt crisis in many developing of the pandemic, most countries lowered countries are testing the limits of existing policy rates and increased public spending. multilateral frameworks. Many countries have More recently, countries have shifted to a responded to new challenges and threats by contractionary monetary and fiscal policy adopting more inward-looking policies, ignoring stance to lower inflation and address rising the spillover effects on the rest of the world. debt distress. As the pandemic lingers and the Such reactions are short-sighted. Only through war in Ukraine continues, however, countries, globally coordinated and concerted policies and particularly the developing ones, still need efforts can the world solve many current crises, continued support to cushion the impact of the ensure faster progress towards the SDGs and crises as well as continued public investment clear bottlenecks to effective resilience in the for sustainable development. This requires more face of future shocks. cHAPtER i . GlobAl Economic outlooK 35 High and persistent inflation globally suggests impact is to raise prices and limit supplies, scope for further collaboration among central disproportionately harming poorer countries and banks, especially those of the larger economies, people. Countries will need to unwind remaining as was done during the 2008 financial crisis. restrictive trade measures, particularly related Coordination, based on considering the to food, fertilizers and COVID-19 vaccines. international spillovers of monetary policy, is Food export restrictions implemented by a critical to avoid overtightening. few countries have reduced food supplies and increased international food prices. Exports With more developing countries falling into of some vaccination-related products remain debt distress, in many cases due to exogenous restricted, although most have been rolled back shocks, cooperative global action is also (WHO, 2022e). Countries will need to follow their needed to ward off potential crisis situations in commitments at the World Trade Organization individual countries and the threat of contagion. and engage in reforms aimed towards a Sovereign borrowers, bilateral official creditors, universal, rules-based, open, non-discriminatory international financial institutions and other and equitable multilateral trading system. stakeholders need to come together to discuss International collaboration is also needed to debt service suspension, debt moratoriums assure supplies to those most in need. and concessional finance. The shortcomings and obstacles of existing mechanisms, in High energy prices and energy security concerns particular, the G20 Common Framework for Debt unleashed by the war in Ukraine have triggered Treatments, also require multilateral solutions contradictions in climate action. One the (see chapter II). one hand, enforcement of stricter emission standards and other environmental regulations As the COVID-19 pandemic lingers and the has fallen on the priority list for many major potential for new variants remains, it is critical economies (UNCTAD, 2022c). Global coal use to ensure equitable access to vaccination, tests reached a record high of 8 billion tonnes in 2022 and treatments. At the international level, as countries scrambled to meet energy needs continued global efforts are needed with a focus (IEA, 2022b). on lower-income countries. As of June 2022, only 37 per cent of health-care workers in low- On the other hand, global renewable power income countries had received a complete dose capacity is set to grow by almost a third more of primary vaccination. Vaccine delivery remains from 2022 to 2027 than was expected even last a challenge, notwithstanding the launch of the year. It is on track to overtake coal as the largest COVID-19 Vaccine Delivery Partnership by the source of global electricity by 2025 (IEA, 2022e). WHO, United Nations Children’s Fund and Gavi, Most developing countries will continue to the Vaccine Alliance, with other international depend on coal and other fossil fuels, however, partners. Despite incremental success, low- indicating the need for international cooperation and lower-middle-income countries continue to urgently accelerate the energy transition in struggling to increase vaccination rates these countries to meet the aspirations of both (WHO, 2022e). the 2030 Agenda for Sustainable Development and the Paris Agreement. Despite a difficult Many countries respond to sudden global geopolitical backdrop, the twenty-seventh turmoil, such as the food price shocks in Conference of the Parties (COP27) to the United 2008, the COVID-19 pandemic and the war in Nations Framework Convention on Climate Ukraine, through export restrictions aimed Change in 2022 offered a signal of international at safeguarding domestic supplies (Laborde cooperation by concluding an agreement on and Mamun, 2022). While these measures creating a loss and damage fund for vulnerable tend to wind down over time, their immediate countries hit hard by climate disasters. 36 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 cHAPtER ii Fiscal policy in times of crisis: The imperative of avoiding austerity Economic crisis and policy rates and bring inflation down, even if output gaps this means accepting, in the short term, higher unemployment and economic contractions, After a strong but uneven rebound from the and possibly a global recession. While inflation COVID-19 crisis in 2021, global growth prospects is typically a monetary phenomenon, the have sharply deteriorated over the past year. current episode in developed economies has The war in Ukraine, soaring food and energy largely stemmed from surging demand against a prices, high and unexpectedly persistent backdrop of supply-side constraints. Monetary inflation, tightening global financial conditions policy responses such as raising interest rates and lingering COVID-19 risks, particularly in can weaken aggregate demand and reduce China, have prompted sharp downward revisions inflationary pressures in an overheating in growth forecasts. As noted in Chapter 1, world economy running at full capacity. But they can gross product is estimated to have increased by do little to ease supply-side constraints. In fact, only 3 per cent in 2022, far below the 4 per cent monetary tightening in response to supply-side projected a year ago (United Nations, 2022b).1 driven inflation can make inflationary pressures Global growth forecasts for 2023 have been temporarily worse if higher interest rates deter cut almost in half, from 3.5 to 1.9 per cent. investments necessary for easing supply-side With multiple headwinds buffeting the world bottlenecks. At the same time, aggressive economy, a full, inclusive and robust turnaround monetary tightening signals the determination remains elusive in the near term. to “do what it takes”. This can anchor inflation expectations and minimize risks of unleashing High and raging inflation worldwide presents the so-called “wage-price” spiral leading to significant policy challenges, with options to long periods of high inflation with considerable fight inflation posing difficult trade-offs. Around damaging effects to economies and people. the world, central banks are racing to raise 1 The 2022 forecasts of the World Economic Situation and Prospects were already less optimistic than those of other entities. The IMF, for example, in October 2021 projected global growth of 4.7 per cent in 2022. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 37 Figure II.1 forecast in January 2020, immediately before Output losses in 2022 relative to pre-pandemic the COVID-19 outbreak.2 While developing projections countries experienced smaller output losses Developed economies Economies in transition Africa than the developed economies in 2020, the East Asia South Asia trend reversed in 2021 and 2022.3 In 2022, the Western Asia Latin America and the Caribbean average GDP in developing countries was 3.8 per cent lower than the level projected prior Estimated loss in output, percentage 60 to the pandemic, compared to only 2 per cent lower in developed economies. Larger fiscal 50 support measures and higher vaccination 40 rates help explain the smaller output losses in 30 developed economies (Pitterle and Niermann, 2021; Filippini and Levy Yayati, 2022). Developed 20 economies’ total fiscal support in 2020 and 2021 10 amounted to a staggering $12,200 per capita, 0 compared to $410 in developing countries and a -10 mere $20 in the least developed countries. -20 Overall, output losses in 2022 negatively 4 5 6 7 8 9 10 11 12 correlate with GDP per capita levels (figure II.1). Log GDP per capita, United States dollars Lower-income countries have, on average, experienced larger losses than higher-income Source: UN DESA, based on estimates produced with the World Economic Forecasting Model. countries, reflecting structural economic and Note: Output losses are calculated as the difference between GDP financial asymmetries. As a result, the pandemic projections for 2022 in the WESP 2020 and WESP 2023. The logarithm of GDP per capita values are for 2020. globally has been associated with increased income inequality among countries, an outcome also highlighted by the World Bank (2022b). In developing countries, inflationary pressures Output losses have been particularly have worsened as sharp increases in policy large in the small island developing States rates in the United States have strengthened where continued weakness in international the dollar. A stronger dollar has pushed up the tourism has hampered recovery (UNWTO, prices of imported goods, including energy 2022b) (figure II.2a). The least developed and food products, prompting central banks and landlocked developing countries also in developing countries to raise interest rates. experienced large output losses in 2021 and High inflation requires governments to increase 2022, reflecting both slow pandemic recoveries spending to support vulnerable populations and additional country-specific shocks, even as the stronger dollar intensifies such as in Afghanistan, Myanmar and Sudan. external debt-servicing burdens, weighing on Regionally, South Asia lost the most ground fiscal balances. because of prolonged COVID-19 lockdowns and severe macroeconomic challenges triggered Output losses from the pandemic by the crisis. By contrast, average output in Western Asia in 2022 exceeded levels projected Output losses from the pandemic can be before the pandemic due to high prices and estimated as the difference between the latest strong demand for oil and gas in 2021 and 2022 GDP estimates for 2020 to 2022 and those (figure II.2b). 2 While the difference in growth performance can be primarily attributed to the COVID-19 crisis, other factors such as natural disasters and political instability have also played roles. 3 Regional and country group averages are unweighted sample means. 38 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure II.2 Output losses relative to pre-pandemic projections a) Select country groupings b) Developing regions Developed economies Africa Developing economies East Asia Least developed countries South Asia Small island developing States Western Asia Landlocked developing countries Latin America and the Caribbean Percentage of current GDP Percentage of current GDP 0 4 -2 2 0 -4 -2 -6 -4 -8 -6 -10 -8 -12 -10 2019 2020 2021 2022 2019 2020 2021 2022 Source: UN DESA, based on estimates produced with the World Economic Forecasting Model. Note: Output losses are calculated as the difference between the GDP projections for 2020 to 2022 in the  WESP 2020 and WESP 2023. Large output gaps 11 African countries covered in the sample was –2.1 per cent of potential GDP (figure Weak economic recoveries in many developing II.3b). Negative output gaps were even countries have generated significant output larger in the few least developed countries losses compared to pre-crisis forecasts. Many (–3.9 per cent) and small island developing countries also continue to display large output States (–2.3 per cent) with available data. gaps, which represent the difference between 4 Large and persistent spare capacities in most an economy’s actual and potential output. developing countries starkly contrast with the A positive gap indicates an “overheating” situation in the developed economies, where economy while a negative gap implies output gaps narrowed sharply in 2021 before spare capacity. turning mostly positive in 2022. In a sample of 46 developing countries with robust and comprehensive data, the Weak employment recovery average output gap in 2022 was an estimated –1.2 per cent of potential GDP, about the same The COVID-19 pandemic not only strongly size as in 2009 during the global financial affected output trajectories but also labour crisis (figure II.3a).5 More than three quarters market performances. While labour markets of developing countries recorded a negative in developed economies became increasingly output gap in 2022. The average gap in the tight in 2022 due to a relatively rapid economic 4 Since potential output is not directly observable, output gaps are difficult to measure. For a recent assessment, see Barkema, Gudmundsson and Mrkaic (2020). The IMF estimates output gaps for about 100 economies. Coverage of the least developed countries, landlocked developing countries and small island developing States is, however, very limited. 5 Many developing countries, including Brazil, Chile and South Africa, experienced only moderate contractions during the global financial crisis, followed by quick recoveries amid significant fiscal support. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 39 Figure II.3 Average output gaps 2019 2020 2021 2022 a) Developed and developing economies b) Developing regions Percentage of potential output Percentage of potential output 2 4 1 2 0 0 -1 -2 -2 -3 -4 -4 -6 -5 -8 -6 -7 -10 Developed economies Developing economies Africa East Asia South Asia Western Latin America Asia and the Caribbean Source: UN DESA, based on data from the IMF World Economic Outlook database, October 2022. Note: The sample includes 36 developed and 46 developing economies (20 in Latin America and the Caribbean, 11 in Africa, 8 in East Asia, 4 in Western Asia, and 3 in South Asia). Regional averages are unweighted. recovery, most developing countries still face countries, the share of informal employment considerable employment slack. The average exceeds the pre-pandemic level (Andaloussi unemployment rate in developing countries was and others, 2022). Disproportionate losses in estimated at 6.5 per cent in 2022, compared to women’s employment in 2020 have not been 5.9 per cent in 2019. In Latin America and the fully reversed; improvements are mainly Caribbean, employment has recovered more due to recovery in informal jobs. The gap in slowly than output, with 10 out of 14 countries hours worked by women and men aged 15 to registering a lower employment rate in the 64 years remains high, with women currently first quarter of 2022 than in the first quarter of working 14.5 fewer paid hours per week than 2019 (ILO, 2022b). In Africa and Western Asia, men or, equivalently, 57.5 paid hours for every total hours worked are still 2 per cent lower 100 worked by men (ILO, 2022c). than pre-crisis levels, despite an upward trend in 2022 (ILO, 2022a). Unemployment rates in Angola, Nigeria and South Africa, for example, Higher risks to food security remain well above pre-pandemic levels. This Food prices have increased by nearly 50 per contrasts with developed economies, which cent since 2019. Supply-side disruptions in both have seen hours worked nearly return to the food and energy markets worsened after war previous level. broke out in Ukraine in March 2022. More than 90 per cent of all developing countries have The nature of employment has also changed, experienced food price inflation surpassing 5 with more people moving to the informal per cent, with many experiencing double-digit sector. In several Group of Twenty (G20) 40 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 price hikes. By mid-2022, food price inflation lower-middle income countries, the share had reached 332 per cent year-on-year in of education in government expenditures Lebanon, 95 per cent in Turkey, 91 per cent declined in 2020, recovered slightly in 2021 but in Sri Lanka, 66 per cent in Argentina and fell again in 2022, remaining below 2019 levels 38 per cent in Ethiopia (World Bank, 2022c). (UNESCO and World Bank, 2022). This contrasts with the situation in developed economies, Higher food and energy prices are pushing where education as a share of the total the cost of living to unsustainable levels for government budget in 2022 exceeded the 2019 millions of low-income households worldwide. level. Governments in developing countries will The number of people who are acutely food need to increase spending on education to make insecure or at high risk of food insecurity up for the losses and minimize the long-term increased sharply from 135 million in 2019 to 345 educational impact of the pandemic. million in 2022 (United Nations, 2022c). The COVID-19 crisis caused severe disruptions to health services, illustrating the dramatic Health and education needs consequences of underinvesting in health Expenditures on education and health systems, particularly the health workforce. determine human well-being and human capital In many developing countries, health system formation. Public investment cuts in these areas resources were reallocated to the pandemic would exacerbate already alarming trends, response, resulting in cuts to other services, likely weighing on total capital accumulation including for the prevention and treatment and potential output growth. Education of infectious diseases such as malaria, cholera, suffered a huge blow during the pandemic. HIV/AIDS and tuberculosis.7 Many countries, Extended school closures in 2020 and 2021 especially in Africa, Western Asia and South caused unprecedented disruptions, amplifying Asia, felt the strains of pre-existing shortages the pre-existing global learning crisis and of health workers (Boniol and others, 2022). worsening educational inequalities (UNICEF, Africa, for example, had only 2.92 medical 2021). Full and partial school closures in South doctors per 10,000 people in 2020 compared Asia and Latin America and the Caribbean were to 36.61 in Europe (WHO, 2022g). According more than twice as long as those in developed to the latest projections up to 2030, health economies (Bryant and others, 2022). The lack worker shortages will remain high in low- of Internet access in rural areas and among income countries and the small island low-income families meant digital and online developing States. learning programmes never reached at least 463 million children, especially in Africa and South Asia (UNICEF, 2021). Recent studies document Investment in SDG progress significant and broad-based learning losses In the five years before the pandemic, about in math and reading in developing countries, half of countries in Latin America and the with younger students and girls being Caribbean and one third in Africa experienced disproportionally affected.6 a drop in public investment in real terms. This coincided with sluggish growth in During the pandemic, the poorest developing private investment, especially in commodity- countries were forced to slash education exporting economies, in line with recent spending in national budgets. In low- and evidence that public investment crowds in, 6 In South Africa, for example, primary school students suffered learning losses in reading of between 57 and 81 per cent of a year of learning, after missing close to 60 per cent of contact teaching days in 2020 (Ardington, Willis and Kotze, 2021). Similarly, primary school children in Ethiopia lost 60 to 70 per cent of a year of learning in math (Kim and others, 2021). 7 After declining for many years, the total number of malaria cases and malaria case incidence increased in 2020 amid disruptions to health services during the pandemic (WHO, 2021). With a shortage of vaccines, a record number of cholera outbreaks occurred, including in Africa, Western Asia, South Asia and the Caribbean (WHO, 2022f). CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 41 rather than crowds out, private investment in Figure II.4 developing countries (Furceri and Li, 2017). Gross fixed capital formation per capita In many cases, a prolonged period of benign in developing regions domestic and external financing conditions Africa East Asia South Asia fuelled consumption rather than investment Western Asia Latin America and the Caribbean (United Nations, 2020).8 In per capita terms, Constant United States dollars, 2010 = 100 total gross fixed capital formation stagnated 200 in Africa and declined by almost 20 per cent in Latin America and the Caribbean between 180 2010 and 2021 (figure II.4). 160 An inclusive and sustainable recovery from the crisis will require governments in developing 140 countries to safeguard and increase spending on education and health care. Benedek and 120 others (2021), for example, estimate that Cambodia, Nigeria, Pakistan and Rwanda will 100 need to boost public and private spending on health and education by between 4.2 and 80 10.2 per cent of GDP every year to achieve the SDGs. This is in addition to annual increases 60 in infrastructure spending of between 2.5 and 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 15.4 per cent of GDP. Source: UN DESA, based on estimates produced with the World Economic Forecasting Model. Following a sharp decline in SDG-related Note: Regional averages are population weighted. investment during the pandemic, especially in developing countries, the investment needed spending on health, education, sustainable to achieve the global goals has soared to about infrastructure, agriculture, food and land use $4 trillion per year, approximately 4 per cent practices, and biodiversity would need to of world gross product (UNCTAD, 2022d). increase from 11.3 per cent of GDP in 2019 to This estimate is up substantially from the 15.1 per cent in 2025 and 18.2 per cent in 2030 2014 estimate of an additional $2.5 trillion per to reach the relevant SDGs. This amounts to year in SDG investment on basic infrastructure, additional spending of $1.3 trillion by 2025 and food security, health and education, and climate $3.5 trillion by 2030.9 change (UNCTAD, 2014). Further, to limit climate change to 1.5 degrees Celsius, the International While most new and additional investments Renewable Energy Agency projects a need for are expected to come from the private sector, $5.7 trillion of global energy sector investments public funding would need to increase every year until 2030, equivalent to about significantly from its current level to stimulate 6 per cent of current world gross product. and crowd in private investment in the SDGs. This is significantly higher than the actual Fiscal adjustments and expenditure cuts to fight investment level of about $1 trillion in 2021 inflation and improve debt sustainability could (IRENA, 2022). severely undermine the ability of developing countries to achieve the SDGs by 2030. Bhattarcharya and others (2022) show that aggregate investment and development 8 Multiple factors associated with persistent weakness in investment include terms-of-trade shocks and slowing foreign direct investment inflows in the case of commodity importers, and enhanced political risks and uncertainties (Kose and others, 2017a). 9 The lower estimates of Bhattarcharya and others (2022) are due to a smaller country sample and a more conservative modelling approach. 42 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Shrinking fiscal space without endangering market access and the sustainability of public finances (Ferrer and The COVID-19 economic shock has left lasting Kireyev, 2022; IMF, 2018). Fiscal space is thus scars on government finances, increasing fiscal closely associated with debt sustainability, and debt vulnerabilities, especially in poor and which is typically determined by the primary structurally weak developing economies, like fiscal balance, the difference between the many least developed countries (see Box II.1). nominal interest rate on debt and the nominal Amid slowing global growth, high inflation, GDP growth rate, and the stock-flow adjustment sharp monetary tightening, rising government in the valuation of sovereign debt and assets borrowing costs and falling exchange rates, affected by exchange rate movements. fiscal space has been shrinking in most developing countries. Fiscal space is defined In many cases, monetary tightening and a as the room that a government has to adopt deteriorating economic outlook are amplifying discretionary spending and revenue policies pressures on governments to pursue fiscal Box II.1. systems and an absence of automatic stabilizers Graduating least developed pose significant risks to their economic growth, stability and resilience . countries face stiff fiscal Substantial heterogeneity in fiscal conditions exists challenges among the graduating countries. While fiscal deficits in bhutan, Solomon islands and, to a lesser extent, Seven nations – Angola, bangladesh, bhutan, lao lao People’s Democratic Republic have widened People’s Democratic Republic, nepal, São tomé and since the pandemic, fiscal balances in Bangladesh Principe and Solomon islandsa – are in the process and nepal have remained roughly unchanged . on of graduating from the group of least developed the other hand, Angola and São tomé and Principe countries. For many, this reflects decades of devel- have moved from pre-pandemic deficits to fiscal opment progress, driven primarily by sound domes- surpluses, potentially contributing to improved debt tic policies and favourable international support sustainability and reduced debt distress . the ratio of measures . up to nine additional least developed gross government debt to GDP has differed widely countries may seek graduation during the next among these countries, ranging from less than 14 triennial review of their status in 2024, provided per cent in Solomon islands to more than 113 per they manage to sustain positive development cent in Angola in 2019 . trajectories . While fiscal challenges are similar across all least As least developed countries, these economies are developed countries, the graduating countries face particularly vulnerable to external shocks such as additional challenges . As development cooperation climate change, the COVID-19 pandemic, the war in is largely independent of the least developed country ukraine and slowing global growth . Generally, limited status, graduation generally does not adversely fiscal space, underdeveloped social protection affect bilateral and multilateral financial flows, a See UN DESA for information on graduation and the category of the least developed countries in general. Available at https://bit.ly/CDP-LDCs (accessed on 12 December 2022). CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 43 although graduating countries may lose access to as inflation is mostly imported, it translates into some dedicated funds and face occasionally stiffer only small increases in nominal GDP and, thus, only funding terms and conditions in the near term . small reductions in debt-to-GDP ratios. Low ratios Trade-related support measures, however, particu- of fiscal revenue to GDP, particularly in non-island larly duty-free and quota-free market access, often graduating least developed countries, range from end following a transition period after graduation . below 9 per cent in bangladesh to slightly above While some graduating countries manage to main- 26 per cent in bhutan . this suggests opportunities tain preferential treatment in some markets through for increasing fiscal revenues through tax reform alternative trading arrangements, many require sig- and rate increases, although it usually takes years nificant productivity-enhancing investments to main- to implement meaningful tax reforms and increase tain competitiveness and diversify their economies . the tax base of a country . on the expenditure side, Given enormous development needs, fiscal policy there is scope to reprioritize expenditures based on should continue to play a proactive role in graduating how much they loosen short-term constraints and countries . External and balance of payment pres- support long-term sustainable development. sures, however, can drastically limit fiscal space. These domestic efforts to create additional fiscal Rising global interest rates are increasing the rollo- space often require graduating countries to make ver risks of their external debt maturing during the substantial investments in institutional reforms . next two years . currency depreciations pose an ad- Given the intrinsic difficulty in creating fiscal space ditional concern. On a year-on-year basis, exchange through domestic reform during an economic rate depreciation ranged between 11 per cent in downturn, improved access to external financing nepal and 67 per cent in lao People’s Democratic must play a major role in expanding fiscal space Republic in october 2022, while it remained stable now . the recent increase in resources from the imf for Solomon islands . Angola, on the other hand, and multilateral and regional development banks is saw a currency appreciation of 20 per cent due to very welcome, although rapid disbursement of funds higher oil prices and macroeconomic reforms . the will remain critical . more bilateral support, whether current depreciations not only increase the burden through direct budget support, concessional loans, of servicing debt denominated in foreign currencies debt restructuring or debt suspensions, will be es- but also exacerbate challenges caused by higher sential in many cases . international prices for food, fuel and fertilizer . this may shrink international reserves and limit imports While the discrepancy between fiscal needs and of investment goods for boosting productivity and resources in graduating countries is often immense, transforming economies . moreover, higher prices in some factors place graduating countries in a better domestic markets require higher social expenditures position than other least developed countries . their – more fiscal outlays – to ease burdens on the poor. development progress typically reflects improved Increased social expenditures and financial support macroeconomic management, underpinning greater for the most vulnerable typically mean fewer finan- institutional capacity to react to external shocks . cial resources for public investments . Graduation may also improve access to external private finance, especially foreign direct investment, clearly, many least developed countries, including as the graduation usually signals development the ones graduating, will need additional fiscal progress . the limited number of past graduations, space to manage shocks, steer recovery and invest however, makes it difficult to ascertain whether and in the SDGs. While inflation can potentially increase when graduation improves access to international fiscal space, this effect is largely absent in the least finance, particularly in times of rising interest rates. developed countries . their generally low tax rev- enues limit the extent to which inflation can con- Author: Matthias Bruckner, United Nations tribute towards a nominal increase . furthermore, Department of Economic and Social Affairs Figure II.5 Fiscal balances 2019 2020 2021 2022 a) Developing regions b) Select country groupings Percentage of GDP Percentage of GDP East South Western Latin America and Developed Least developed Small island Landlocked Africa Asia Asia Asia the Caribbean economies countries developing States developing countries 4 0 2 -1 -2 0 -3 -2 -4 -4 -5 -6 -6 -8 -7 -10 -8 Source: UN DESA, based on data from the IMF World Economic Outlook database, October 2022. Note: Regional and country group figures are unweighted averages across countries. Median values show similar trends. consolidation, even as the recovery from the affects their fiscal balances. Most small island pandemic remains incomplete and SDG-related developing States face significant pressures due investment needs are large. to very high food and fuel import dependency and a slow post-COVID-19 recovery in Fiscal deficits as a percentage of GDP narrowed international tourism. in the past two years in developed and some developing economies due to an initially strong economic rebound and the gradual unwinding Deteriorating fiscal balances of COVID-19-related support measures Since the mid-2000s, fiscal balances in (figure II.5). About two thirds of countries saw developing countries have steadily deteriorated improvements in their primary and overall as governments confronted a series of economic fiscal balances in 2021 and 2022. Amid high oil shocks, including the global financial crisis in and gas prices, fiscal positions strengthened 2008 and 2009, the commodity price downturn significantly in energy-exporting countries, from 2014 to 2016 and the COVID-19 crisis in with Western Asia recording a fiscal surplus 2020 (figure II.6a). The average primary balance, in 2022. On the other hand, rising import bills, defined as the overall balance net of interest deteriorating external balances and higher payments, has remained negative in every debt-servicing costs on dollar-denominated year since 2009 (figure II.6b). At the same time, debt amid significant currency depreciations government interest payments (including to are worsening fiscal balances in many other both domestic and foreign creditors) increased developing countries. As most of the least steadily, reaching about 2 per cent of GDP and developed countries are net importers of fossil 10 per cent of total government revenues in fuels and food, the current crisis negatively 2022. In about a dozen countries, including CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 45 Figure II.6 Fiscal balances of developing countries a) Fiscal balance b) Fiscal indicators 25th–75th percentile Mean Median Interest payments Primary fiscal balance Fiscal balance Percentage of GDP Percentage of GDP 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -8 -6 -10 -8 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022e 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022e Source: UN DESA, based on data from the IMF World Economic Outlook database, October 2022. Note: e = estimates.The fiscal balance is defined as general government net lending or borrowing. It can be decomposed into the primary balance and interest payments. Figure II.6b shows the mean values of the indicators; 2022 values are estimated. several large economies – notably, Brazil, India, investment to avoid paying higher nominal Nigeria and Pakistan – estimates suggest that taxes, taxes on income, profits and capital governments spent more than 20 per cent of gains may shrink. revenues on interest payments in 2022. Empirical evidence, however, suggests that the relationship between fiscal deficits and inflation High inflation is at best tenuous. In the current environment Average inflation in developing countries of relatively high inflation and low growth, no doubled from 5.4 per cent in 2019 to 10.8 per correlation is observed between projected fiscal cent in 2022. Higher prices can widen fiscal deficits and projected inflation in 2022 for 126 deficits as the cost to provide public goods countries (figure II.7). This is consistent with and services rises but government revenues several empirical studies finding weak or no decline. When countries experience high correlation between fiscal deficits and inflation, 10 inflation, fiscal outlays will increase, as public such as Dornbusch and others (1990). expenditures on social protection, transfer payments and subsidies such as for fuel, food Rapid monetary tightening and fertilizers will escalate. At the same time, high inflation can prompt a decline in the In 2022, the Federal Reserve of the United volume of tax collection and a deterioration of States and other developed country central real tax proceeds, known as the “Tanzi effect”. banks engaged in the most aggressive monetary This occurs due to the time lag between when a tightening in decades. Declaring a drive to tax is charged and when the tax is actually paid bring down persistently high inflation, the (Tanzi, 1977). As households and businesses Federal Reserve raised the federal funds rate may switch economic activities and reduce from a target range of 0 to 0.25 per cent at the 10 Dornbusch and others (1990), for example, find that fiscal deficits tend to accommodate rather than drive inflation. 46 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure II.7 costs (figure II.8). In an environment of large Projected fiscal balance and inflation in 2022 output gaps and weak aggregate demand, a Not inflation targeting Inflation targeting sharp tightening of monetary policy stances will likely further weaken growth prospects in Projected inflation rate, percentage many developing countries. 18 GH Higher interest rates are leading to higher SL HT 17 debt-servicing costs for developing countries. PK AO Simple stylized calculations for a few selected 16 developing countries illustrate the magnitude NG MW of the effect. A 300-basis point increase in the RW MN 15 LA ST effective interest rate paid on public debt would BF BI ZM push interest expenditure up to as much as EG GM MZ BW CL SS MU CO BR CD NI 10 KM PY BB 9 per cent of total government expenditures. 11 DZ LS TNMM CR UY WS JM UG BD DO GT MG THSV MLNP MX SN BS PE ERMR SO In India, the additional interest payments would IN KR KE KHCVCF ZA NA TG PH TT GY KI FJ CI LR DJ SGBT JO VU BZ GQ IQ TD QA LY amount to 8.7 per cent of total government 5 SB MA TZ CM AEGW ILNE BJ BH GA CG KW MV BO SZ OMMY expenditures, 1 percentage point higher than PA IDVN EC BNTW CN HK SA the share of education in the total budget in 0 -20 -15 -10 -5 0 5 10 15 20 2020. In Brazil, Indonesia and South Africa, the Projected fiscal balance, percentage of GDP increase in interest payments would represent about 6 to 7 per cent of total expenditures. Source: UN DESA, based on the IMF World Economic Outlook database, October 2022 and on estimates produced with the World Economic Forecasting Model. Note: Labels represent ISO-alpha 2 country codes which can be found at https://unstats.un.org/unsd/methodology/m49/overview. Figure II.8 Ten-year government bond yields in selected developing countries beginning of 2022 to 4.25 to 4.50 per cent by Brazil Chile China India December. Rapidly rising policy rates have Indonesia Mexico South Africa triggered significant capital outflows from developing countries. Between March 2022, Percentage when the Federal Reserve began its rate hike 14 cycle, and September 2022, portfolio capital flows to emerging market economies were 12 negative in six out of seven months (IIF, 2022a). 10 Confronting large capital outflows, strong depreciation pressures and elevated inflation, 8 central banks in developing countries followed the rate hikes in the United States. In a sample 6 of 45 developing countries across all regions, 41 central banks raised their policy rates 4 between March and October 2022. Aggressive monetary tightening in the United States and 2 consequent capital outflows and depreciation pressures have pushed up government bond 0 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 yields, especially in many Latin American countries, heightening domestic borrowing Source: UN DESA, based on data from Trading Economics. 11 The calculations consider debt levels at the beginning of 2022 for Brazil, Chile, India, Indonesia, Mexico and South Africa, isolating the effect of an interest rate increase from changes in other variables. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 47 Weaker exchange rates Figure II.10 Estimated increase in external debt servicing The Federal Reserve’s rapid rate hikes have due to depreciation propelled a surge in the value of the dollar, which has reached its highest level since the Estimated debt service based on depreciation in 2022Counterfactual assuming constant exchange rates early 2000s. Currencies in most developing Percentage of government expenditures countries have depreciated significantly against the dollar over the past two years, although Ghana a few have bucked this trend (figure II.9). Depreciations have been broad-based across Pakistan regions, affecting economies that are Egypt commodity-dependent (Chile, Colombia) and non-commodity dependent (Egypt, Pakistan, Türkiye Thailand). This has raised the prices of Bangladesh imported goods, fuelling inflationary pressure. Colombia The strong dollar and rising global benchmark interest rates are increasing the 0 5 10 15 20 cost of servicing dollar-denominated debt, Source: UN DESA, based on data from the IMF World Economic Outlook exacerbating the long-term trend of rising database, October 2022. Figure II.9 external debt servicing and reducing room for Exchange rates vis-à-vis the dollar governments to increase or even maintain fiscal Change in 2021 expenditures.12 In countries where domestic Change in 2022 currencies have depreciated significantly, the Cumulative change in 2021 and 2022 servicing costs of dollar-denominated debt Percentage have climbed sharply. To illustrate the size of Egypt the effect, we estimated the additional burden Pakistan resulting from the depreciation for a few Colombia selected developing countries.13 In Ghana, for Bangladesh instance, the cedi depreciated by 116 per cent Chile against the dollar between January and October South Africa 2022. As a result, Ghana’s dollar-denominated Nigeria external debt-servicing burden would, ceteris Thailand paribus, increase from an estimated 11.1 India billion to 24.1 billion cedi. The increase would Kenya represent about 9.1 per cent of total government Indonesia expenditures in 2022 (figure II.10), nearly equal Malaysia to the share of Ghana’s health expenditures in China 2019. In countries where the depreciation of Brazil domestic currencies has been more moderate, Mexico such as Egypt (48 per cent) and Pakistan (25 -20 -10 0 10 20 30 40 50 60 per cent), increased debt-servicing costs would represent 3.3 per cent and 2.8 per cent of total Source: UN DESA, based on data from CEIC (accessed on 15 December 2022). Note: Positive values denote depreciations of national currencies government expenditures, respectively. vis-à-vis the dollar. 12 While developing country governments collect tax and non-tax revenues in local currency, they service most external debts in dollars. 13 Specifically, we calculate the potential increase in the dollar-denominated external debt-servicing burden caused by the depreciation of the national currency against the dollar between January and October 2022. 48 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure II.11 Trends in debt servicing in developing countries Debt service on external PPG debt (LHS) Debt service on external PPG debt as a share of general government revenue (RHS) a) Developing countries b) Africa Millions of United States dollars Percentage Millions of United States dollars Percentage 350,000 12 80,000 12 300,000 70,00010 10 250,000 60,000 8 8 50,000 200,000 6 40,000 6 150,000 30,000 4 4 100,000 20,000 50,000 2 210,000 0 0 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: UN DESA, based on data from the IMF World Economic Outlook database, October 2022, and the World Bank World Development Indicators database. Note: PPG = public and publicly guaranteed debt; RHS = right-hand scale; LHS = left-hand scale. The figure shows the total dollar value of debt service and the median ratio of debt service to general government revenue. A rising debt-servicing burden of a government’s ability to service its debt (Kose and others, 2017b).14 This ratio surged Global public debt averaged about 91 per cent in about 90 per cent of developing countries of GDP in 2022, down from 98.6 per cent in from 2010 to 2021. In the past decade, the 2020. Despite this reduction, many developing share of external debt-servicing payments countries are particularly vulnerable to in government budgets steadily increased. debt-related risks because economic growth This trend has been pronounced in Africa, and fiscal revenue have not returned to where debt servicing on public and publicly pre-pandemic levels while debt-servicing costs guaranteed external debt as a percentage increased in tandem with escalating domestic of revenues rose from 3.1 per cent in 2011 to and international interest rates. 10 per cent in 2021 (figure II.11). This substantial Developing countries’ public debt grew growth in debt, together with the climbing significantly in the decade before the pandemic. share of external debt, made countries more Since 2010, the average debt-to-GDP ratio has vulnerable to interest rates increases and the risen by about 20 percentage points in East Asia appreciation of the dollar. and Latin America and the Caribbean, almost In several countries, debt-servicing burdens 30 percentage points in Africa and more than have ballooned since 2019 (figure II.12). In 40 percentage points in South Asia. In over 2022, debt servicing accounted for more than 30 developing countries, government debt 25 per cent of government revenue in eight exceeded 80 per cent of GDP in 2022. Compared developing countries. For Sri Lanka, it reached to the debt-to-GDP ratio, the ratio between nearly 80 per cent of government revenue. debt and average tax revenue is a better gauge 14 In fuel-exporting developing countries with extremely low tax rates (for example, in Western Asia), this indicator is of limited value. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 49 Figure II.12 Growing external financing needs Debt servicing as a share of government revenue, 2019 and 2022 Amid soaring energy prices, the current account deficits of commodity-importing 2019 2022 countries deteriorated sharply in 2022. Percentage Increasing interest rates and exchange rate depreciations also contributed to worsening Sri Lanka current account deficits. As many as 30 Zambia developing countries – including many least developed countries and small island developing Lao People’s Democratic Republic States – recorded a current account deficit of more than 10 per cent of GDP in 2022. These Maldives deficits add to short-term financing needs. Mongolia Since 2019, many commodity-importing countries have seen a significant increase in gross external Djibouti financing needs, generally defined as the sum Belize of the current account deficit, short-term debt and amortization of medium- and long-term Cabo Verde debt (figure II.13). External debt repayments, the principal and interest, now represent the Bhutan largest share of external financing needs in many Cameroon countries. In essence, most developing countries are incurring more external debt to service their Yemen existing external debt. Sudan Weak economic growth is worsening debt Guinea-Bissau sustainability, pushing many countries to the brink of default. As of 30 September 2022, 37 out Chad of 69 countries covered by the Debt Sustainability Bolivia (Plurinational Framework for Low-Income Countries were in State of) debt distress or at high risk of experiencing debt Comoros distress (IMF, 2022d).15 Debt vulnerabilities have also been rising in many middle-income countries Haiti with market access. Jensen (2021) classified 72 0 20 40 60 80 out of 120 developing countries as vulnerable, with large debt overhangs that will entail Source: UN DESA, based on data from the IMF World Economic Outlook significant economic and development costs. database, October 2022. In Africa, after the surge of Eurobond issuance in the mid-2010s, many debtor A combination of shrinking primary fiscal countries will face maturity walls in 2024 balances, rapidly rising interest rates, and 2025 (figure II.14). Higher interest rates, slowing economic growth and exchange rate weaker domestic currencies and tighter depreciations not only constrains fiscal space in global liquidity will make it more difficult or many developing countries but also exacerbates costly for many Governments to refinance their debt sustainability risks. or roll over debt, adding fiscal consolidation 15 Under the joint World Bank-IMF Debt Sustainability Framework, countries in debt distress are those that are “experiencing difficulties in servicing their debt, as evidenced, for example, by the existence of arrears, ongoing or impending debt restructuring, or indications of a high probability of a future debt distress event” (IMF, 2021a). 50 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure II.13 Gross external financing needs in selected countries Amortization of external debt (long-term) External debt (short-term) Current account deficit Gross external financing needs Percentage of GDP Percentage of GDP 100 18 90 16 80 14 70 12 60 10 50 8 40 6 30 4 20 10 2 0 0 Mauritus Jordan Tunisia Türkiye Sri Lanka Costa Solomon Morocco Nepal Colombia Belize Pakistan Egypt Philippines Bangladesh Rica Islands Source: UN DESA, based on the World Bank’s International Debt Statistics and Quarterly External Debt Statistics database, and the IMF World Economic Outlook database, October 2022. Note: Amortization of external debt (long-term) covers principal repayments on external debt that is public, publicly guaranteed and private non-guaranteed. pressure. Some developing countries would Figure II.14 need meaningful restructuring and reduction African sovereign Eurobond maturities, of their external debt to meet their financing by credit risk rating needs, stimulate their economies and avoid Speculative Default risk Distressed debt defaults. Millions of United States dollars 25,000 Avoiding fiscal austerity 20,000 The current period of high inflation and large 15,000 fiscal deficits has renewed calls for reducing public spending and deficits. These calls 10,000 maintain that fiscal tightening can help cool 5,000 inflation and diminish public debt (Adrian and Gaspar, 2022) while fiscal deficits almost always 0 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 lead to higher inflation (Friedman, 1963). During the previous period of high inflation in the 1970s Source: UN DESA, based on data from Bloomberg. Note: Default categories are based on ratings by Fitch and Standard & Poor’s. and early 1980s, many economists espoused Double B ratings classify as speculative, single B ratings as default risk and the virtues of a minimalistic State, arguing that ratings below single B as distressed. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 51 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 2019 2022 Q2 excessive government spending causes high stimulate aggregate demand in the economy inflation. According to these perspectives, if (DeLong and Summers, 2012). Blanchard and public expenditures exceed public revenues, Perotti (2002) show that government spending the gap is financed by printing money. Fiscal has a positive effect on output while tax deficits almost always increase money holding, increases can negatively affect output. which leads to “too much money chasing too few goods” (Sargent and Wallace, 1981; Ljungqvist Further, there is increasing evidence of the and Sargent, 2000). detrimental effects of fiscal austerity on short- and medium-term growth and employment The “fiscal cause” perspective of inflation (Blyth, 2015). In response to the global financial is particularly dominant when it comes to crisis, many governments in developed countries explaining and taming inflation in developing cut fiscal expenditures before their economies countries (Alesina and Drazen, 1991; Calvo had fully recovered, under the expectation of and Vegh, 1999). These views generally hold “expansionary fiscal austerity” (Alesina and that reducing fiscal deficits – embracing fiscal Ardagna, 2013). Public spending cuts were austerity16 – is the best solution for reducing thought to increase business and consumer inflationary pressures. confidence, boosting private investment and consumption and, consequently, economic Empirical evidence on the impact of fiscal growth. In reality, the cuts negatively impacted deficits on inflation is inconclusive. Blanchard economic output for several years, particularly and Fischer (1989, p. 513) noted, “A common in some euro area economies. As output was criticism of this stress on budget deficit is permanently affected, attempts to reduce public that the data rarely shows a strong positive debt through expenditure cuts and tax hikes association between the size of budget deficit and were ineffective, illustrating the persistent the inflation rate.” Causality can also run in the effects of fiscal shocks and the potentially opposite direction, with higher inflation leading self-defeating nature of fiscal consolidations to higher deficits through nominal increases in (Fatas and Summers, 2018). fiscal outlays and commensurate declines in tax revenues (Dornbusch and de Pablo, 1990). During the Asian financial crisis from 1997 to 1998, IMF assistance to countries such as Proponents of fiscal restraint further argue that Indonesia, the Republic of Korea and Thailand excessive public spending is inflationary and came with strict conditionalities, including bad for economic growth. If the government sharp cuts in fiscal outlays. The Government of spends too much, it will have to pay back its Indonesia, for example, was required to reduce debt with interest, resulting in higher interest fuel subsidies by raising domestic fuel prices. rates, lower investment and lower growth.17 As a result, fuel prices skyrocketed by 71 per Alesina and Perotti (1995) and Guajardo, cent in just six months in 1998 (Sijabat, Wee and Leigh and Pescatori (2014) assert that reduced Suhartono, 2022), leading to mass protests and government expenditures can lead to lower a political crisis. Price subsidies for rice, flour, levels of debt and higher growth. sugar and soybeans, which constituted a large Others have contended that large public part of the consumption basket of the poorest spending is not only necessary but an households, were also reduced or eliminated imperative to reduce economic slack and (IMF, 1998b), which worsened food insecurity 16 While there is no clear definition of fiscal austerity, the literature uses different approaches to define fiscal consolidation or fiscal adjustment episodes. A conventional way to define fiscal consolidation is based on the cyclically adjusted primary budget balance (CAPB). Alesina and Ardagna (1998), for example, argue that a fiscal adjustment materializes in a specific year if the change in the CAPB-to-GDP ratio is greater than or equal to 2 percentage points, or if there is a two- year consecutive improvement in the CAPB of at least 1.5 points per year. Given the endogeneity problems associated with the use of the CAPB, other approaches identify exogeneous adjustments in taxes and government spending by reviewing historical policy documents. Guajardo, Leigh and Pescatori (2014), for example, seek to determine whether discretionary changes in taxes and government spending were motivated by a response to the business cycle or not. 17 The Congressional Budget Office in the United States estimates that for every $1 of new borrowing from the Government, total investment falls by 33 cents. An additional 24 cents of the investment returns materializes abroad (Huntley, 2014). 52 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 and poverty. Fiscal adjustments aggravated Figure II.15 the crisis, exacerbating job losses and firm Debt service and social spending in selected bankruptcies (Ito, 2007; Lee, 2017).18 economies, 2019 Many developing countries have experienced Per capita social spending Per capita debt service costs the adverse effects of fiscal consolidations Current United States dollars implemented in response to crises, such as El Salvador the Latin American debt crisis of the 1980s and the Asian financial crisis. While fiscal Jamaica adjustment programmes can take the form of public expenditure cuts or tax hikes, they have Angola typically included cuts to social services, mental and physical health care, public housing and Sri Lanka transfer programmes (Armingeon, Guthmann Papua New Guinea and Weisstanner, 2014; Lahiani and others, 2022). These measures have adversely affected Zambia sustainable development in several ways, causing spikes in poverty and inequality. Côte d’Ivoire Fiscal consolidation episodes, particularly those Zimbabwe based on expenditure cuts, have been strongly 0 200 400 600 800 1000 associated with a deterioration in human Source: UN DESA calculations, based on data from the World Bank’s development, as measured by the United Nations International Debt Statistics and Government Spending Watch. Human Development Index (Agnello and others, Note: Social spending comprises actual and planned government spending commitments for education, health and social protection. 2018). Spending-based fiscal consolidations have been associated with higher poverty headcounts and poverty gap rates as well as greater income In health care, public spending cuts typically inequality in the short and medium term restrict health coverage and disproportionately (Stubbs and others, 2021; Cardoso and Carvalho, affect women, children and vulnerable groups. 2022). More broadly, fiscal consolidations Evidence shows that health coverage correlates have reduced the redistributive role of fiscal with health spending per capita, although policy (Jalles, 2017),19 implying that, in many the relationship is not linear and varies at cases, public expenditure cuts affect the most different levels of health spending (figure II.16). vulnerable segments of the population. The negative effect of spending cuts on health coverage is particularly strong in countries with The current pressures for fiscal retrenchment in lower levels of health spending per capita (up to developing countries will likely impose further $2,000 PPP). Spending cuts therefore can have stress on social spending. In many economies, particularly significant consequences in poorer resources for social spending were under severe countries (UN DESA, 2021). Health coverage, strain even before the pandemic. Debt service in turn, is associated with health outcomes, costs, for example, exceed combined spending including life expectancy. For low-income on social protection, health and education in countries lagging on health coverage, an many countries, severely hampering progress on improvement to the seventy-fifth percentile the SDGs (figure II.15). According to Muchabaiwa value of their income group would imply an (2021), debt-servicing costs eat up more than estimated average increase in life expectancy 20 per cent of total government revenue in many of 3.4 years (Garcia-Escribano, Juarros and African countries. Mogues, 2022). 18 More broadly, procyclical fiscal policies in Africa and Latin America were associated with low long-term growth rates (Ocampo and Vos, 2008). 19 Recent evidence from developed economies also shows the association of fiscal consolidation with a rise in income inequality (Agnello and Sousa, 2014). CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 53 Figure II.16 increased unpaid work and time poverty Health coverage relative to health spending per capita (ActionAid, 2019). Since they are more engaged in informal work and self-employment, women Sub-Saharan Africa are also more vulnerable to prolonged recessions Latin America and the Caribbean Australia, New Zealand, Europe, Northern America stemming from austerity policies. Northern Africa and Western Asia Matos de Oliveira and Alloatti (2022), for Eastern, South Central and South-Eastern Asia example, show how austerity measures in Brazil Oceania (excluding Australia and New Zealand) after 2016 severely affected the Programa Bolsa Universal health-care coverage index, 2019 Familia. The program prioritizes women as 100 beneficiaries of cash transfers, with significant 90 cascading effects on children’s nutrition and school attendance. Muchhala, Castillo and 80 Guillem (2022) assess the impact of fiscal 70 adjustment in Ecuador, which in 2020 entered 60 into an IMF agreement under the Extended 50 Fund Facility. Austerity measures in the health sector contributed to overburdened health 40 personnel, mostly women, and restricted 30 access to sexual and reproductive health 20 services. Public spending cuts may also affect 10 financial management processes that advance 0 gender equality, such as gender-responsive 0 2,000 4,000 6,000 8,000 10,000 budgeting instruments. Pooled health expenditure per capita (PPP, current international dollars), 2018 Aggressive fiscal consolidation in the aftermath Source: UN DESA, based on data from Universal Health Coverage of economic crises tends to prolong recessions Collaborators (2020) and the World Bank’s World Development and exacerbate damage to employment. Indicators database. Note: The effective coverage index results from weighting 23 coverage Carrière-Swallow and others (2018) find that indicators. Pooled health spending per capita includes domestic general in a sample of 14 Latin American countries, government health expenditures, domestic private health expenditures and external health expenditures (all measured in PPP, current international a fiscal consolidation of 1 per cent of GDP dollars). The country groupings differ from the WESP groupings. came with an increase in the unemployment rate of 0.3 percentage points over a two-year horizon. In Greece, the sovereign debt crisis and Given the interlinked nature of the SDGs, subsequent strict austerity measures between government spending changes in one area 2010 and 2014 left a legacy of high structural strongly affect other areas. Lower health unemployment. Unemployment jumped from spending, for example, impacts public health 7.8 per cent in 2008 to 26.6 per cent in 2014 and outcomes and may push households into poverty remained at about 12 per cent in 2022. and hunger, with cascading effects on education and learning. In the last decade, the growing consensus Growing evidence affirms that fiscal that austerity undermines economic growth consolidation measures are not gender neutral and labour market recovery led the IMF to a and disproportionately hurt women (ILO, 2014; more balanced institutional view on the issue. Elson and Seth, 2019). In many cases, public While IMF emergency support that is free budget cuts reduce or eliminate programmes and of conditionalities is in principle available social services that benefit women more than in times of crises, however, countries often men, including housing, child and disability cannot access these funds. Both the size and benefits. Consequently, women suffer losses duration of rapid financing from the IMF are in income, restricted access to services, and limited. The funding commitment from the 54 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Rapid Credit Facility and the Rapid Financing in output to an exogenous change in the fiscal Instrument – the IMF’s two emergency lending deficit for a given time horizon with respect to windows – has amounted to just about $30 billion baseline projections. The fiscal multiplier thus since 2020, far below the immediate external measures the effect of a $1 change in public financing needs of low- and lower-middle-income spending (or in tax revenues) on the level of countries. Actual amounts disbursed are GDP during a period of one to three or four significantly smaller, with funds usually years. Empirical estimates of spending and provided in tranches over several years. In a tax multipliers vary significantly, depending, comprehensive assessment of conditionalities for example, on the sample period, country on IMF programmes between 2001 and 2018, Ray, characteristics and estimation technique. Gallagher and Kring (2020) found no major change One-year spending multipliers are often in the level of fiscal consolidation required by the estimated to range from 0.3 to 0.7, increasing IMF since the global financial crisis. to about 1, or higher, after two or three years (Mineshima, Poplawski-Ribeiro and Weber, 2014; During the COVID-19 pandemic, frequent calls Batini and others, 2014). for fiscal tightening came during the early stages of recovery, when such tightening would have Importantly, estimates consistently show been premature in the sense of delaying a full that fiscal multipliers are particularly large and inclusive recovery.20 Recent analysis from in times of economic slack (Raga, 2022; Koh, Oxfam shows that 87 per cent of the 130 COVID-19 2017). When there are spare capacities, strong loans negotiated between the IMF and 90 national public demand does not crowd out private governments as of March 2022 indicate plans demand. Government intervention can thus for strict fiscal tightening measures as the crisis be a powerful tool to reinvigorate growth and abates (Oxfam, 2022). The IMF has also advocated support recovery. Tighter liquidity constraints fiscal tightening to ease the pressure on monetary and lower automatic stabilizers in developing policy and interest rates and ensure financial countries suggest that multipliers could be stability, arguing that: “Fiscal responsibility—or particularly high in times of slack. Analysing even consolidation where needed—demonstrates output trends in the United States, Auerbach and that policymakers are aligned against inflation” Gorodnichenko (2015) find that a $1 increase in (Adrian and Gaspar, 2022). government spending raises output by about $1.50 to $2 during recessions and by only about Exploiting large fiscal multipliers $0.50 during economic expansions. In times of crisis and uncertainty, risk- In a comprehensive meta-regression analysis, averse households and businesses tend to Gechert and Rannenberg (2018) show that cut spending. Increased public spending cumulative public spending multipliers can offset the macroeconomic impact of are above 1 as well as 0.7 to 0.9 units higher reduced private consumption and business during a downturn than in normal conditions (figure II.17).21investment. It follows that large output Batini and others (2014), using a gaps – as are prevalent during and immediately broad-based meta-analysis, also find that fiscal after economic shocks – typically correlate with multipliers tend to exceed 1 in downturns. They large fiscal multipliers. The fiscal multiplier show that fiscal multipliers increase more during measures the impact of discretionary fiscal recessions than they decrease during expansions 22 policy on output, defined as the ratio of a change due to asymmetric supply constraints. 20 In the aftermath of the global financial crisis, while the United States maintained an accommodative fiscal stance, a number of EU countries implemented premature austerity measures, dragging their economies back into recession. 21 Riera-Crichton, Vegh and Vuletin (2015) demonstrate that estimates of fiscal spending multipliers in expansion and recession could yield biased results. To prevent this, it is critical to consider whether government spending is increasing or decreasing. In OECD countries, the “true” long-run multiplier in times of economic slack and government spending going up turns out to be 2.3 compared to 1.3. 22 With a negative output gap, an increase in public demand does not crowd out private demand. In an upturn, productive capacity constrains the impact. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 55 Public investment tends to have larger Figure II.17 multipliers than public consumption (Gechert Fiscal multipliers by economic regime and Rannenberg, 2018) (figure II.17). Public and government impulse investment not only boosts short-term aggregate Magnitude (units) demand but also stimulates capital formation, 2.5 expanding productive capacities and lifting potential growth. As such, public investment is critical to mitigate scarring effects from the 2.0 pandemic. This has been repeatedly observed in previous crises, with many economies 1.5 experiencing weak recoveries and growth rates well below pre-crisis trends (Cerra and 1.0 Saxena, 2008). The positive effects of public investment on long-term growth are particularly strong when there is a crowding in of private 0.5 investment and when sectors with large infrastructure gaps and positive externalities, 0 Upturn Downturn Consumption Investment like education, digitalization and the green economy, are prioritized. Furthermore, in Regime on spending multiplier Fiscal impulse times of elevated uncertainty, strategic public Source: UN DESA, based on Gechert and Rannenberg (2018). investment plans may have even larger effects Note: Gechert and Rannenberg (2018) conducted a meta-regression analysis on output and private investment. Public of fiscal multiplier estimates from a broad set of 98 empirical studies.The data set provides a sample of 1,914 observations of fiscal multiplier investments can shape expectations and reduce values. Bars show baseline estimates; lines display the range of estimates uncertainties that delay decisions by generating across model specifications. “wait and see” behaviours among firms and consumers (Gbohoui, 2021). (Furceri and Li, 2017). For example, in South Empirical studies consistently show that Asian economies, public investment multipliers public investment has higher multipliers than were larger than public consumption multipliers, other expenditure categories in developing particularly in recessions (Hayat and Qadeer, countries, with values often well above 1 (Batini 2016). In small economies in Africa, Asia and and others, 2014; Ilzetzki, Mendoza and Végh, the Caribbean, public investment has been a 2013; Gechert, 2015). This suggests that public potent instrument to boost medium-term output investments increase aggregate demand and (Alichi, Shibata and Tanyeri, 2019). Further, a lift short-term expectations due to improved nascent literature suggests that green public productive capacities and potential growth. In investment displays high multipliers, well a comprehensive meta-analysis, Gechert (2015) above those for non-green public investments shows that public investment multipliers are (O’Callaghan, Yau and Hepburn, 2022). Fiscal about 0.5 units higher than general consumption multipliers, for example, range between 1.1 and multipliers. Moreover, estimates for public 1.5 for renewable energy investments, far above investment multipliers during downturns are the 0.5 to 0.6 estimated for fossil fuel energy particularly high, above 2. investment, which provides a strong justification for increased public investments in renewable The composition of fiscal expenditures therefore energy (Batini and others, 2021). plays a critical role in the design of fiscal plans to support economic growth. Large-sample, cross- Governments can contain the impact of public country studies indicate that the positive short- expenditures on inflation by prioritizing public and medium-term impacts of public investment investments in specific sectors. By expanding on output, employment and private investment productive capacities, public investments tend to be higher in times of economic slack can lessen supply-side constraints, helping to 56 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 reduce inflationary pressures in the medium recovery, cushion the impact of the current term. Strengthening productive capacities crises, especially on vulnerable groups, and can also improve tax revenues and thus fiscal scale up public investment for sustainable sustainability. Recent empirical studies indicate development, including in health, education, that prices do not necessarily increase in social assistance, sustainable infrastructure and response to a fiscal expansion, given substantial the energy transition. Governments must also effects on the supply side and total factor ensure debt sustainability and avoid a debt crisis productivity (Jorgensen and Ravn, 2022). Kandil amid tightening external financing conditions. and Morsy (2009) show that public investments helped ease supply-side bottlenecks, reducing In the short term, several policy options can inflationary pressures in Kuwait, Oman and the help developing country governments to United Arab Emirates. expand fiscal space and maximize positive impacts on economic growth and sustainable development. First, governments will need to Inflation can temporarily reduce reallocate and prioritize public expenditures for real domestic debt targeted interventions that support vulnerable groups. Second, governments will need to The current period of elevated inflation should shift public investments towards sectors not deter developing countries from providing with large multipliers. Third, there should much needed fiscal support for the recovery. be increased efforts to expand the revenue While inflation erodes the purchasing power base and improve tax collection, for example, of households, it can temporarily create room through digitalization and the use of new for additional fiscal spending. First, inflation technologies and, where needed, reforms in lowers the real value of public debt denominated governance. A robust path towards growth and in domestic currency. Second, higher inflation fiscal sustainability can crowd in investments lifts nominal GDP, which reduces the ratio from the private sector. Fourth, comprehensive of public debt to GDP. As Blanchard recently and more consistent global efforts are needed noted, “Unexpected inflation, combined with to improve access to timely, low-cost funding low nominal rates, does wonders for debt for developing countries. Finally, international dynamics” (Fairless, 2022). In the United States, efforts should reduce debt burdens and public debt declined to about 123 per cent of massively scale up the financing of global GDP at the end of 2021, from 136 per cent in public goods. the middle of 2020, although fiscal deficits rose during the same period. This marks a net transfer from the holders of United States Government Protecting the most vulnerable bonds to taxpayers. Governments in developing countries with strong institutional credibility The current shock underscores the may temporarily benefit from this mechanism. importance of establishing or strengthening But if higher inflation expectations become social protection, particularly safety nets, which entrenched, any positive effects of inflation facilitate targeted and temporary cash transfers on the debt-to-GDP ratio and fiscal space can to vulnerable households. Without social safety quickly dissipate. Longer-term efforts to “inflate” nets, low-income countries must rely on costly, debt away are generally doomed to fail. untargeted measures, including direct subsidies, the reduction of customs duties and price freezes. Most developing country governments Continued fiscal support have been implementing fiscal measures to to stimulate recovery protect the most vulnerable population groups. According to a recent IMF survey, 45 out of Governments in developing countries will need 103 emerging and low-income developing to provide continued support to the economic economies announced at least one measure in CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 57 2022 to mitigate the social and economic impact Increased and sustained fiscal support of higher food and energy prices. The median is now needed to limit damage from the fiscal cost of such measures is estimated to food security crisis as the cost of living is be about 0.6 percent of GDP, adding further becoming unbearable for millions of low-income fiscal pressures in many developing countries households. As such, countries need to further (Gaspar and others, 2022). strengthen social protection systems, ensuring continued support through temporary subsidies, The costs for compensating the poorest vouchers, discounts on utility bills and cash households for food price increases would transfers, which can be complemented with amount to $5.1 billion to $7.2 billion in 2022 in the reductions in consumption taxes or customs 48 countries experiencing the most severe food duties. Given narrowing fiscal space, measures insecurity (Rother and others, 2022). Moreover, need to target vulnerable groups, which completely eradicating acute food insecurity tend to have a high marginal propensity to would require about $50 billion between June consume. To this end, governments may need 2022 and June 2023. In 2022, 23 countries to restructure and reallocate resources to meet imposed export bans and another 7 enacted the most pressing needs. The Government export limits to contain domestic food price of Indonesia, for example, is reallocating inflation (World Bank, 2022c). about 5 per cent of its fuel subsidy budget, As developing countries generally lack strong which tends to disproportionately benefit social protection and automatic stabilizers, higher-income groups, towards increased social discretionary fiscal support becomes critical spending, including cash transfers that target during crises. Many developing country low-wage workers and more than 20 million governments implemented broad-based low-income households (Cabinet Secretariat of as well as targeted cash transfer programmes the Republic of Indonesia, 2022). Phasing out in 2020 and 2021. Brazil’s Emergency Aid inefficient and regressive fossil fuel subsidies initiative, for example, covered almost one is also part of efforts to implement the United third of the population, including 90 per cent Nations Framework Convention on Climate of households in the bottom 40 per cent of Change and the Paris Agreement as agreed at the income distribution. Cash transfers were the twenty-seventh Conference of the Parties more than half of the national minimum (COP27) in late 2022 (UNFCCC, 2022). wage. Nigeria and Togo used cellphone and satellite data to target emergency cash Spend better, spend more transfers, while Indonesia and Thailand created websites to attract and register Developing countries need to explore beneficiaries (IMF, 2022e). Many developing innovative policies to support output, income countries will need to extend these fiscal and employment without further adding to measures – including direct and targeted inflationary pressures. Policy options broadly fall cash transfer programmes – beyond 2022 to into two categories: “spend better” and “spend protect the most vulnerable populations. more”. The first category includes measures to improve the quality and efficiency of Cash transfer systems saw many innovations, government expenditures within existing fiscal with a shift towards higher usage of mobile space. The second category comprises efforts money (Bowen and others, 2020). Different types to expand available fiscal space, primarily by of mobile payments have been set up to deliver strengthening government revenues. Ultimately, cash assistance directly into bank accounts or while the appropriate combination of domestic mobile wallets in Ecuador, Kenya and Thailand. fiscal policy measures depends on the specific These e-payment options have clear advantages circumstances of a country, broad parameters over manual transfers in terms of speed, can be defined as a framework for creating fiscal targeting and accuracy. space to invest in the SDGs. 58 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Governments will need to strike a balance Amid waning fiscal space, governments can between emergency spending to protect also pursue additional measures that can the most vulnerable population groups reduce expenditures and free up resources. and development spending to expand the For example, pandemic-induced work-from- productive capacity of their economies. home policies and the digitalization of services There is no blueprint for striking this balance, diminished operational expenses, including for which depends on national economic travel, labour, office space and maintenance. circumstances and specific financing needs As pandemic disruptions fade, there could be and gaps. At the same time, governments several areas where cost reductions can be also need to remain committed to a maintained, conditional on preserving service countercyclical fiscal stance and, more broadly, quality and productivity. responsible governance. To effectively use available fiscal space, Better targeting public investments governments will need to reprioritize Amid an increasingly challenging expenditures, focusing on activities and macroeconomic and financial environment, projects with large and persistent multiplier many developing countries are at risk of effects. By increasing public investment entering a vicious cycle of weak investment, in productive capacities, for example, in slow growth and rising debt-servicing burdens. sustainable infrastructure or green technologies, Any rapid fiscal consolidation, through governments can stimulate short-term output significant expenditure cuts or tax hikes, would while also lifting the country’s growth potential likely push economies into recession or lead to and the future revenue base. This would improve a protracted period of slow growth. This will debt sustainability, creating additional fiscal worsen rather than improve debt sustainability space going forward (IMF, 2018). Amid elevated in developing countries. Fiscal efforts should uncertainty, strategic public investment can instead be aimed at expanding an economy’s also crowd in private investments. This requires productive capacity and lifting potential adequate institutional frameworks to effectively growth, which will improve the ability of match public investments with development governments to pay back debt. Enhanced, more needs and coordinate and implement capital efficient and well-targeted public investment expenditures efficiently. Moreover, targeted can crowd in private investment, setting in investments can also help increase supply, motion a virtuous cycle of investment-led reducing bottlenecks and inflationary pressures. economic growth and recovery. Governments also need to prioritize domestic Public investments will need to prioritize resource mobilization. Tax-to-GDP ratios have and better target education, health, digital often failed to increase since the global financial infrastructure, new technologies and the green crisis, remaining at a very low level in most least economy. Addressing infrastructure gaps and developed countries (United Nations, 2022d). bottlenecks, for example, can entail large social In the current environment, where households returns and support productivity gains. China and firms are struggling with rapidly rising recently announced that it would make 6.8 costs, especially for energy and food, raising trillion yuan (about $1 trillion) available to boost tax and non-tax revenues in the short term is public infrastructure investments, which grew difficult. Eliminating loopholes and improving by 7.4 per cent during the first seven months tax administration capacities, however, of 2022. China has issued 3.45 trillion yuan in including through digital transformation, are special bonds to finance these investments. still viable options for many governments. In the Chile has replaced its Temporary Emergency medium term, the objective must be to broaden Fund with a $1.84 billion Infrastructure for the tax base and shift towards direct and Development Program, with a goal to boost progressive taxes. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 59 public investment by 30 per cent in 2023. beneficiaries and deliver emergency cash Updated public investment rules, instructions programmes (Gentilini and others, 2020). and procedures will expedite implementation of infrastructure and development projects. Governments also need to scale up spending on climate change mitigation and adaptation. Many developing countries do not have Public investments that favour the green domestic capital markets that are large enough transition can support growth due to its high to raise money for major public investments. multiplier effects. At the same time, such Bank credit, which is often the key source of investments help reduce carbon dioxide domestic finance for governments, tends to be emissions and strengthen resilience to climate short term, which is not suitable for financing change, generating significant positive long-term development projects. Governments externalities that are not adequately captured in developing countries will need to use in current cost-benefit assessments. Natural resources in public pension and insurance funds disasters are an important driver of public debt, and increase intragovernmental borrowing to especially in climate vulnerable countries. meet some financing needs for boosting public Mohan and Strobl (2021), for example, find that investments. In the longer run, the regional in Caribbean countries, tropical storms have integration of capital markets offers substantial resulted in significant increases in debt due to benefits. Deeper and more liquid markets higher government expenditures. Financing provide firms with better access to competitive the energy transition remains a huge challenge funding sources. The East African Community that requires the mobilization of massive countries, Burundi, Kenya, Rwanda, Uganda and public and private resources. The Just Energy the United Republic of Tanzania, recognize this Transition Partnership agreements established potential, for example.23 between Indonesia and South Africa and a group of leading major economies provide a Public investments can also facilitate the roadmap for investment plans containing a adoption of new technologies, supporting mix of grants, concessional loans, market-rate productivity growth in small and medium- loans, guarantees and private investments that sized enterprises, increasing Internet access mobilize public and private financing.24 and usage by disadvantaged groups, and closing digital divides. In fact, major gaps in A number of developing countries are communication networks continue to constrain prioritizing green investments to support the potential of digital technologies, most pandemic recovery. Samoa, a country highly notably in the least developed countries. As exposed to natural hazards, is implementing witnessed during the pandemic, the digital its second nationally determined contribution divide in access and use reinforces pre-existing to mitigate climate change effects and enhance socioeconomic inequalities. its commitments under the Paris Agreement. The strategy includes the expansion of Public investments in new technologies and renewable energies, incentives for the use digitalization can also improve the delivery of of fuel-efficient vehicles and targeted green social assistance, making support measures public infrastructure projects (IMF, 2022f). more targeted and effective. The challenges While Samoa has made progress in securing resulting from the pandemic prompted many climate financing from donors, significant innovations. Guatemala, Nigeria, Pakistan and financing gaps remain (Kinoshita and others, Togo, for example, experimented with new data- 2022). Many other countries are exploring a driven methods to identify and expand eligible variety of mechanisms to finance the green 23 Biau (2018) presents and discusses options for common capital market infrastructure in East Africa. 24 See Indonesia’s Just Energy Transition Plan (available at https://ec.europa.eu/commission/presscorner/detail/en/statement_22_6892) and the update on South Africa’s Just Energy Transition Partnership (available at https://ukcop26.org/12-month-update-on-progress-in-advancing-the-just-energy-transition-partnership-jetp/). 60 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 transformation of their economies, including includes a proposal to digitalize the collection carbon taxes, private-public partnerships and of value added tax and non-tax revenues green bonds (ADB, 2020).25 (KPMG, 2022a). In Benin, improvements in tax collection have come through the digitalization of tax and customs administration, including Expanding the revenue base the introduction of e-services for medium-sized Strengthening government revenues and the and large firms and electronic invoicing capacity to mobilize domestic resources are machines for value added tax payments critical to expanding fiscal space in developing (IMF, 2022g). Another area to expand fiscal countries, especially in view of expenditure space relates to government revenue losses needs for the SDGs. As economic activity from tax exclusions, exemptions, deductions, continues to recover from the pandemic, credits, deferrals and preferential tax rates. countries need to gradually normalize tax In many cases, tax expenditures are inefficient, collection. Many countries have introduced affect the progressivity of the tax system extensions for filing taxes (e.g., Botswana, India and contribute to significant loss of potential and Nigeria) while others have temporarily fiscal revenues. On average, tax expenditures suspended penalties and interest charges in Latin America and the Caribbean generate (e.g., Bangladesh and India) (Megersa, 2020). revenue losses of about 3.7 per cent of GDP Bangladesh and Egypt introduced provisional (ECLAC, 2019). tax changes, including reductions in tax rates, to manage the crisis. These temporary measures There are also discussions on raising tax can be removed to create fiscal space. Yet revenues and committing to future tax increases governments need to carefully calibrate the to guarantee the repayment of current debt process and remove tax cuts gradually, starting issuance, which can help to reduce borrowing with sectors that have recovered faster before costs. Uganda, for example, has introduced a moving to those reviving at a slower pace.26 new Domestic Revenue Mobilization Strategy with a focus on improving tax collection Tax revenue collection can benefit significantly through enforcing compliance rather than from digitalization. The COVID-19 pandemic introducing new taxes. This strategy is used for fostered digitalization in many aspects of the income and value added taxes (KPMG, 2022b). economy, including public sector operations. Increasing use of digital tools can help lower In the medium term, developing countries need informality while also reducing tax avoidance to make concrete efforts to strengthen fiscal and tax evasion (Yamen and others, 2022). revenues through income and wealth taxes, In many countries, tax evasion significantly thus increasing the progressivity of tax systems. constrains fiscal space. In Latin America and the These reforms can support economic growth, Caribbean, for example, non-compliance with bolster the redistributive role of fiscal policy value added and income taxes accounted for and contribute to a more inclusive development an estimated 6 per cent of regional GDP in 2018 trajectory. Chile and Colombia, for example, are (ECLAC, 2020). currently attempting to implement ambitious tax reforms in that direction. The reforms, The introduction or expansion of electronic which are still under discussion, seek to raise invoicing and digital platforms in tax taxes for high-income earners, introduce wealth administration helps encourage compliance. taxes, reduce exemptions and implement Ghana’s mid-term review of its 2022 budget measures to reduce tax avoidance and evasion. 25 In the Philippines, the “Build, Build, Build” programme prioritizes infrastructure investments with specific green transition plans, like non-motorized alternatives for commuter travel. Cambodia, Indonesia, Malaysia, Thailand and Viet Nam are also developing national plans to boost the green economy by mobilizing different sources of financing. 26 Some countries are still extending exceptions due to the weak recovery. These policies are based on extensions of tax reductions inherited from COVID-19 policy responses, for example, in Oman, Thailand and Viet Nam. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 61 Developing countries can explore the possibility efforts (ECLAC, 2021). The trust fund would of introducing, for example, the land value tax, largely be financed by using SDRs as capital to which most economists consider to be efficient leverage resources. There are also proposals to and less distortive than other taxes (Dye and use SDRs to capitalize development banks and England, 2010). The land value tax can also be an leverage resources. Given the leverage ratio of important instrument for redistributing gains multilateral banks, SDR 100 could produce SDR and reducing income and wealth inequality. 300 or 400 in investments (Lazard, 2022). Among regional development banks in Latin America Looking beyond immediate financing needs and the Caribbean, SDR 100 could generate about and fiscal space, developing countries need SDR 200 in investments. The cost of drawing to mobilize additional domestic and external SDRs sharply increased in 2022, however, resources through innovative means. Monetary, with rising dollar interest rates. The IMF SDR exchange rate, macroprudential and capital interest rate rose from a low of 0.05 per cent in account management measures can create January 2022 to 2.483 per cent on 31 October more fiscal space. Timely and appropriate 2022, with the rate of charge reaching 3.483 per monetary and financial responses, for example, cent. The international community will need can ease the impact of external shocks on the to cap SDR interest and charge rates to ensure real economy and fiscal positions. In periods that the poorest and most vulnerable countries of heightened risk aversion, capital flow can access the facility to meet near-term management measures can help to mitigate large financing needs. and destabilizing capital flows. This can reduce depreciation pressure on the domestic currency, Regional agreements have an important increasing monetary and fiscal policy space. The role in shielding countries from the adverse IMF’s new guidance sees a role for pre-emptive effects of tightening international liquidity. measures not only when capital inflows surge Regional financial arrangements, such as the but also at other times (IMF, 2022h). Latin American Reserve Fund, the Chiang Mai Initiative Multilateralization and the South Enhancing liquidity support Asian Association for Regional Cooperation are providing short-term financial support, such as Since the start of the pandemic, the liquidity support or exchange rate arrangements, international community has offered financial when external financial problems arise. Only a support with record IMF emergency lending limited number of developing countries can take and, in August 2021, a $650 billion special advantage of this kind of backstopping, however. drawing rights (SDRs) allocation – the largest Just three African countries had access to in history – to provide liquidity to the global bilateral swap agreements in 2020 and 2021 and financial system. Only a small fraction of the only 10 tapped a regional financial arrangement SDRs – $21 billion – was allocated to low- (North African countries through the Arab income countries, however. The majority of new Monetary Fund and South Africa through the SDRs was reserved for high-income countries, BRICS Contingent Reserve Arrangement). A although some countries have reallocated a total of 43 African countries remained solely share of their SDRs to Africa, led by China, dependent on the IMF for liquidity provisions to which has pledged $10 billion of its $40 billion stabilize their financial and external conditions. allocation to the continent. A proposed regional financial agreement in The United Nations Economic Commission for Africa has the potential to create more stable and Latin America and the Caribbean presented a liquid markets for sovereign bonds. The African new liquidity instrument based on the SDRs that Liquidity and Stability Mechanism aims to would involve a trust fund to support middle- provide liquidity lines that enhance the quality income countries, particularly small island of African debt. It works by reducing financing developing States, in their response and recovery costs and decreasing the negative effects 62 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 of commodity price volatility on countries’ liquidity conditions have tightened in recent liquidity, complementing global mechanisms months with rising interest rates in the United such as those provided by the IMF.27 The facility States, most developing country governments would require a capital base provided by African are still solvent. In a recent study covering countries themselves, akin to other regional 38 climate-vulnerable developing countries, financial arrangements, complemented by donor Monsod, Majadillas and Gochoco-Bautista (2022) resources, including possibly a reallocation of find that projected long-run debt ratios are SDRs. Estimates suggest that $40 billion to $80 generally well below the estimated sovereign billion of callable capital would be sufficient debt limits, both in low-income countries to sustain such a facility (Elbadawi and others, and market-access countries. Accordingly, 2022). One component of the African Liquidity most countries should have some fiscal space and Stability Mechanism is the Liquidity and unless market and institutional challenges Sustainability Facility, which seeks to provide prevent the flow of finance to otherwise market-based solutions to address sovereign solvent governments. Governments can face debt liquidity challenges. It has just become the so-called “financial death trap” when they operational by closing an inaugural $100 million are pushed into default purely due to a lack of repo transaction at COP27; its performance may cash on hand. Debt sustainability assessments provide useful guidance for the future (UNECA, thus need to be strengthened to better 2022). In the longer term, restructuring and differentiate between illiquid and insolvent reducing external debt burdens will remain sovereigns. Several governments are gaining critical for creating fiscal space, enhancing additional room to maneuver by gradually solvency and improving debt sustainability in discontinuing pandemic-related emergency developing countries. measures. This effect is particularly relevant for middle-income countries, for example, Brazil, Malaysia, Mexico, the Philippines and Türkiye Improving debt sustainability (IMF, 2022i). and reducing debt burdens As shown earlier, developing countries’ Stronger support from the international debt-servicing burdens rose sharply in 2022 community can also help create additional fiscal and will likely increase further in 2023, which space in developing countries, including through will severely constrain their fiscal space. improved access to low-cost financing. This A recent study projected that the debt-servicing is especially the case for the least developed payments of 48 countries in the Vulnerable countries, landlocked developing countries and Twenty Group would rise to $68.9 billion by 2024, small island developing States with very limited the highest level in the current decade and a access to international capital markets. Global more than 10 per cent increase from 2022 (Ramos and regional mechanisms are required to address and others, 2022). In Africa, principal and interest the liquidity needs of countries facing growing repayments are expected to remain above debt vulnerabilities. In addition, multilateral $100 billion in 2022 and could edge towards financing support needs to be scaled up to $115 billion in 2023 (EIU, 2022). In 2021, African provide global public goods, especially climate countries spent on average the equivalent of mitigation and adaptation, but also responses to 15 per cent of foreign exchange income on pandemics and other health emergencies. servicing foreign debt. Around one fifth of Elevated levels of public debt do not necessarily African countries dedicate 20 per cent or more trigger debt distress or debt crisis. While external of foreign-exchange income to external debt 27 The African Liquidity and Stability Mechanism comprises four facilities: a Liquidity and Sustainability Facility (a repo market for African bonds set up in November 2021 by the United Nations Economic Commission for Africa), a Commodity Hedging Facility (to protect countries against fluctuations in global commodity prices by guaranteeing margin calls triggered when prices rise), a Credit Enhancement Facility (to offer partial guarantees on new debt issued) and a Debt Restructuring Facilitation Facility (to introduce a cash element in sovereign debt restructurings to reduce the duration and costs of restructuring negotiations). CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 63 servicing. The burden is much larger for several exchange and ease depreciation pressures. highly indebted countries, such as Mozambique, Developing countries, especially those facing Namibia and Sudan. debt distress, may benefit from pre-emptive restructuring, when there is an expectation Debt refinancing has become significantly that the country may not be able to meet its more challenging for some developing obligations under current contract terms. countries, especially those with smaller and Creditors might accept a more reasonable more vulnerable economies. As many as 20 haircut or reduction in the face value of the developing countries are paying more than debt compared to a post-default restructuring 10 percentage points over safe-haven United (Oxford Economics, 2022). A reorganization States Treasuries to borrow money on capital could include rescheduling external flows markets. Widening sovereign spreads imply or a more comprehensive restructuring that that these countries are increasingly unable decreases the principal value of the stock of to refinance their debt obligations. Several external public debt. countries, including Egypt and Ghana, have reached out to the IMF for funding support. The increased diversity of creditors generates significant coordination challenges and makes The G20 launched a debt relief scheme for restructurings even more complex. Before the world’s poorest nations in 2020 but the global financial crisis, most low-income with limited impact. Some elements, such countries borrowed mainly from the Paris as the Debt Service Suspension Initiative, Club official creditor nations, private banks have expired. The initiative allowed almost and multilateral institutions. Today, China 50 low-income countries to suspend $12.9 and private bondholders (Eurobonds) play a billion in debt-servicing payments to official much larger role as creditors. This diversity creditors in the G20 until the end of 2021. of creditor compositions requires considering Since many developing countries are in debt country-specific circumstances and suitable distress, the United Nations has called on coordination mechanisms that ensure G20 countries to provide further debt relief confidence among creditors and debtors. (United Nations, 2022e). The G20 Common Framework for Debt The current environment is deepening the Treatments is the main international debt challenges for several developing countries. relief mechanism available to International Rising external financing costs are transforming Development Association-eligible countries liquidity risks into solvency risks, especially and least developed countries in debt distress. given insufficient access to emergency financing. The framework has fallen short of expectations, Debt restructurings and debt relief are, in some however; only three countries have requested cases, urgently needed amid unsustainable debt- debt relief, and none have concluded a servicing burdens, credit rating downgrades restructuring in the over a year and a half after due to rising default risks and a lack of access it came into effect. There is broad consensus to conventional debt capital markets. These that the Common Framework is not working, come at a time of growing external funding especially in providing pragmatic, swift, requirements driven by growing current comprehensive and forward-looking solutions account deficits (surging import costs amid high for all countries facing debt distress or at risk structural import needs), soaring external debt thereof. Such solutions must include a standstill servicing given a large share of foreign currency in debt-servicing payments along the lines public debt and limited foreign exchange of the Debt Service Suspension Initiative, reserve buffers. engagement of official creditors with the debtor Restructuring public external debt would and with private creditors, and a clearly defined reduce the near-term need for foreign restructuring process. 64 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Beyond these immediate measures, an Innovative financing of global international statutory mechanism for sovereign public goods debt restructuring needs to be established. Absent a statutory framework, a distressed COP27 announced promising new financing debtor and its creditors negotiate the terms of solutions to help vulnerable countries suffering restructuring based on decentralized market- heavy economic losses due to climate change- based instruments, which is often highly driven disasters. Developing countries that suffer inefficient and inequitable, with the holdouts loss and damage from climate-driven storms, taking advantage of quorum requirements. floods, droughts and wildfires will receive Protracted debt restructuring negotiations compensation from a new fund for climate can have spillover and contagion effects and justice, although several details still need to be exacerbate the debt sustainability risks of hammered out. The Global Shield Financing other developing countries facing debt distress. Facility, hosted by the World Bank, will provide Contagion of debt risks can lead to financial access to disaster risk finance and insurance, instability and aggravate systemic risks. uniting fragmented approaches and channelling immediate finance in a more efficient, effective There is also scope to improve contracts, for and fast way to those that need it most. instance, by introducing State-contingent debt The facility is set to be a key financing and instruments that link debt-servicing payments to implementing vehicle of the Group of Seven (G7) the capacity to pay based on real-world variables Global Shield against Climate Risks announced such as GDP, commodity prices or natural in June 2022. A group of over 85 insurers in disasters such as hurricanes or earthquakes. This Africa also pledged to create a financing facility, would provide breathing space during crises. the African Climate Risk Facility, to provide Enhanced Collective Action Clauses, which allow $14 billion in coverage to help the continent’s a supermajority of bondholders to agree to a most vulnerable communities deal with debt restructuring that is legally binding on all climate-related disaster risks such as floods holders of the bond, including those who vote and droughts. against the restructuring, can help to address coordination problems among private creditors While these are good starts, they will clearly be as witnessed during Argentina’s 2020 debt inadequate to meet growing financing needs restructuring. for fighting climate change and accelerating progress towards the SDGs. Given already Developing countries could also seek debt limited fiscal space and growing financing needs swaps to reduce their external debt burden and for stimulating recovery and protecting the most redirect financial resources towards the SDGs vulnerable, developing countries face significant (see box II.2). Evidence shows that properly challenges in funding SDG investments. designed debt swaps can create fiscal space that Additional SDG finance needs in developing allows recipient countries to provide additional countries are estimated to amount to about $4 funding for education and other development trillion per year (UNCTAD, 2022e; OECD and purposes (UNESCO, 2011). A debt swap happens UNDP, 2021). Needs in developing countries due when debt is reduced in return for the debtor to the increasing impacts of climate change are committing to invest in development areas, for currently estimated at $5.8 trillion to $5.9 trillion example, a project to improve education or the for the period up to 2030 (UNFCCC, 2022). environment. Several debt-for-development swap proposals exist, many of which are related A recent report estimates annual investment to climate, nature and the environment. Debt- needs for climate action in developing countries climate swaps could be useful to expand fiscal (other than China) of about $1 trillion by 2025 space for climate investment, especially when (4.1 per cent of GDP, compared with 2.2 per cent conditional grants and restructurings are not in 2019) and about $2.4 trillion (6.5 per cent of available (Chamon and others, 2022). GDP) by 2030 (Songwe and others, 2022). This CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 65 Box II.2. in middle-income countries that do not face unsus- Innovative mechanisms to enhance tainable debt burdens . the initiative targets bilateral creditor countries that are willing to increase their fiscal space and improve debt budgetary commitments at least until 2030 . sustainability in the Arab region the initiative helps governments to design a climate/SDGs debt swap programme in line with Fiscal stress is high for most Arab middle-income national priorities. It uses an ESCWA-developed key countries facing significant debt burdens and for performance indicators framework for monitoring Arab least developed countries that rely heavily on and evaluation to assess impacts at the project and aid and external debt finance. The high share of policy levels, reduce transaction costs, increase revenues required for debt servicing limits fiscal efficiency and optimize scaling effects (ESCWA, space and expenditures on development needs, 2021b). Some direct benefits include reducing especially to address vulnerabilities to climate risks poverty (SDG 1), improving water availability (SDG and advance the SDG agenda. In middle-income 6), increasing renewable energy and energy efficien- countries, external debt servicing accounted for cy (SDG 7), generating jobs and incomes (SDG 8), about 14 per cent of government revenues and reducing inequality (SDG 10), taking urgent action to about 18 .5 per cent of export earnings in 2021 . With combat climate change in line with national priori- rising interest rates, inflationary pressures and the ties (SDG 13), protecting ecosystems and reversing spillover effects of the war in ukraine on food and land degradation (SDG 15) and improving fiscal energy prices, debt-servicing burdens and budget- space for development expenditures (SDG 17) . ary pressures are projected to increase further . the initiative uses overarching selection criteria for this is particularly a concern in a region facing a projects and draws on high-quality expert advice dual challenge in climate finance: The quantity and from EScWA’s Advisory committee on the climate/ quality or composition of climate finance received SDG Debt Swap. The criteria include: to accelerate do not meet needs and priorities to implement climate adaptation and/or mitigation actions; target nationally determined contributions under the Paris vulnerable populations and locations to support Agreement. Existing financing flows are unequal- the achievement of selected SDGs; and scale up ly distributed among countries in the region, and long-term finance to improve debt sustainability. climate finance mobilization is more difficult for Analytical tools such as climate vulnerability anal- countries facing high fiscal stress and requiring ysis and multidimensional poverty analysis help greater concessional and grant finance. The Arab identify impoverished areas and communities region has received 8 .5 times more loans than that are most vulnerable to climate change and grants, and adaptation finance has remained less economic shocks . than 30 per cent of total flows even as it is a priority for the region (EScWA, 2021a) . Unlike recent cases of debt-for-nature swaps in belize or Seychelles, which have been accompa- the united nations Economic and Social nied by debt restructuring, the proposed climate/ commission for Western Asia (EScWA) has devel- SDGs debt swap initiative does not foresee a finan- oped the “climate/SDGs Debt Swap – Donor nexus cial loss for creditors . the swap is preferable to a initiative” to address the challenge of reducing debt conditional grant as it can support a given climate burdens while improving climate finance and accel- expenditure at lower cost to creditors (chamon and erating the implementation of the Paris Agreement others, 2022) . and the 2030 Agenda (EScWA, n .d .) . the overall aim of the initiative is to reduce external debt-ser- Several member States have shown interest in vicing burdens and generate fiscal space for in- implementing the debt swap initiative, especially vesting in climate action and the SDGs, especially Jordan . EScWA has assisted Jordan to establish a national interagency taskforce and closely consult- Egypt and tunisia, building on lessons learned from ed with it to develop a proposal for a debt swap with the engagement with Jordan . ultimately, success a list of climate and SDG projects that can have will depend on the support of donor countries and micro- and macro-level impacts. ESCWA is current- coordination among creditors . ly seeking support from creditor countries to opera- tionalize the initiative . it is also discussing concrete Authors: Niranjan Sarangi and Souraya Zein, steps to roll out the initiative with senior govern- United Nations Economic and ment officials in other Member States, including Social Commission for Western Asia includes expenditures on transforming the creating an international financing facility for energy system, coping with loss and damage, climate and leveraging the growing flows of investing in adaptation and resilience, investing private philanthropy. The report underscores in natural capital, and mitigating methanic that “powerful multipliers can emerge from emissions from fossil fuels and waste. The report using all sources of finance, from collaboration notes that about half of required financing across countries and institutions, from the is expected to come from local sources, for instruments of the (multilateral development example, by strengthening domestic capital banks and international financial institutions), markets, mobilizing funding from national and from working with the private sector” development banks, improving tax collection (ibid., p. 11). and cutting fossil fuel subsidies. Accordingly, there is a projected need for about $1 trillion As the world enters 2023, the midpoint of per year of external finance by 2030. To put this the SDGs, the stakes could not be higher. into perspective: The worldwide fiscal response Myriad interconnected global crises are to COVID-19 amounted to approximately causing significant and potentially long-lasting $17 trillion (IMF, 2021b). Overall government setbacks to sustainable development in all support for fossil fuels in 51 countries nearly dimensions. Amid a deteriorating global doubled from $362 billion in 2020 to $697 environment, many developing countries billion in 2021, with a further sharp increase are at risk of being trapped in protracted predicted for 2022.28 high debt and low growth spirals, with devastating economic and social consequences. Songwe and others (2022) emphasize the But such a scenario can be avoided through potential to massively scale up private sector a combination of national and global efforts. finance under the overarching framework of Public authorities can improve the efficiency the Glasgow Financial Alliance for Net-Zero. and effectiveness of expenditures, crowding Multilateral development banks can help in private investment and increasing the fiscal increase private and public sector investment, multiplier. These national efforts need to be including through more effective use of accompanied by comprehensive international available capital. The report also calls for the initiatives to deal with temporary liquidity risks, mobilization of concessional and low-cost improve access to low-cost financing, reduce finance by augmenting the use of SDRs for debt burdens and scale up the financing of climate finance, tapping carbon markets, global public goods. 28 Factoring in external costs, such as contributions to climate change through greenhouse gas emissions and local health damages through the release of harmful pollutants, raises global fossil fuel subsidies to about $6 trillion. CHAPTER II. FISCAL POLICy In TIMES OF CRISIS: THE IMPERATIVE OF AVOIDInG AUSTERITy 67 Developed economies 5.2 5.1 2.6 1.8 1.6 2.2 1.4 0.4 1.5 0.1 -4.6 Total Per capita -4.9 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . cHAPtER iii Regional developments and outlook Developed economies its policy rate in a series of steps, from a 25 to 50 basis point range in March to a 4.25 to 4.5 per cent ● Monetary tightening to combat inflation range in December 2022. This marked the Fed’s in developed economies will come at a most aggressive monetary tightening over any cost of slower growth. six-month period. ● Europe confronts an unprecedented Against a backdrop of rapidly tightening energy crisis, high inflation and tighter monetary conditions, growth prospects for 2022 financial conditions that are projected and 2023 began to stumble. The economy in the to weigh on private consumption United States is estimated to have grown by and investment. only 1.8 per cent in 2022, down from 2.6 per cent ● As workers’ preferences change, many projected in May. As the risk of a recession looms sectors are experiencing labour shortages. large, the economy is forecasted to grow by only 0.4 per cent in 2023. This marks a significant downward revision from the 1.8 per cent growth United States of America: The outlook expected in May 2022. deteriorated sharply in 2022 While inflation pressure somewhat moderated The near-term outlook for the economy in the during the second half of 2022, falling from 8.5 United States of America began to deteriorate per cent in July to 7.1 per cent in November, it quickly during the second half of 2022 amid remains uncertain whether the Federal Reserve growing concerns about runaway inflation will slow the pace and sequence of future rate derailing output growth. Consumer price hikes. This affects not only the economy in the inflation sharply increased from 1.4 per cent in United States but also has significant global December 2020 to 9.1 per cent in June 2022, with spillover effects. In the near term, the Federal monthly price inflation averaging 4.7 per cent Reserve will have three options: First, stay on in 2021. For the most part in 2021, policymakers course with raising rates, albeit at a slower viewed inflationary pressures as transitory and pace until inflation falls to the 2 per cent target; expected them to dissipate with the reopening second, pause the rate increases and let inflation of the economy. But inflation continued to rise fall without further monetary tightening; or third, in 2022, prompting the Federal Reserve to raise reverse gears and lower policy rates to provide cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 69 room for growth in 2023, albeit at the risk of With the Federal Reserve sharply increasing higher inflation. Each option carries significant policy rates, the Government of the United perils for the Federal Reserve, including its States enacted the Inflation Reduction Act credibility in maintaining price stability and in August 2022. The legislation will allow the anchoring long-term inflation expectations Government to invest $391 billion in energy (see chapter I). security and climate change, including $158 billion in clean and renewable energy. It will also The labour market in the United States also faced lower the cost of prescription drugs for American significant challenges in 2022. While inflation households, impose minimum corporate taxes surged, the unemployment rate fell to historic and reduce fiscal deficits, all of which are lows, declining to 3.5 per cent in July. During expected to contribute to cutting inflation in the the third quarter, the unemployment rate rose near term. Unlike many developing countries, slightly, reaching 3.7 per cent by November. But the United States has chosen to sustain and the low rate belies the fact that the labour force increase public spending – especially investment participation rate remains 1.2 per cent below spending – to fight inflation (see chapter II). its pre-pandemic level. More than 3 million Americans have permanently left the labour force since the pandemic began, which partly explains Japan: Multiple shocks slow tight post-pandemic labour market conditions. the economic recovery By some estimates, 16 million working-age Americans are still suffering from COVID-19- Despite growing at a moderate pace, the related symptoms. Among them, 2 million to 4 Japanese economy is expected to be among million are out of work because of long COVID the best-performing developed economies in (Bach, 2022). With 10.4 million job vacancies in the 2023. The headline GDP is forecast to increase second half of 2022, COVID-19-related illnesses by 1.5 per cent in 2023, slightly lower than the still accounted for about 15 per cent of the labour estimated growth of 1.6 per cent in 2022 and 1.7 shortage in the United States (ibid.). The high job per cent in 2021. While the lifting of COVID-19 vacancy rate largely explains the sharp growth containment measures in the second quarter in wages in recent months, with average hourly of 2022 unleashed pent-up domestic demand, wages increasing by an annual rate of 5.6 per China’s lockdowns adversely affected Japan’s cent by November 2022. A tight labour market exports. Prolonged chip shortages, rising import and robust wage growth – and the likelihood of costs (driven by a weakening Japanese yen) a wage-price spiral – lend further urgency to the and risks of a global slowdown – particularly in Federal Reserve’s efforts to bring inflation down the United States and Europe – have weakened 1 to the 2 per cent target by 2024. manufacturer sentiment. Labour market conditions remain tight, however, following the The financial market responded negatively to reopening of the economy. rising inflation and slowing growth prospects in 2022, with both equity and bond prices falling Inflation in Japan is projected to meet the target throughout the year. The S&P 500 index declined of 2 per cent in 2022 and is forecast to edge down by 23.9 per cent between January and September to 1.2 per cent in 2023 as economic growth slows. 2022, while the NASDAQ composite index dropped Utility prices, especially fuel prices, have been by nearly 30 per cent. Cryptocurrencies – which the main driver of inflation in 2022; food and rose sharply in value during the pandemic – furniture prices have also contributed. While saw significant valuation losses. Bitcoin shed high energy prices due to the war in Ukraine more than 65 per cent of its value between the have added some inflationary pressures, the beginning of 2022 and the middle of December. direct impact of the war has been limited. 1 The Reuters Tankan sentiment index for manufacturers in Japan deteriorated to 2 in November 2022, the lowest reading since January 2021. See Trading Economics. Available at https://tradingeconomics.com/japan/reuters-tankan-index (accessed on 14 November 2022). 70 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure III.1 Inflation and central bank policy rates in Australia and New Zealand Inflation (LHS) Central bank policy rate (RHS) a) Australia b) New Zealand Percentage Percentage Percentage Percentage 7 3.5 8 4.0 6 3.0 7 3.5 5 2.5 6 3.0 5 2.5 4 2.0 Inflation target (LHS) 4 2.0 3 1.5 Inflation target (LHS) 3 1.5 2 1.0 2 1.0 1 0.5 1 0.5 0 0.0 0 0.0 -1 -0.5 -1 -0.5 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2019 2020 2021 2022 2019 2020 2021 2022 Source: UN DESA, based on data from CEIC. Note: LHS = left-hand scale; RHS = right-hand scale. In 2020, Japanese imports from the Russian Fiscal policies continue to be supportive. In Federation and Ukraine only accounted for about December 2022, the Government enacted a new 1.8 per cent of Japan’s total imports. Japanese supplementary fiscal budget of over $200 billion, exports to the two countries comprised just 1 per equivalent to about 4 per cent of GDP. It will cent of Japan’s total exports.2 A weakening yen fund cash handouts to targeted low-income has translated into higher input prices, adding households and extended fuel subsidies. From some inflationary pressure. During the first 2022 to 2024, the public debt-to-GDP ratio is three quarters of 2022, the yen depreciated by expected to remain high.3 Low inflation coincides nearly 25 per cent against the dollar, registering with low borrowing costs for the Government. a 32-year low. The Japanese 10-year government bond yield was 0.24 per cent as of October 2022, compared to 3.98 As inflationary pressure remains largely per cent in the United States at the same time.4 transitory and the recovery from the COVID-19 crisis is still tepid, the Bank of Japan has maintained an accommodative monetary policy Australia and New Zealand: An economic stance. To counter the currency depreciation, downturn amid high inflation the Japanese authority intervened in the foreign exchange market in September 2022, the first GDP growth in both Australia and New Zealand time in more than 20 years. is forecast to slow to around 2 per cent in 2023 as a higher cost of living weakens private 2 See the World Integrated Trade Solution database. Available at https://wits.worldbank.org/CountryProfile/en/Country/JPN/Year/2020/TradeFlow/EXPIMP/Partner/ by-country# (accessed on 12 November 2022). 3 According to IMF forecasts, the general government gross debt in Japan will remain above 260 per cent of GDP from 2022 to 2024. 4 See CEIC data. Available at www.ceicdata.com/en (accessed on 9 December 2022). cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 71 consumption, declines in housing prices heightened global economic uncertainty. impair construction investment and public Against this backdrop, many European countries demand stabilizes after rapid growth during the are projected to experience a mild recession pandemic. Although exporters in Australia may during the winter of 2022 to 2023, followed by a benefit from higher energy, metals and grains subdued recovery. GDP in the European Union is prices due to the war in Ukraine, some gains will projected to grow by only 0.2 per cent in 2023, a be offset by higher import prices of fertilizers, sharp downward revision from earlier forecasts. capital goods and consumer goods (Export In 2024, growth is projected to pick up to 1.6 Finance Australia, 2022). per cent as inflation eases and the monetary tightening cycle ends. This comes after a Australia and New Zealand in 2022 faced surprisingly strong expansion of 3.3 per cent relatively high inflationary pressure, averaging in 2022, when further relaxation of COVID-19 about 6.5 per cent and 7 per cent respectively. mobility restrictions and pent-up demand High and rising inflation has prompted the boosted spending on contact-intensive services,5 central banks in both countries to speed up including tourism-related activities.6 monetary tightening. The Reserve Bank of Australia raised the policy rate six times by a The war in Ukraine, dwindling supplies of total of 2.5 percentage points between May and natural gas from the Russian Federation, and October 2022. The Reserve Bank of New Zealand sharp declines in nuclear power and hydropower raised the policy rate from 0.75 per cent in caused severe supply and demand imbalances January to 3 per cent in September 2022 (figure in energy markets in 2022.7 As a result, gas and III.1). Interest rate rises and credit constraints electricity prices surged to unprecedented levels have put downward pressure on property prices, (figure III.2). To fill the energy gap, European which could have negative wealth effects and countries boosted liquefied natural gas imports further dampen household consumption. and increased power generation from coal, solar and wind. In parallel, households and industries reduced energy demand. In August Europe: An energy crisis threatens and September 2022, EU gas consumption was to push the region into recession estimated to be about 15 per cent below the The economic outlook for Europe has continued average of the previous five years (European to deteriorate amid the protracted war in Commission, 2022a). These measures, along with Ukraine. Soaring energy prices have pushed forecasts of a milder than usual winter, helped inflation to multi-decade highs, eroding reduce natural gas prices while facilitating the household purchasing power and increasing refilling of gas reserves across Europe. 8 production costs for firms. Market liquidity While the worst-case scenario of massive has tightened as the region’s central banks disruptions to industrial activities will likely be have accelerated interest rate hikes to rein in avoided, Europe is still projected to see a marked inflationary pressures. Higher borrowing costs, economic downturn. Private consumption sizeable fiscal deficits and elevated debt levels will weaken due to significant purchasing continue to constrain fiscal space in many power losses by households and tightening European economies. In addition, the external financial conditions. In the third quarter of 2022, environment has worsened amid weakening consumer confidence both in the European growth in China and the United States and Union and in the United Kingdom plunged to 5 Contact-intensive services include wholesale and retail trade, transport, accommodation and food services, and arts and entertainment. These sectors recovered later from the pandemic than less contact-intensive services, such as information and communication services; financial and insurance activities; real estate; professional, scientific and technical activities; and administrative and support services. 6 Statistical carry-over effects also contributed to stronger GDP growth in 2022. 7 Maintenance, extreme heat waves and drought conditions negatively affected nuclear power and hydropower generation. 8 In mid-November 2022, Europe’s reference natural gas price, the Dutch TTF, was about €120 per megawatt hour, down from an August peak of €320 but still well above the 2021 average of €47.7. Gas storage levels in the European Union had reached 95.4 per cent. 72 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure III.2 Figure III.3 Natural gas price in the European Union Real GDP in selected economies Euros per megawatt hour European Union Germany Spain United Kingdom 350 European Union announces initial plans for gas price cap Index, Q4 2019 = 100 300 105 250 Nord Stream 1 flows sharply reduced 200 Onset of war in Ukraine 100 95 150 100 90 50 85 0 80 Jan Jul Jan Jul Jan Jul 2020 2020 2021 2021 2022 2022 75 Q4 Q2 Q4 Q2 Q4 Q2 Source: UN DESA, based on data from Trading Economics. 2019 2020 2020 2021 2021 2022 Note: The figure shows daily Dutch front-month natural gas futures at the title transfer facility (TTF), a leading European benchmark price. Source: UN DESA, based on data from the Eurostat. the lowest level since the 1980s, with only a European Union, energy prices rose by 38.4 per slight improvement in October and November. cent in the third quarter of 2022 (from a year Businesses are expected to cut back on capital ago), contributing about 40 per cent to overall spending amid elevated uncertainty and inflation (figure III.4). Consumer price inflation higher input and borrowing costs. In addition, is projected to average 6.6 per cent in 2023, external demand is projected to soften further compared to an estimated 8.6 per cent in 2022. as the region’s main trading partners – China and the United States – face subdued growth Inflationary pressures have become increasingly prospects in 2023. broad-based as rising energy prices affect output prices in other sectors of the economy. The energy and cost-of-living crisis is derailing The magnitude of the inflation surge has varied Europe’s growth at a time when several from country to country. Consumer price European economies have yet to recover their inflation in the European Union in 2022 ranged pre-COVID-19 output level. In the third quarter from 5.8 per cent in France to 20 per cent in of 2022, GDP was 2.6 per cent above the pre- Lithuania and 21 per cent in Estonia. Higher COVID-19 level in the European Union, but 0.4 inflation rates in Eastern Europe reflect the per cent below that level in the United Kingdom higher energy intensity of GDP, a larger share and 2 per cent below it in Spain (figure III.3). of food and energy in consumer price index A few countries will be hit much harder than baskets and stronger nominal wage growth. others. GDP is forecast to contract in Germany, The sharp depreciation in 2022 of the euro, the Italy, Sweden and the United Kingdom in 2023, pound sterling and other European currencies as these economies are particularly vulnerable against the dollar added to inflationary pressures to the combination of soaring energy prices and as did remaining supply-side bottlenecks and rising borrowing costs. By contrast, economic pent-up consumer demand (ECB, 2022b). These growth is expected to be more resilient in a few factors are expected to ease in 2023 and 2024. The smaller economies, including Cyprus, Ireland impact, however, is expected to be partly offset and Portugal. by rising pressure from nominal wage growth. Despite a tight labour market, negotiated wages Inflation in Europe is expected to moderate in the euro area increased by only 2.7 per cent in only gradually as the effects of the energy the first half of 2022. Amid new agreements and crisis will likely persist across the region. In the cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 73 Figure III.4 Figure III.5 Components of HICP inflation in the European Union Selected labour market indicators in the European Union Food including alcohol and tobacco Non energy industrial goods Unemployment rate (RHS) Energy Job vacancy rate (RHS) Services (overall index excluding goods) Employment rate (LHS) Percentage points Percentage Percentage 14 76 10 12 10 74 8 8 72 6 6 4 70 4 2 0 68 2 -2 Jan Apr Jul Oct Jan Apr Jul Oct 66 0 2021 2021 2021 2021 2022 2022 2022 2022 Q1 Q1 Q1 Q1 Q1 Q1 Q1 2016 2017 2018 2019 2020 2021 2022 Source: UN DESA, based on Eurostat data. Note: The figure shows the main components of the monthly Harmonised Source: UN DESA, based on Eurostat data. Index of Consumer Prices (HICP) in the European Union. Note: LHS = left-hand scale; RHS = right-hand scale. Data are quarterly. The employment and unemployment rates refer to the group of people aged 20 to 64 years. minimum wage hikes, nominal wage growth is projected to accelerate markedly in 2023. of 72.9 per cent. Employment recovery has Amid weakening economic growth, a moderate been faster and stronger for women than men increase in unemployment is projected in 2023. (Herley, Adăscăliței and Staffa, 2022). In the A more substantial or longer-lasting downturn second quarter of 2022, about 1.8 million more in labour markets cannot be ruled out, however. women were in employment in the European After a strong recovery from the pandemic, Union than before the pandemic, compared to labour markets in many European economies are only 500,000 more men.9 The gender employment exceptionally tight as evidenced by record-low gap, measured as the difference in employment unemployment and record-high employment rates between men and women, narrowed from and job vacancy rates (figure III.5). Several 11.2 percentage points in the fourth quarter of sectors, including construction, information and 2019 to 10.7 percentage points in the second communication, and food and accommodation, quarter of 2022. The unemployment rate in suffer from severe labour shortages. the European Union is projected to increase In all large European economies, except the from a record low of 6.2 per cent in 2022 to 6.5 10 United Kingdom, employment exceeded the pre- per cent in 2023. In the United Kingdom, the pandemic level in 2022. In the European Union, employment rate was notably lower in 2022 74.8 per cent of people aged 20 to 64 years were than before the pandemic as the number of in formal employment in the second quarter people taking early retirement or suffering of 2022. This was the highest employment rate from worsening health conditions increased. 11 on record, well above the pre-pandemic high 9 See Eurostat. Stronger employment growth for women than men was a key characteristic of European labour markets even prior to COVID-19. 10 Cross-country differences in unemployment rates in the European Union have narrowed but remain significant. The unemployment rate in 2023 is projected to be 2.9 per cent in Czechia and 13 per cent in Spain. 11 See data from the Office of National Statistics. Available at www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/ reasonsforworkersagedover50yearsleavingemploymentsincethestartofthecoronaviruspandemic/wave2 (accessed on 7 January 2023). 74 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 The unemployment rate is forecast to rise from one-time levies on companies or industries (for 3.7 per cent in 2022 to 4.4 per cent in 2023. example, nuclear, gas, oil or banks) reporting unusually large profits.14 Europe’s monetary authorities face a difficult balancing act as they seek to tame inflation The overall fiscal stance in 2023 is expected to without further exacerbating the economic be neutral or moderately supportive in many EU downturn in 2023. The European Central Bank countries. Government deficits, as a percentage raised its main policy rates by a total of 250 of GDP, are projected to slightly increase again, basis points between July and December 2022, after declining in 2022 amid strong nominal ending an eight-year period of negative interest output growth and a gradual withdrawal of rates12. After aggressively tightening monetary pandemic-related support measures (European policy stances during the second half of 2022, the Commission, 2022b). The fiscal deficit in the European Central Bank, the Bank of England and European Union is estimated to have narrowed other central banks are expected to slow the pace to 3.4 per cent of GDP in 2022, down from 4.6 per of interest rate hikes. As medium-term inflation cent in 2021. The government-debt-to-GDP ratio expectations seem well anchored (Panetta, 2022), declined to 86.4 per cent in the second quarter of central banks are likely to shift towards more 2022 but remained above 110 per cent in France, gradual monetary tightening amid growing fears Greece, Italy, Portugal and Spain. of recession in 2023. In several Eastern European countries, including Czechia and Hungary, the Over its multi-year financial cycle from 2021 rate hike cycle paused towards the end of 2022, to 2027, the European Union, as an economic although further increases cannot be excluded. bloc, intends to implement the largest fiscal To ensure effective transmission of monetary stimulus package ever. The regular seven-year policy and prevent sharply divergent borrowing financial framework has been augmented with a costs among EU member States, the European €800 billion temporary recovery instrument, the Central Bank added the Transmission Protection NextGenerationEU plan (European Commission, Instrument to its toolkit. It allows potentially 2022c). The plan will be financed through unlimited bank purchases of government bonds joint borrowing and bring total spending to with maturities between 1 and 10 years from any just over €2 trillion. It aims at modernization, member State “experiencing a deterioration in including the digitalization and “greening” of financing conditions not warranted by country- the European economies. The European Union is specific fundamentals” (ECB, 2022c). also advancing plans to fundamentally reform its fiscal policy framework, intending to replace the The fiscal outlook for Europe has become more Stability and Growth Pact with a “simpler, more challenging amid weakening economic activity, transparent and effective framework” centred rising borrowing costs and the need to cushion the on medium-term fiscal and structural plans impact of high energy prices on households and (European Commission, 2022d). businesses. Since the start of the energy crisis, EU member States have allocated and earmarked The United Kingdom faces a particularly difficult an estimated €600.4 billion (about 3.7 per cent of outlook for public finances after an initial plan GDP) for support measures. The United Kingdom for unfunded tax cuts raised debt sustainability has committed €97 billion (about 3.6 per cent of concerns, triggering financial market turmoil. GDP) (Sgaravatti, Tagliapietra and Zachmann, In response, the Government announced an 2022).13 A growing number of European countries austerity budget based on a mix of tax increases have introduced windfall profit taxes, which are and spending cuts despite a looming recession and already strained public services. 12 On 1 January 2023 Croatia officially joined the euro area, delegating its monetary policy to the European Central Bank. 13 Germany alone announced measures totalling more than €200 billion, including a gas and electricity price brake for households and industry. 14 Countries that have already introduced windfall tax mechanisms or have proposals include Austria, Bulgaria, Czechia, Finland, Germany, Greece, Italy, Netherlands, Romania, Spain and the United Kingdom. See, for example, Reuters (2022). cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 75 Economies in transition 4.9 4.9 2.5 2.3 2.2 2.1 -0.8 -2.6 -2.1 -1.2 Total -2.8 Per capita-3.0 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . forecasts for economies in transition exclude ukraine due to the lack of forecasts for the country . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . Economies in transition of the region (excluding Ukraine, for which a forecast is not available), is expected to shrink ● The war in Ukraine is worsening the by further 1 per cent, expanding by a modest economic outlook for the CIS area. 2.3 per cent in 2024. ● Surging inflation is eroding living Following the start of the war in Ukraine, standards both in the Commonwealth virtually all OECD countries introduced of Independent States and South- stringent economic sanctions against the Eastern Europe. Russian Federation,15 seeking to curtail the ● Slow progress in EU accession is country’s trade and finance links with the rest prompting deeper intraregional of the world. The sanctions have impacted integration in South-Eastern Europe. a wide range of economic activities. Key industrial sectors such as energy, transport and technology have encountered constraints The Commonwealth of from restrictions on imports of materials Independent States and Georgia: and technologies for oil refining, supplies In the shadow of war in Ukraine of airplanes and airplane components, and numerous “dual-use” technologies and products, The war in Ukraine heavily impacts near-term including semiconductors. Sanctions targeted economic prospects for the Commonwealth of the Central Bank of the Russian Federation,16 Independent States and Georgia. The contraction effectively immobilizing its assets, and Russian of the economy of the Russian Federation and the sovereign debt. The SWIFT messaging system significant loss of output in Ukraine are expected severed connections with a number of major to affect the rest of the region. Impacts occur Russian banks. Since late February 2022, an through numerous channels, including migration, ongoing exodus of foreign companies has hit commodity prices, market volatility, remittances various sectors, including automotive, aviation, and changes in fiscal space. Individual country banking and finance, energy, high-tech, effects vary by degree of exposure and coping entertainment, retail and others (Yale School of capacity. Even in the longer run, political and Management, 2022). economic fallout from the conflict is likely to shape trade and finance flows in CIS countries A number of parties have introduced a partial and the overall framework of their integration embargo on Russian hydrocarbon exports. The into the global economy. This newly emerging European Union announced an embargo on political and economic context will benefit some Russian seaborne crude oil that will be extended sectors but impose costs on others, adding to the to refined oil products in February 2023. It is challenges of economic diversification. progressively diminishing its reliance on Russian natural gas. Since early December 2022, G7 The near-term economic outlook for the countries and the European Union have imposed region remains fragile amid significant a price cap on Russian oil, prohibiting insurance downside risks, compounded by tightening and shipping services for any vessels carrying global financial conditions and high levels of Russian oil sold at a price above the cap. In geopolitical uncertainty. The aggregate GDP November 2022, the United States revoked market of the Commonwealth of Independent States economy status from the Russian Federation, and Georgia is estimated to have contracted by allowing the former to apply anti-dumping 3.3 per cent in 2022. In 2023, the aggregate GDP measures and introduce additional tariffs. 15 Many Russian industrial sectors, such as defence, aerospace and maritime, had already been sanctioned in the past. The severity and scope of the recent wave of sanctions, however, was unprecedented. 16 Most developed countries prohibited transactions with the Central Bank of the Russian Federation along with the National Wealth Fund and the Russian Ministry of Finance. As a result, around $300 billion of the Central Bank’s foreign exchange reserves held overseas were frozen, leaving a safety buffer accumulated over many years beyond the reach of Russian authorities. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 77 Initial estimates had predicted a 10 to 15 per Figure III.6 cent contraction17 in the Russian economy but Changes in the export directions of the it contracted by just around 3.5 per cent in 2022. Russian Federation Export earnings remained strong. High inventory levels, stockpiled amid pandemic-related supply Average monthly exports, March to November 2022, millions of United States dollars chain disruptions and increasing uncertainties, 12,000 allowed many firms to maintain production in the second and third quarters of the year despite 10,000 China sanctions. Increased military expenditure, while not contributing to living standards or sustainable development, also statistically 8,000 added to GDP. Some industrial sectors shrank considerably, however. For example, automotive 6,000 industry output decreased by around 80 per Türkiye cent in 2022. 4,000 India Since the beginning of the war, the Central Bank GermanyJapan of the Russian Federation has taken actions 2,000 Brazil Netherlands Republic of Korea to preserve financial and currency stability, United States including sharp increases in the policy rate 0 United Kingdom and the introduction of capital controls. The 0 2,000 4,000 6,000 8,000 10,000 12,000 banking system has remained resilient due to Average monthly exports, March to November 2021, millions of United States dollars earlier changes in the financial sector.18 The Source: Trading Economics, based on national sources and strong appreciation of the Russian currency in UN COMTRADE data. the second quarter (explained by the massive Note: The diagonal line is a 45-degree line. current account surplus generated by high energy prices, import suppression, capital controls, conversion of European gas payments surplus of the Russian Federation in the first into roubles and the requirement for exporters to three quarters of 2022 amounted to $198 billion sell foreign exchange) contributed to stabilizing versus $122 billion for 2021 as a whole. inflation, preventing a sharp fall in disposable The outlook for the Russian economy incomes and sustaining consumer demand. These deteriorated in late 2022, however, as the partial developments supported a reversal of initial military mobilization contributed to the loss monetary tightening. As a result, corporate and of human capital, including through outward retail lending expanded by around 10 and 7 per migration. Numerous industries began to struggle cent, respectively, from January to October. with component shortages. The economy is Directions of trade in the Russian Federation have expected to shrink further in 2023, slightly markedly changed since the war started (figure rebounding only in 2024. Its medium-term III.6). Although Russian oil has been redirected to prospects remain bleak, with potential output Asia and sold at a discount price, the total value growth hovering between 0 and 1 per cent. of exports increased in 2022 as trade with China, The Russian Federation currently aims to India and Türkiye surged. While the volume of build new supply chains, especially within the natural gas exported to Europe declined, prices Eurasian Economic Union,19 as well as to localize significantly climbed. The current account production cycles. So-called “parallel import” 17 See, for example, EBRD (2022), IIF (2022b) and IMF (2022c). 18 Since 2013, the Central Bank has been discovering and liquidating failing banks, with around 10 per cent of banks losing their licenses annually. The number of banks operating in the Russian Federation has shrunk from 1,058 in 2010 to 327 in 2022. 19 Comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan and the Russian Federation. 78 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 schemes, including through the resurgence of imports from Ukraine, including agricultural the “suitcase trade”,20 may address gaps in the products and foodstuffs, for one year. consumer market but they can only partially support industrial activity. Due to limited The resumption of grain exports under a domestic oil storage capacity the country may United Nations-brokered deal and increased be forced to close oil wells, further impacting external financing improved the outlook in late growth in the medium term as relaunching 2022. In 2023, the European Union is planning production would be a lengthy process. to provide €18 billion in economic support, Redirecting natural gas flows to Asia will require although this may be inadequate against an large pipeline investments. estimated $5 billion monthly budgetary shortfall. The assistance has been provided partly as The economy of Ukraine contracted by over 35 loans, adding to the debt burden. Post-conflict per cent in 2022, owing to the massive destruction reconstruction will require immense resources, of its physical infrastructure, including railway estimated at €350 billion to €500 billion (Becker and other links with neighbouring countries, and others, 2022; World Bank, 2022d). The road networks and bridges; the disruption of outlook for the Ukrainian economy in 2023 and production and trade activities; large losses in 2024 is highly uncertain and will depend on many the labour force due to migration or conscription; factors, including the cessation of hostilities and and the displacement of population. Strikes on the launch of reconstruction efforts.21 energy infrastructure caused serious damage to the supply of electricity and heat, impeding the The war is affecting the entire CIS area, return of people fleeing the conflict. Blockaded especially members of the Eurasian Economic ports and damaged steel factories have Union. In the longer run, the lower potential undermined export potential. growth of the Russian economy would involve serious costs for those economies. Budget revenues shrank dramatically even The economy of Belarus shrunk in 2022 as as expenditures increased to support the the country’s exports, including fertilizers, population and meet war needs, resulting in confronted constraints from the war, sanctions a large fiscal deficit. Bilateral and multilateral and disrupted supply routes through Europe. financial support to Ukraine has been strong. The country has also experienced an outflow of Assistance provided by the European Union, the workforce from the information technology United States, IMF, World Bank and other actors sector. Financing options have been limited, covered almost half of total needs in 2022. Yet besides the Russian Federation. Since it cannot direct monetary financing by the National make coupon payments on its debt in US dollars Bank of Ukraine still covered around one third (as the payment agent and registrar for the of total public spending needs. This led to the Belarusian Eurobonds, Citigroup and Citibank, depletion of foreign exchange reserves, forcing respectively, suspended those duties), Belarus Ukraine to devalue the local currency, which was is in a selective default. It is implementing an pegged to the dollar at the outset of the conflict. import substitution programme, in cooperation Ukraine was granted a two-year suspension of with the Russian Federation, and extending its Eurobond payments but that will save just government loans at low interest rates. around $6 billion, a little more than the estimated monthly fiscal gap. The European Union decided Moldova has coped with a large number of in May 2022 to suspend all tariffs and quotas on Ukrainian refugees and experienced recurrent power outages in 2022 since it is connected 20 The suitcase trade or shuttle trade is a form of unrecorded or underrecorded international transactions in goods, existing at the edges of formal trade, where “goods are purchased in one country and brought across the border into another country in small packages such as luggage or bags” (IMF, 1998a). See, for example, Hurriyetdailynews (2022). 21 In a symbolic move, the European Union in June 2022 granted Ukraine (along with Moldova) a candidate country status; actual membership, however, remains a very distant and uncertain prospect. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 79 to Ukraine’s electricity grid. The economy demand is likely to moderate, inflation is has contracted and is likely to stagnate in expected to decelerate in 2023. Virtually all the near term. central banks in the region sharply tightened Several other CIS economies performed monetary policy in 2022 in response to inflation significantly better than foreseen earlier in and regional instability, with only a few 2022, amid an inflow of people from the Russian countries reversing the move in the second Federation and the relocation of Russian half of the year. Given the mostly supply-side businesses seeking to avoid the impacts nature of inflation and slow monetary policy of sanctions, especially in the information transmission in the region, these moves have yet technology and finance sectors. Money transfers to mitigate inflation, which is expected to range from the Russian Federation sharply increased from 4.2 to 21 per cent in 2023. To address higher (see box III.1). Armenia and Georgia (not a CIS living costs, Governments have introduced member) experienced double-digit growth. The or expanded social support programmes, and relocation of Russian manufacturing companies provided subsidies on goods and services, to Kazakhstan may contribute to the country’s including fuel and utilities. economic diversification. The flipside, however, The labour market of the Russian Federation has been surging housing prices and rental maintained favourable dynamics in 2022. The costs, which have exacerbated social inequality. level of unemployment fell below 4 per cent over Exports to the Russian Federation, including the summer, a historical low. Work furlough re-exports, have increased amid higher use programmes and reduced working hours of national currencies in settlements. Energy deflated actual unemployment rates, however. exporters, such as Azerbaijan and Kazakhstan, The partial military mobilization announced have benefitted from higher oil and natural in September will have negative effects on the gas prices, while in Kyrgyzstan, the gold sector labour supply, both directly and through related added to economic expansion. Rapid public migratory outflows. In Ukraine, sharp economic sector wage growth has also boosted domestic contraction and displacement of the population demand in many cases. Strong appreciation of exchange rates in several Figure III.7 countries in the region (figure III.7), impelled Dollar exchange rates of selected countries in the by the stronger rouble and increased capital CIS and Georgia inflows, has undermined export earnings. The observed trend of capital inflows may also be Russian Federation Armenia Georgia volatile and pose risks. Currency fluctuations Tajikistan Emerging market currencies may be detrimental for businesses, while exchange rate hedging options in most CIS Index, 20 February 2022 = 100 countries are limited and costly. Growth in 160 most CIS economies, including those that 140 are performing well, is expected to slow in 2023 due to the base effect and the impact of 120 monetary tightening, despite increased export 100 opportunities to the Russian Federation. Inflation reached high, mostly double-digit 80 levels in the CIS region in 2022, amid escalating 60 food and energy prices, supply chain disruptions 20 Feb 20 Apr 20 Jun 20 Aug 20 Oct and the wave of migration. To some extent, 2022 2022 2022 2022 2022 the appreciation of exchange rates tamed Source: UN DESA, based on national central banks and Fred database. inflationary pressures. As global commodity Note: Emerging market currencies are represented by the dollar index prices have started to subside and domestic from the Fred database. Increase in the index means depreciation of currency vis-a-vis the dollar. 80 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Box III.1 Figure III.1.1 The dynamics of personal money Armenia and Georgia: Personal money transfersfrom the Russian Federation transfers in the Commonwealth Armenia Georgia of Independent States and Georgia Index, 2019 monthly average = 100 since the outbreak of the war 1,000 in Ukraine 800 Personal money transfers from the Russian 600 Federation to a number of CIS countries are signifi- cant, persistently comprising around 30 to 35 per cent 400 of GDP for Kyrgyzstan and Tajikistan. These outflows have been mostly remittances from permanent and 200 temporary migrants from recipient countries . there 0 has been a very close correlation between personal Jan Jul Jan Jul Jan Jul Jan Jul money transfers through various payment systems 2019 2019 2020 2020 2021 2021 2022 2022 and remittances from temporary and permanent Source: UNECE, based on data from national central banks. migrants as reflected in the balance of payments. After the war in ukraine started, it was anticipated that these flows would fall significantly in 2022, given war . in the second quarter, the rouble strengthened the expected contraction of the Russian economy . by 13.3 per cent year-on-year on average. In August, it Preliminary information, however, suggests that the was up by 22 per cent . this appreciation boosted the opposite has been the case . Personal money transfers dollar value of rouble flows and increased year-on-year from the Russian federation have increased sharply comparisons in dollar terms . At the same time, the in all countries with available data: namely, Armenia, greater value of the Russian rouble vis-à-vis national Azerbaijan, Georgia, Kyrgyzstan and uzbekistan . currencies influenced incentives. It contributed to output decline in the Russian federation in the second widening earnings gaps, which drive migration, and and third quarters of 2022 was more moderate than improved the purchasing value of transfers in recipient initially projected . the unemployment rate hit a record countries, encouraging further outflows. low in August so conditions for labour migrants did not the war in ukraine has generated new migratory deteriorate significantly. Press reports indicate that movements, originating mainly in the Russian migratory outflows from the Russian Federation in federation with Armenia and Georgia initially as the the first quarter, amid increased instability, were more main destinations .a in these two countries, migratory than offset by large inflows in the second quarter. inflows have had a significant economic impact, Besides the better-than-expected performance of with large increases in money transfers (figure the Russian economy, other factors have driven the iii .1 .1) . As a result, foreign currency reserves in these observed dynamics of personal money transfers . countries significantly increased (figure III.1.2) An important factor has been the appreciation of money transfers to central Asia have also risen the Russian rouble vis-à-vis both the dollar and other sharply . in the Kyrgyz Republic, remittances from the national currencies in the region, following a sharp Russian federation jumped after dipping in march but temporary depreciation after the beginning of the 2022, reaching the highest level on record in June, a After the announcement of the partial military mobilization in the Russian Federation in September 2022, a new wave of migration targeting a broader group of countries and involving a different profile of migrants unfolded. Figure III.1.2 Figure III.1.3 Foreign currency reserves in Armenia and Georgia Monthly personal remittances in Kyrgyz Republic Armenia Georgia Inflow Outflow Billions of United States dollars Millions of United States dollars 4.1 350 3.9 300 3.7 250 3.5 200 3.3 150 3.1 2.9 100 2.7 50 2.5 0 Mar Jun Sep Dec Mar Jun Sep Jan Jul Jan Jul Jan Jul Jan Jul 2021 2021 2021 2021 2022 2022 2022 2019 2019 2020 2020 2021 2021 2022 2022 Source: National central banks. Source: National central banks. equivalent on an annualized basis to 42 per cent controls also raised the dollar exchange rate spread of 2021 GDP (figure III.1.3). between cash and sight deposits, thus discouraging in uzbekistan, according to central bank data, cash transactions and favouring the use of formal personal money transfers from the Russian channels to send money abroad . Federation more than doubled in the first half of 2022, the implication of these changes is that personal touching $5.7 billion. The additional inflows over this money transfers may no longer be considered a reli- period represent around 4 .5 per cent of 2021 GDP . able proxy for migrant remittances in the traditional In Azerbaijan, inflows soared almost five times higher sense. Despite recent good performance, significant to reach $1 .3 billion, with the increase amounting challenges lie ahead, as positive developments in to almost 2 per cent of GDP . exchange rates and labour markets may reverse, Such large increases cannot be fully explained by given the uncertain economic outlook. Large inflows the appreciation of the rouble against the dollar or that prove temporary can have destabilizing effects changes in migratory patterns . Additional explana- that could be prevented by a prudent use of resources tions lie in incentives created by Western sanctions and risk mitigation strategies . to shift funds and open bank accounts abroad, Author: Jose Palacin, United Nations Economic including to obtain credit cards . Russian capital Commission for Europe led to a sharp increase in the unemployment The dynamics of public finance have varied rate to 35 per cent, with elevated levels across the region, worsening in countries expected in the years ahead. In other countries directly affected by the war and in energy in the region, the inflow of migrants from the importers, and improving in the rest. In Russian Federation contributed to job creation the Russian Federation, the fiscal rule was through the opening of new businesses and suspended, and policy was significantly stronger demand. loosened. Expenditures have increased much 82 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 faster than revenues, despite a large jump in margin caps on fuel prices, the indexation of hydrocarbon revenues, which are projected to pensions and the continuation of electricity fall in 2023. The resources of the National Wealth price subsidies for households and small Fund will fill the fiscal gap in 2022, followed by businesses. High inflation prompted monetary domestic borrowing. Preliminary budget plans tightening, with repeated interest rate increases for 2023 to 2025 indicate that while defence throughout the year. Slightly lower inflation is and social expenditures are set to increase, expected in 2023 but will likely remain above infrastructure spending will likely contract. historical trends. Labour markets in the region have been South-Eastern Europe: From a strong recovering well from the pandemic yet start in early 2022 to slowing activity unemployment remains elevated amid traditional structural problems. These South-Eastern European economies saw comprise high rates of youth and long- modest economic expansion in 2022. The main term unemployment and low labour force driver was strong domestic demand, especially participation rates. High levels of outward consumption, and, in some cases, a good tourist migration, which resumed after COVID-19- season. The aggregate GDP of South-Eastern related restrictions were lifted, have lowered Europe is expected to have expanded by unemployment figures while creating labour 2.8 per cent in 2022, with growth moderating shortages in some sectors. to 2.3 per cent in 2023 and rebounding to 2.8 per cent in 2024. High energy costs and Fiscal positions in the region generally severe drought in the region, however, had improved in 2022, supported by strong nominal negative impacts on agriculture and hydropower revenues amid high inflation and some success energy generation, tempering economic in reaching the informal economy, especially dynamism towards the end of the year. in Albania. Measures to shield households and companies from inflation, however, are Despite the effect of earlier flows of foreign increasing government expenditure. Despite a direct investment, growth is expected to relatively sound fiscal position, Serbia turned moderate further in 2023, reflecting the to the IMF for a precautionary Stand-By downturn in the European Union, the main Arrangement loan to meet its financing needs. commercial partner and source of remittances Current account deficits have worsened with for the region. Energy prices will remain a rising energy import bills, despite greater drag on economic performance, although exports and tourism revenues. High reliance Serbia has secured natural gas at a relatively on external financing for many countries, in low cost through a three-year agreement with particular, Albania and Montenegro, implies Gazprom in the Russian Federation. The region vulnerability to worsening conditions and is vulnerable to food security risks, especially increased costs. Albania, which imports most of its wheat from the Russian Federation and Ukraine. The region’s numerous challenges encompass risks to energy security, a slow pace of Inflation in the region surged to double-digit reindustrialization and increasing dependency levels in 2022, driven by growing food and ratios. Although intraregional integration is energy prices but also by rapid wage growth deepening through the Open Balkan initiative,22 pushing up core inflation. To mitigate the impact it cannot replace the goal of EU membership of high inflation, Governments introduced a as a policy anchor. Any resurgence of political range of measures, including cuts on indirect instability could derail economic development. taxes on some products, temporary price and 22 Comprising Albania, the Republic of North Macedonia and Serbia. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 83 Africa 4.1 4.1 3.8 3.8 2.9 1.7 1.7 1.4 1.4 0.4 -1.5 Total Per capita -3.9 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . Developing economies Figure III.8 Real economic growth rates in Africa by subregion Africa: A clouding outlook among e f rising imbalances and elevated risks 2021 2022 2023 Percentage ● Aggregate output in Africa is projected 6 to remain subdued amid volatile and uncertain global environment 5 compounding domestic challenges. ● Favourable export prices will benefit 4 commodity exporters but a slowdown in 3 global demand will pose challenges. ● Inflation pressures are expected to ease 2 in 2023 as monetary policy tightens across the continent. Yet rapidly rising 1 borrowing costs and debt-servicing burdens pose significant risks along with 0 electoral instability and food insecurity. Africa North East Central West SouthernAfrica Africa Africa Africa Africa Aggregate output in Africa is projected to Source: UN DESA, based on estimates and forecasts produced with theWorld Economic Forecasting Model. remain subdued amid a volatile and uncertain Note: North Africa and Africa exclude Libya. e = estimates, f = forecasts. global environment compounding domestic challenges. The continent has been hit by a confluence of shocks, comprising weaker household spending. High inflation and power demand from key trading partners, a sharp supply issues are impacting growth in Nigeria, uptick in global inflation, higher borrowing but the economy will benefit from robust costs and adverse weather events. These commodities trade and dynamic consumer are undermining its full recovery from the goods and services markets, bringing growth pandemic. Real output losses compared to to 3 per cent in 2023. Growth in Egypt is pre-pandemic projections continue to be large, forecast to slow to 5.1 per cent in fiscal year with Africa remaining a full 2.4 percentage 2022 to 2023, after surpassing 6 per cent in 2021 points below its pre-pandemic projected to 2022, given less robust domestic demand, real output. This contrasts with developed tighter monetary policy, a weaker Egyptian economies, which have more than recuperated pound and soaring inflation. A sizeable IMF from their 2020 losses in terms of real output. loan and other financial assistance should help Aggregate economic growth is estimated to relieve foreign exchange pressures, but the weaken to 3.8 per cent in 2023 from 4.1 per situation will remain precarious in 2023. cent in 2022, due to subdued investment and Several countries are still coping with the deteriorating export volumes. In 2023, growth repercussions of the COVID-19 pandemic. is expected to pick up in East Africa and With under a quarter (24.1 per cent) of people West Africa while stabilizing in Central Africa in Africa fully vaccinated against the virus, (figure III.8). the continent remains vulnerable to renewed South Africa is projected to grow just 1.5 per outbreaks and the possible arrival of new cent in 2023 as adverse weather and power variants. High and rising operational costs for cuts drag down economic activity, and very vaccination, vaccine hesitancy and low risk high unemployment and rising inflation deter perception have deterred higher vaccination coverage (WHO, 2022h). cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 85 Commodity exporters in Africa will likely face in 2023. The share of African countries weaker market conditions given the expected experiencing double-digit inflation rocketed global economic slowdown. Export prices to 40 per cent in 2022, driven mainly by supply will probably remain high, however, amid chain disruptions and the fallout from the fierce competition for the continent’s primary war in Ukraine, which made essential food commodities. In 2022, oil exporters observed and energy items more expensive. To combat an estimated improvement of about 16 per cent inflation and exchange rate pressure, about in their terms of trade; non-resource-intensive two thirds of African countries increased countries faced a drop of about 4.5 per cent domestic policy interest rates in 2022. Most (IMF, 2022j). In 2023, commodity prices are countries will likely further increase rates in projected to ease but remain at historically 2023 in parallel with the projected monetary high levels. Despite volatility in energy, stance of the Federal Reserve in the United metals and minerals, commodity exporters States and the European Central Bank. Central are expected to continue to benefit from an banks in Ethiopia, Ghana, Sierra Leone, overall terms-of-trade boost to their external Sudan and Zimbabwe face the most pressing balances in the short term. needs for monetary policy tightening. A careful balance will need to be achieved to African minerals exporters – Botswana, the preserve economic confidence and prevent Democratic Republic of the Congo, Namibia, disturbances to short- and medium-term Nigeria, Sierra Leone, South Africa, the United economic growth prospects. Republic of Tanzania, Zambia and Zimbabwe – will likely receive increased investments, Fiscal positions across Africa have with Europe looking for alternative sources of deteriorated as governments sought to protect critical minerals, metals and precious stones. lives and livelihoods during the pandemic. Average public debt increased to over 60 per Despite improvement in 2022, the total hours cent of GDP and will likely remain at this level worked in Africa is still 2 per cent below pre- in 2023. Such a magnitude was last seen in pandemic levels, the largest gap among all the early 2000s, just before the launch of the regions (ILO, 2022a). The continent also has Heavily Indebted Poor Countries Initiative. the highest rate of working poverty globally, Egypt, Ghana, Mozambique, Republic of at 33.1 per cent in 2021. According to the World Congo, Tunisia, Zambia and Zimbabwe are Bank, extreme poverty is projected to become saddled with significantly higher levels of increasingly concentrated in sub-Saharan public debt, with debt-servicing burdens Africa. Already, in 2019, the region accounted taking up a considerable share of government for 60 per cent of the global poor at the $2.15 revenue. Although some large African poverty line. A whopping 35 per cent of the economies have lower levels of public debt population (389 million people) lived below the on average, they will continue to see high and international poverty line (World Bank, 2022a). rising debt-servicing costs (figure III.9). Low and falling growth in income per capita – estimated to drop to 1.4 per cent in 2023 Given higher interest rates, weaker currencies after averaging 1.6 per cent in 2021 and 2022 against the dollar and lower capital inflows, – will keep poverty entrenched and prevent a number of African countries will face countries from accelerating progress towards challenges in servicing and rolling over a the SDGs (see box III.2). large volume of debt, especially in 2024, when principal repayment of about $11 billion on In line with the global pickup in inflation, Eurobonds will be due (OSAA, 2022). Eurobond price levels have risen significantly in African issuance has become harder for African countries but are projected to moderate governments, and yields in secondary markets 86 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure III.9 concerns, could prove challenging for Total debt service, as a share of exports of goods, incumbent or new administrations. Although a services and primary income in selected African slow decline in political and military tensions economies is expected, if insecurity should persist or rise, the economic outlook for affected Angola Egypt Mozambique South Africa Zambia and surrounding countries could worsen Percentage considerably. 50 Downside risks dominate the African economic outlook for 2023. Persistently high global 40 inflation may prompt quicker and greater tightening by central banks in major advanced 30 economies, which would depress global demand, raise international and domestic borrowing costs, and cut investment in the 20 continent. A global slowdown and tighter financial conditions as well as a decline in 10 official development assistance (ODA) could hamper debt sustainability and efforts to 0 protect more vulnerable segments of society. 2012 2013 2014 2015 2016 2017 2018 2019 2020 Unexpected capital outflows could disrupt Source: UN DESA, based on data from the World Development Indicators. economies with large external financing needs. An escalation of the war in Ukraine and extended disruption to Russian exports could accentuate current inflationary pressures on have increased substantially, pointing to food and energy prices that would aggravate rising borrowing costs in the future. Pressure food affordability concerns for vulnerable to implement economic reforms and trim populations and might spark social discontent. government expenditures will intensify for several African countries. Political uncertainty Against this backdrop, African governments due to upcoming elections in some nations, will likely continue to pursue fiscal however, will likely delay major changes. consolidation to counter higher interest costs and preserve debt sustainability. Achieving The sociopolitical and security conditions such goals will be very challenging and most in several countries remain challenging likely will depend on prioritizing spending, for the continent, particularly in Burkina improving spending efficiency and increasing Faso, Cameroon, Central African Republic, revenue mobilization. The situation differs Chad, Ethiopia, Mali and Mozambique. In somewhat for commodity exporters, which 2023, 17 countries will hold presidential can draw on higher commodity prices and and parliamentary elections, and 13 others substantial windfall revenues to rebuild policy will be preparing for national elections in buffers. The most leveraged African countries 2024. Rising popular dissatisfaction in many may go through severe financing difficulties countries, driven by worsening socioeconomic and high uncertainty, requiring significant conditions, including subdued wage growth, restructuring of their external public debt. the escalating cost of living and food security cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 87 Box III.2 intensifying shocks due to adverse weather Poverty and food insecurity effects conditions, high energy and transportation costs, and food export restrictions imposed by major of the Ukrainian crisis on Africa food producers come on top of geopolitical risks, especially those associated with the ukrainian crisis the war in ukraine has further weakened the growth (AmiS, 2022) . Given the high shares of Russian prospects of African economies since it came at a and ukrainian grain and fertilizer in international time when countries were reeling from the adverse exports, and the significant dependence of many impacts of the COVID-19 pandemic, climate shocks African countries on these supplies, disruption and heightened security risks in some countries . in their availability coupled with soaring prices is Global commodity price shocks have reverberated exacerbating both poverty and food insecurity . through African economies, especially through rising energy, fertilizer and food prices . these have translated into increasing import bills for most POVERTY EFFECTS net food and oil importers and shrinking GDP . the the economic slowdown caused by the pandemic crisis has further highlighted vulnerabilities due to increased the proportion of people in Africa living supply constraints, weak infrastructure, economic below the extreme poverty level to 17 .2 per cent dependence on external partners and volatile global in 2020 . Projected slower growth due to the war in markets, all of which leave the poor more at risk of Ukraine and increased inflationary pressures pose extreme poverty and food insecurity . continued, significant repercussions for the poor. Figure III.2.1 Food weight shares in consumer price indices, select countries, June 2022 Percentage of consumer price index basket 80 70 60 50 40 30 20 10 0 Africa Rest of the world Source: UNECA, compiled from national and ILO data. Note: The horizontal line refers to the average share for food weight in CPI for African countries. Botswana Namibia South Africa Eswatini Mauritius Tunisia Uganda Côte d'Ivoire Zimbabwe Cameroon Togo Mozambique Kenya Lesotho Guinea Djibouti Morocco Benin United Republic of Tanzania Rwanda Egypt Gabon Seychelles Congo Chad Liberia Malawi Somalia Niger Equatorial Guinea Nigeria Senegal Burkina Faso Burundi Gambia Madagascar Mauritania Zambia Ethiopia Central African Republic Angola Mali Guinea-Bissau Sudan South Sudan United States United Kingdom Germany Canada France Japan Italy vulnerable households on the edge of the poverty on inflation (figure III.2.1). Food items occupy the line face shrinking incomes and rising food and fuel largest share in many household consumption prices . the persistence of the war is projected to baskets across Africa, with an expenditure share push an additional 1 .8 million people into extreme of about 42 per cent, compared to 13 per cent poverty in 2022 and 2 .1 million in 2023 (AfDb, 2022) . and 6 per cent for france and the united States, the Economic commission for Africa estimates respectively .c the expenditure share is much higher that the crisis could cut GDP growth by up to in fragile States, where food consumption can 0 .7 percentage points in 2022 and drive poverty up reach well over 60 per cent of total expenditure . by 0 .5 percentage points . further, social protection coverage is limited in Africa as a whole . only 17 per cent of people receive IMPACT ON FOOD SECURITY at least one social protection benefit compared with the global average of 47 per cent . this leaves Africa had the highest prevalence of food insecurity 1 .2 billion Africans without any social protection globally in 2020, with 60 per cent of the population coverage (ilo, 2021), a situation expected to further affected by moderate or severe food insecurity; exacerbate food insecurity . 26 per cent faced severe food insecurity (fAo and others, 2021) . Domestic policies, mechanisms and countries with high concentrations of imports from strategies must reduce the intensity of conflicts the Russian federation and ukraine are particularly and buttress resilience to climate variability and vulnerable to high food prices . Among 36 countries extremes and economic downturns . otherwise, the that imported over 50 per cent of their wheat war in ukraine will likely continue to worsen food products from the Russian federation or ukraine insecurity in Africa . in 2020, 15 are in Africa .d As these two countries are also the largest exporters of fertilizers to the most agricultural commodity prices have continent, the war will cause significant disruptions skyrocketed, with wheat and maize initially rising 63 a in crop production in Africa and exacerbate food per cent and 13 per cent, respectively . many African security throughout 2023 . countries have a high share of food weight in the consumer price index, averaging 41 .9 (higher than in Author: Hopestone Kayiska Chavula, United Nations many advanced economiesb), which weighs heavily Economic Commission for Africa a Data from MarketWatch. b ECA calculations from ILO data. c ECA calculations based on data from countries and ILOSTAT. d ECA research based on UNCTAD data. East Asia 7.0 6.7 5.2 4.4 4.3 4.6 3.2 4.1 4.1 3.0 0.9 Total Per capita 0.5 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . East Asia: A fragile recovery Administrative Region (SAR) led to a broad-based with intensifying challenges economic slowdown (figure III.10). Stronger domestic demand buoyed GDP growth ● The economic recovery for East Asia in a number of East Asian economies. In many remains fragile against the backdrop of an economies in the Association of Southeast Asian uncertain global environment and a bumpy Nations, private consumption and recovery in reopening in China. investment largely drove growth, especially ● East Asian economies will need to in the first half of 2022 (figure III.10). Export carefully calibrate policies to tackle performance varied considerably. Higher energy high inflation, rising debt and weakened prices sustained fuel exporters such as Indonesia external positions, while stimulating and Papua New Guinea. A decline in demand for domestic demand. electronics,23 however, weakened exports from ● The region should continue strengthening Malaysia, the Republic of Korea and Taiwan long-term resilience through increased Province of China. Mongolia’s exports took a investment in human capital and a low- nosedive due to China’s economic slowdown and carbon transition. reduced demand for commodities. In 2022, the Chinese economy is estimated to grow East Asia’s recovery has been fragile amid by 3 per cent, much lower than the 8.1 per cent intensifying challenges. After rebounding to 7 growth in 2021 and the official target of 5.5 per per cent in 2021, the region’s economic growth is cent. The slowdown mainly stems from recurring estimated to slow to 3.2 per cent in 2022. Although temporary lockdowns in response to COVID-19. growth is projected to accelerate to 4.4 per cent While the commitment to zero COVID-19 saved in 2023, the forecast is subject to significant people’s lives and prevented the health system downside risks, including higher inflation, sluggish from being overwhelmed, it adversely affected external demand, rapid global liquidity tightening, aggregate demand and reduced total output. worsened external positions and possibly weaker- Moreover, policy-induced property market cooling than-expected growth in China. led to a fall in investment in residential buildings 24 Economic performance in East Asia was uneven and sales. Property price declines could affect in 2022. For many, fading COVID-19 infections household net worth and consumption demand. In and easing restrictions led to a return to “normal”, the first 10 months of 2022, the average residential encompassing the reopening of borders, property price dropped by 3.6 per cent compared resumption of international travel and revival of with the same period in 2021. 25 Worsened profits the services sector, including retail and hospitality. and stricter requirements to access credit have For tourism-dependent economies such as impaired liquidity conditions for property Cambodia, Fiji and Thailand, the resurgence of developers, leading to defaults on their debts. international arrivals and reinvigoration of related Risks to the banking sector have risen significantly sectors provided some relief. Indonesia, Malaysia, but are not yet systemic. the Philippines, Singapore, Taiwan Province China’s economic growth, however, is forecast to of China and Viet Nam are expected to have accelerate to 4.8 per cent in 2023. Despite sluggish registered GDP growth rates that are higher than external demand, domestic consumption and their five-year averages before the pandemic (from investment are expected to strengthen through 2015 to 2019). In comparison, the commitment to the policy pivot to reopen the whole economy zero COVID-19 in China and Hong Kong Special from the end of 2022, along with the Government’s 23 Worsening global economic conditions and high inflation have impaired consumer purchases of electronics. The Global Purchasing Manager Index for new orders of electronics has trended down since 2021 and remained in a contraction zone in the third quarter of 2022 (Neumann, 2022). 24 CEIC data (accessed on 9 November 2022) show that in the first three quarters of 2022, investment in China’s residential buildings declined by 7.5 per cent, compared with an expansion of 6.4 per cent in 2021 and 7.6 per cent in 2020. Residential property sales declined by nearly 30 per cent in the same period. 25 See CEIC data (accessed on 10 December 2022). cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 91 Figure III.10 Demand-side contributions to growth in select East Asian economies Private consumption Government consumption Investment Net exports Average GDP growth 2015-2019, percentage GDP growth, percentage Percentage points 15 10 5 0 -5 -10 -15 China Hong Kong Republic Indonesia Malaysia Philippines Singapore Taiwan Province Thailand SAR of Korea of China Source: UN DESA, based on data from the CEIC. Note: For China, the consumption bar covers both the private and government sectors. more proactive fiscal policies and accommodative the region. For instance, a stabilized Chinese monetary policy stance. In addition, policies to property sector can benefit countries that export bolster financing of the property sector, including construction raw materials to China. A return of property development loans, bond financing and Chinese visitors can provide a boost to tourism- special loans to ensure pre-sold home delivery, dependent economies. China’s growth in 2023 may check the risk of a severe slump in the real may be weaker than the baseline, however, given estate market. Nevertheless, growth will remain high uncertainties. Scenario analysis suggests significantly lower than the pre-pandemic sprint that a 1 percentage point decline in GDP growth of 6 to 6.5 per cent annually. The reopening path in China in 2023 could lower GDP growth by 0.06 may be bumpy, as increases in COVID-19 cases to 0.41 percentage points in East Asian economies. could continue to disrupt business activities Cambodia, Hong Kong SAR, Mongolia, Singapore and lower consumer confidence. While policies and Viet Nam could be most affected as China is were introduced to ease the financial distress of their main export market and an important source property developers and constraints on home of imported inputs (figure III.11). In contrast, a purchases, the property market has yet to show few countries might benefit from supply chain signs of recovery. disruptions caused by the pandemic in China and China’s growth prospects have important China-related geopolitical tensions. Anecdotal ramifications for many countries in East Asia due evidence suggests that an increasing number to close trade and financial linkages. The expected of foreign companies in China are considering 26 economic recovery should support growth across relocating to other Asian countries. 26 For instance, Apple has accelerated plans to shift some of its production outside of China to India and Viet Nam (Yang and Tilley, 2022). A recent survey by the American Chamber of Commerce in Shanghai (2022) shows that one third of responding US companies redirected planned investment in China to other destinations in 2022, almost double the number of companies that did so in 2021. 92 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 2020 2021 Q1-Q3 2022 2020 2021 H1 2022 2020 2021 Q1-Q3 2022 2020 2021 Q1-Q3 2022 2020 2021 H1 2022 2020 2021 H1 2022 2020 2021 H1 2022 2020 2021 H1 2022 2020 2021 H1 2022 Labour markets in East Asia have improved but Figure III.11 not fully recovered. The ILO estimates that the Impact of a 1-percentage-point decline pandemic stripped the region of over 12.1 million in China’s GDP growth on growth in other full-time equivalent jobs as of the third quarter of East Asian countries, 2023 2022, although this was lower than the 23.9 million Percentage points jobs lost in the third quarter of 2021.27 Labour -0.5 -0.4 -0.3 -0.2 -0.1 0 force participation rates in 2022 remained below Singapore pre-pandemic levels for both men and women. As global and domestic economic conditions worsen, Viet Nam unemployment rates have risen in a few countries Cambodia during the second half of 2022.28 Young people are Hong Kong SAR particularly vulnerable given massive disruptions in education and training, employment and Brunei Darussalam income during the pandemic. With a lack of skills Taiwan Province of China and experience, they may encounter difficulties Mongolia in finding jobs (ILO, 2022d). Youth unemployment rates, despite some improvements, have remained Republic of Korea above pre-pandemic levels29 and are much higher Lao People’sDemocratic Republic than overall unemployment rates. Myanmar In 2022, East Asia’s headline inflation averaged Malaysia 3 per cent, compared with 1.4 per cent in 2021. Inflation in many countries has surpassed central Philippines bank targets (figure III.12). Three major drivers Thailand propel the inflation surge. First, reopening in Indonesia many countries boosted domestic demand. Second, the war in Ukraine pushed up food Source: UN DESA, based on estimates produced with the World Economic and energy prices. Third, aggressive monetary Forecasting Model. tightening in developed countries led to large currency depreciations against the dollar, adding disrupted food supplies and curbed business to import costs. In 2023, headline inflation is activity. Record-high temperatures and droughts predicted to slow marginally to 2.9 per cent. in parts of China dried up rivers and affected Although commodity prices could fall as global cities that rely on hydroelectricity to power demand eases off, the war in Ukraine could keep industries and homes. In the Philippines, a prices of food and fuel at elevated levels. violent tropical storm forced schools to close An estimated 6.4 million to 8.6 million additional the day after classes resumed in person for the people plunged into extreme poverty in East first time since the pandemic began. A severe Asia in 2022 due to the pandemic, rising inflation drought struck Kiribati and threatened access and the war in Ukraine (Mahler and others, to clean water and sanitation. 2022). Extreme weather events imposed East Asia’s near-term economic prospects disproportionate impacts on vulnerable people. In face significant downside risks, including the summer of 2022, high temperatures, frequent a lingering pandemic, weakening external droughts, torrential rains and other climate events demand, rising financial stress, higher inflation threatened livelihoods, destroyed infrastructure, and ongoing geopolitical tensions. As global 27 UN DESA estimates based on ILOSTAT (accessed on 7 November 2022). 28 For instance, the unemployment rate in China increased from 5.5 per cent in June 2022 to 5.66 per cent in September; the rate in Malaysia increased from 3.6 to 3.7 per cent during the same period. Based on CEIC data (accessed on 8 November 2022). 29 For instance, in Malaysia, the unemployment rate among youth (aged 15 to 24) was 12.1 per cent in September 2022, much lower than the peak of 14.2 per cent in May 2020, but higher than a pre-pandemic level of 10 to 11 per cent. In China, the unemployment rate among youth (aged 16 to 24) was 17.9 per cent in September 2022, above the pre-pandemic level of 10 to 14 per cent. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 93 Figure III.12 Inflation, inflation target and central bank policy rates in East Asia October 2022 October 2022 or latest month with available data December 2021 June 2022 March 2022 December 2021 Inflation target or the upper bound of the target Policy rates Inflation and inflation target rates Percentage Percentage 15 12 9 6 3 0 0 10 20 30 40 Lao People’s Democratic Republic Mongolia Philippines Singapore Thailand Indonesia Republic of Korea Malaysia Hong Kong SAR Viet Nam Taiwan Province of China China Source: CEIC. Note: Inflation targets or the upper bound of the targets are added if information is available. growth decelerates, weaker external demand Many countries are facing rising financial stress. will adversely affect manufacturing activities Quick policy rate hikes in developed countries and investment in export-dependent economies have triggered capital outflows from developing such as Cambodia, Malaysia and Viet Nam. countries, including those in East Asia, which has In tandem, possibly weaker-than-expected raised their financing costs. While many East Asian economic growth in China could reduce demand countries have hiked policy rates and intervened for commodities and intermediate goods from in the foreign exchange market to stabilize their within and beyond the region. Even as multiple currencies, the dollar has remained strong. factors have disrupted world trade, however, the Currency depreciations have made countries’ Regional Comprehensive Economic Partnership, external debt servicing more costly and increased which entered into force on 1 January 2022, their import bills, leading to deterioration in their has deepened trade ties in East Asia through current account balances. At the same time, foreign new shipping routes and investment projects.30 exchange reserves to cover short-term external Park, Petri and Plummer (2021) estimate that if liabilities have fallen (figure III.13). Lao People’s implementation stays on track, the partnership Democratic Republic, Mongolia and Myanmar have will add $245 billion annually to regional income faced significant external liquidity pressure due and create 2.8 million jobs by 2030. to rising import prices, global liquidity tightening and various idiosyncratic factors. 30 For instance, under the Regional Comprehensive Economic Partnership, a sea express route between eastern China and Japan opened in June 2022 (CGTN, 2022), and Japanese electric vehicle company ASF signed a deal with Chinese automaker Guangxi Auto in January 2022 to manufacture electric vehicles to sell in Japan (Zhu and Shi, 2022). 94 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Strong inflationary pressures prompted at least Figure III.13 11 central banks in East Asia to raise interest rates Short-term external liabilities as a percentage of as of October 2022 (figure III.12). Several countries foreign reserves in selected East Asian countries also announced price-stabilizing measures, Q2 2019 Q2 2020 Q2 2021 Q2 2022 including price controls on rice, meat, cooking oil and coal, and subsidies to cap food and fuel Percentage0 50 100 150 200 prices (World Bank, 2022e).31 To stabilize their Malaysia currency, several monetary authorities introduced administrative controls or interventions. For Mongolia instance, the Bank of Lao People’s Democratic Republic limited currency trading in June 2022 Thailand (Vongphachanh, 2022). The Central Bank of Myanmar required private borrowers to adjust Indonesia repayment reschedules with foreign lenders in July (Kyaw, 2022). As economies gradually shift Republicof Korea back to normal and fiscal space shrinks, countries are phasing out pandemic-related fiscal stimuli. China While monetary tightening could tackle high Philippines inflation, high interest rates could dampen consumption and investment, and consequently Source: UN DESA, based on CEIC data and the IMF International Financial hold back economic recovery in East Asia. In Statistics database.Note: Short-term external liabilities are measured by the sum of short-term addition, food and fuel subsides would increase external debt, total imports of goods and services, and net portfolio government spending, further pressuring weak investment flows, as a percentage of foreign reserves in selected countries. Countries are selected based on data availability. fiscal positions and elevating public debt. Given uncertainties about geopolitical tensions and their substantial impact on prices, monetary the coverage of targeted cash transfers as well as authorities will need to closely monitor price virtual education and health-care services to reach dynamics by using domestic and international those most in need. data, adjusting policy response as needed (World Bank, 2022e). Public spending needs and shrinking Current headwinds to growth should not stop fiscal space will require better-targeted fiscal or reverse efforts to achieve climate targets. The expenditures. Mobilizing additional resources region’s share of fossil fuels (including coal, oil can build on improving spending efficiency, tax and natural gas) in primary energy consumption administration and access to capital markets decreased gradually from 93 per cent in 2000 to 84 32 (see more discussion in chapter II). per cent in 2021. Reducing dependence on coal became increasingly difficult during the energy The East Asian economies will also need to shortages in 2022, however. A few East Asian strengthen long-term resilience with increased countries – Singapore, Thailand, Timor-Leste investments in social protection systems, and Viet Nam – have shown their commitments nutritious food, universal health-care systems to climate goals by updating or enhancing their and quality education. Such investments not only nationally determined contributions in 2021 act as automatic stabilizers during crises but also and 2022. Moving forward, much depends on boost productivity (Huang and Saxena, 2020). strong multilateral partnerships to realize climate Digitalization, for example, could help increase ambitions and accelerate progress on the SDGs. 31 World Bank (2022e) states that China, Indonesia, Malaysia and Thailand have implemented price controls. China, Indonesia, Malaysia, the Philippines, Thailand and Viet Nam have introduced fiscal subsidies on food, fertilizer and fuel. 32 Calculated based on BP’s Statistical Review of World Energy. Available at www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy. html (accessed on 11 November 2022). It covers 10 East Asian economies: China, Hong Kong SAR, Indonesia, Malaysia, the Philippines, the Republic of Korea, Singapore, Taiwan Province of China, Thailand and Viet Nam. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 95 Box III.3 on palm oil by indonesia and chicken by malaysia, The war in Ukraine: Impacts, further amplified the surge in global food prices. exposure and policy issues in Asia Among East and South Asian economies, 19 are net importers of oil and 11 are net importers of food and the Pacific items, with both categories accounting for up to 40 per cent of the consumer price index basket in As countries in Asia and the Pacific reeled from the most economies. High inflation and interest rates will economic and social impacts of the pandemic, the likely dampen consumption and investments, and war in ukraine posed yet another major shock to the increase debt-servicing costs for governments, firms world economy . and households . From a macroeconomic perspective, the conflict is A few countries in the region are more vulnerable affecting economies in Asia and the Pacific through to energy and food price fluctuations. Cambodia, three main channels. The first is higher global Pakistan, Solomon islands and vanuatu are more commodity prices . Second, global demand is likely to exposed to higher energy prices as their net fuel moderate amid surging inflation, supply disruptions imports are sizeable relative to GDP, resulting in and weaker market sentiments . third, with rising larger energy import bills . moreover, access to economic uncertainty, global investors are shifting electricity remains limited while more than half of towards safe-haven markets, raising risk premiums in domestic electricity generation relies on fossil fuels . developing economies . through these transmission In nepal, net fuel imports are significant. Just over channels, the war could result in weaker economic 1 in 10 people still has no access to electricity; most growth, wider fiscal and current account deficits, and electricity comes from hydroelectric sources . higher financing costs in the region. compared to regional peers, Kiribati and Solomon An exposure analysisa discusses how several islands are more at risk of surging food prices as economies are at a relatively greater risk due to they rely heavily on imported food items for domestic economic structures and conditions rendering consumption and face concerns around food them more exposed to higher energy and food security . other economies considered more exposed prices, smaller external financial inflows and rising include Hong Kong SAR, the maldives and Samoa . financing costs. they also rely heavily on imported food, but food insecurity is not particularly high . EFFECTS OF HIGHER GLOBAL COMMODITY PRICES the Russian federation and ukraine are major EFFECTS OF WEAKER GLOBAL DEMAND exporters of oil, gas, nickel, wheat, sunflower oil and uncertainties, trade disruptions and higher prices will fertilizer . international sanctions and disruptions to likely soften global demand . this will translate into domestic production and cross-border transport have lower demand for exports from East and South Asia, driven prices of these key commodities up from levels where many countries depend heavily on exports . that were already high due to pandemic-induced disruptions . Steeper food and energy prices have more broadly, weaker export earnings and declining led to climbing inflation rates and prompted central investment inflows together with adverse terms of banks to raise policy interest rates . trade could lead to significant balance-of-payments pressures in some economies . Several economies Since the start of the war, commodity exporters have recorded falling foreign exchange reserves such as Indonesia and Malaysia have benefited due to wider current account deficits; they need to from higher commodity prices . in thailand, rice stabilize domestic currency values amid capital exports increased as buyers looked for alternative outflows and higher volatility. food grains . on the other hand, export bans, such as a For further details on the methodology of the exposure analysis, see ESCAP, 2022. Figure III.3.1 Figure III.3.2. Consumer confidence in selected countries Ten-year bond yield in selected economies in Asia and the Pacific China Indonesia Republic of Korea European Union India Pakistan Thailand United States 21 Feb 2022 9 May 2022 3 Nov 2022 Percentage points Percentage 60 China 40 Thailand 20 Singapore Hong Kong 0 SAR Republic of Korea -20 Malaysia -40 Jul 2021 Oct 2021 Jan 2022 Apr 2022 Jul 2022 Oct 2022 Viet Nam India Source: ESCAP, based on CEIC. Philippines EFFECTS OF HEIGHTENED ECONOMIC UNCERTAINTY Indonesia consumer and investor sentiments deteriorated steadily in most of East and South Asia over Bangladesh concerns around the rising cost of living, higher Pakistan interest rates and lingering geopolitical uncertainties (figure III.3.1). Escalating global interest rates and Sri Lanka economic uncertainty are pushing up financing 0 5 10 15 20 25 30 35 costs with 10-year sovereign bond yields in most East and South Asian economies rising since Source: ESCAP, based on data from World Government Bonds. the end of February 2022 (figure III.3.2). Higher financing costs will also weaken fiscal positions, Policymakers should also explore policies to increase particularly as fiscal deficits have risen and remain resilience and reduce exposure to future economic elevated since the pandemic . and price shocks . Some examples include avoiding A few countries have greater debt and financial restrictive export measures, introducing temporary flows exposure.b in Samoa, for instance, oDA trade liberalization and facilitation for affected received, international tourism receipts and personal products, releasing national oil reserves, boosting remittances each exceed 10 per cent of GDP, resulting domestic energy production, and ensuring existing in acute exposure to external financial flows. government assistance and subsidy schemes benefit in indonesia, Pakistan and Sri lanka, high external those most in need. Some medium-term measures debt stocks and debt service ratios pose risks of comprise accelerating digital trade facilitation, external debt distress . diversifying food import sources and accelerating Apart from restoring price stability through interest the transition towards renewables . rate increases, india, indonesia, malaysia and the Authors: Kiatkanid Pongpanich and Vatcharin maldives, among others, are cushioning the impact Sirimaneetham, United Nations Economic and Social of higher food and fuel prices through subsidies . Commission for Asia and the Pacific . b This area of exposure involves five subareas (fiscal space, external financial flows, external debt, the banking sector and the equity market). Given the wide range of indicators, some economies are more exposed in a particular area than others. South Asia 7.2 5.6 5.9 4.8 6.2 2.8 4.6 4.8 3.8 1.6 -4.3 Total Per capita -5.4 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . South Asia: A challenging road Figure III.14 ahead amid global headwinds GDP growth in selected South Asian countries 2021 2022e 2023f ● South Asia’s outlook has deteriorated Percentage amid challenging domestic and 15 global conditions. ● Rising global food and energy prices are 10 intensifying pressure on food security and undermining progress on the SDGs. 5 ● The economic impact of the conflict in Ukraine is exacerbating existing 0 vulnerabilities across the region. -5 The outlook for South Asia has deteriorated and -10 is subject to multiple downside risks amid global Bangladesh Bhutan Fiji India Nepal Pakistan Sri Lanka monetary tightening, fiscal vulnerabilities, rising inflation and extreme weather events. Regional Source: UN DESA, based on estimates and forecasts produced with the World Economic Forecasting Model. GDP growth is expected to slow to 4.8 per cent Note: e = estimates, f = forecasts. in 2023 from an estimated 5.6 per cent expansion in 2022. Overall, weaker global demand, tighter renewed political uncertainty and external monetary policy, additional supply disruptions, financing constraints. further escalation in commodity prices and the emergence of new COVID-19 variants pose As the United States Federal Reserve raised its significant risks in 2023. policy rate and international investors reduced their exposures to developing markets in 2022, India’s GDP growth rate is projected to moderate South Asian currencies weakened significantly to 5.8 per cent in 2023 from an estimated 6.4 against the dollar. In response, central banks in per cent in 2022 as higher interest rates and the region accelerated their interest rate hikes a global economic slowdown will weigh on and intervened strongly to prevent further investment and export performance (figure currency depreciation, particularly during the III.14). The outlook is more challenging for second half of the year. Fiscal and balance-of- other countries in the region. In Pakistan, the payments financing needs were exacerbated economy is expected to expand by only 2.5 per across the region. cent in 2023 as devastating floods in 2022 caused significant damages, particularly for agriculture, Existing high levels of sovereign debt and with spillover effects on related industrial and unsustainable debt-servicing burdens service sectors. According to a post-disaster prompted several South Asian countries to seek needs assessment, flood-related costs reached multilateral financial support in the second an estimated $14.9 billion, equivalent to 4.8 per half of 2022 (figure III.15). After defaulting on cent of GDP33 (Pakistan, Ministry of Planning its sovereign debt in April, Sri Lanka reached a Development and Special Initiatives, 2022). Sri staff-level agreement with the IMF under the Lanka’s economy contracted by an estimated Extended Fund Facility in early September. The 9 per cent in 2022 and is likely to shrink by IMF programme is expected to help boost tax another 3.2 per cent in 2023 amid downside risks revenues and reduce fiscal deficits in coming that comprise delays in securing IMF funding, years (IMF, 2022k). Pakistan and Bangladesh reached staff-level agreements with the IMF 33 For fiscal year 2022. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 99 Figure III.15 2022. In India, annual inflation is estimated at The public debt-to-GDP ratio in selected 7.1 per cent in 2022, exceeding the 2 to 6 per South Asian countries cent medium-term inflation target band set by the Central Bank. India’s inflation is expected 2016 2022 to decelerate to 5.5 per cent in 2023 as global Percentage commodity prices moderate and slower currency 140 depreciation eases imported inflation. Sri Lanka’s inflation will remain high, owing to the 120 weak value of its currency against the dollar and 100 domestic supply-side constraints. 80 Central banks in South Asia have accelerated 60 their interest rate hikes to stabilize exchange 40 rates and tame inflationary pressures. The 20 central banks of Pakistan and Sri Lanka started 0 aggressive monetary tightening cycles in late Bangladesh India Maldives Pakistan Sri Lanka 2021 amid rising inflation and widening current Source: UN DESA, based on data from IMF World Economic Outlook account deficits, whereas the Reserve Bank database. of India and the Central Bank of Bangladesh began tightening during the second quarter of in July and November 2022, respectively. 2022, later than most advanced economies. As Accordingly, Pakistan’s budget for the 2022- the region’s central banks prioritize bringing 2023 fiscal year prioritizes new tax measures down inflation and keeping consumer inflation and spending cuts with a view to restoring expectations anchored, further interest rate macroeconomic stability and improving debt increases are expected in 2023. sustainability. The country will face huge Tourism in South Asia began to recover from challenges in implementing these measures, the impact of the pandemic once international however, given the massive damage to land and travel resumed in 2022. Tourist arrivals rose to infrastructure caused by the floods. pre-pandemic levels in the Maldives, while in Consumer price inflation in South Asia, India and Nepal, the number of arrivals gradually particularly in Pakistan and Sri Lanka, improved over the first half of the year. In Sri accelerated markedly in 2022, driven by rising Lanka, economic crisis in the second quarter of global fuel and food prices (see box III.3). Higher 2022 interrupted the recovery in tourism that import prices led to deteriorating current started in September 2021. account balances in some countries, particularly Recovery in the labour market has been uneven those that are highly dependent on imports. across the region. In India, the unemployment Even though oil prices moderated during the rate in 2022 declined to pre-pandemic levels last quarter of the year, a prolonged period of through stepped-up urban and rural employment elevated prices since the start of the pandemic (World Bank, 2022f). But youth employment strained the balance of payments. Moreover, remained below pre-pandemic levels,34 higher energy costs pushed up prices of other particularly among young women, given the commodities such as fertilizers. pandemic’s severe impacts on economic sectors Regional consumer price inflation is projected where women tend to cluster. The floods in to stay above pre-pandemic levels, at 12.4 per Pakistan significantly impacted unemployment, cent in 2023, after reaching 15.6 per cent in given that 43 per cent of employed people work in agriculture in the most affected areas. 34 According to ILO modelled estimates. 100 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 In Afghanistan, unemployment shot up amid the region facing acute food insecurity rose in changes in the political administration and 2022, particularly in Afghanistan, Bangladesh, restrictions on women working. Pakistan and Sri Lanka (World Bank, 2022g). Several governments implemented agricultural Extreme climate conditions, heatwaves and policies to address food security concerns. In flooding took a continued heavy toll in 2022 Bangladesh, the Government reduced import in India and Pakistan. Severe damage to tariffs on rice, increased fertilizer subsidies and key agricultural crops and livestock losses boosted budget allocations to the agricultural added pressure on food security and fuelled sector. The Government of Pakistan provided domestic inflation, undermining progress on targeted subsidies and increased social the SDGs. Overall, the number of people in protection to counter high food prices. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 101 Western Asia 6.2 6.4 5.0 4.9 3.5 3.4 1.2 1.9 1.8 -0.5 -3.1 Total Per capita -4.4 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . Western Asia: An oil boom Figure III.16 masks intraregional disparities Growth projections for Western Asia in economic recovery 2021 2022e 2023f Percentage ● Oil producers in Western Asia are 15 emerging from the slump that began in 2019, buoyed by rising oil 10 output and prices. ● In non-oil-producing countries, the 5 recovery remains weak amid less favourable economic conditions and 0 fiscal constraints. -5 ● Food security concerns have risen due to high dependency on wheat imports from -10 the Russian Federation and Ukraine. -15 In 2022, Western Asian economies, on average, grew an estimated 6.4 per cent, accelerating from 6.2 per cent the previous year. A group of oil-producing countries explained the improved growth performance (figure III.16). Growth is projected to slow somewhat to 3.5 per cent in Source: UN DESA, based on estimates and forecasts produced with the 2023, due to less favourable external factors. World Economic Forecasting Model. Note: e = estimates, f = forecasts. All countries in the region remained on the path of economic recovery from the COVID-19 crisis in 2022. After many pandemic-related Arab Emirates, experienced rapid economic restrictions ended during the first half of the expansion. This stemmed from elevated external year, no new lockdown measures were imposed, demand spurred by the coordinated crude although COVID-19 outbreaks continued with oil production increase under the OPEC Plus newly emerging variants of the virus. The rapid agreement. On average, crude oil production growth of international travel to the region, from grew an estimated 10 per cent in Western Asia a low base, contributed significantly to economic in 2022, which contributed to high real GDP recovery. Growth trends diverged, however, growth in oil-producing countries. The non-oil against the commodity price spike triggered sector in the GCC countries also saw consistent by the war in Ukraine. With all countries in the expansion. The real estate sector, subdued since region strongly reliant on imports of staple 2015, registered a gradual recovery although food items, such as barley and wheat, the war in housing prices remained significantly below the Ukraine resulted in high food price inflation. The peak in 2014 to 2015. region’s non-oil-producing countries primarily Economic growth in non-oil-producing countries felt the adverse terms-of-trade impact (see box and smaller oil producers (the Syrian Arab III.4). For oil exporters, rising energy prices Republic and Yemen) suffered from deteriorating offset higher international grain prices. external conditions. High commodity prices Major crude oil producers in the region, Iraq and and tightening access to international finance the member countries of the Gulf Cooperation resulted in greater balance-of-payments Council (GCC), including Bahrain, Kuwait, constraints, with weaker national currencies. Oman, Qatar, Saudi Arabia and the United The extent of currency depreciation was particularly severe in Lebanon, the Syrian Arab cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 103 Bahrain Iraq Israel Jordan Kuwait Lebanon Oman State of Palestine Qatar Saudi Arabia Syrian Arab Republic Türkiye United Arab Emirates Yemen Republic, Türkiye and Yemen, leading to very apparently increased in real terms during fiscal high inflation rates. Consumer price inflation year 2022 to an extent tailored by commitments in 2022 reached an estimated 176.4 per cent to fiscal consolidation. Fiscal expenditures in Lebanon, 65.5 per cent in the Syrian Arab expanded in nominal terms in Jordan and Republic, 71.7 per cent in Türkiye and 42.6 per Türkiye but the overall fiscal stance was neutral cent in Yemen. Jordan maintained its currency given the level of inflation. A clear shift to fiscal rate peg to the dollar, but its foreign reserves consolidation and debt reduction has been declined by $1.4 billion to $16.6 billion over the observed in Israel. first nine months of 2022. While Lebanon may register an economic expansion for the first time Unemployment rates in the region in 2022 since 2017, GDP remains significantly below the fell to pre-pandemic levels in Israel, Saudi 2017 level. Ongoing conflicts continued to weigh Arabia and Türkiye. The unemployment rate on the growth prospects of the State of Palestine, of Saudi nationals came down to 9.7 per cent the Syrian Arab Republic and Yemen. in the second quarter of 2022, the lowest level in 20 years, driven by a considerable The GCC countries committed fiscal reduction in female unemployment. The female expenditures to food subsidies intended to cope unemployment rate among Saudi nationals with high inflation. The United Arab Emirates declined to 19.3 per cent from the recent high also implemented income support programmes of 31.4 per cent in the second quarter of 2020. for low-income families, and Saudi Arabia Employment recovery remains slow in other expanded the volume of its strategic grain countries. In Jordan, the unemployment rate reserves. Fiscal support to mitigate the impact stood at 22.6 per cent in the second quarter of of inflation in other Western Asian countries 2022, above the 19.3 per cent recorded in the first was limited. Türkiye substantially revised the quarter of 2020. The most recent estimates put minimum wage in January, July and December the unemployment rate in Lebanon at 29.6 per 2022 to safeguard households from the rising cent, which is considerably above the 11.4 per cost of living. cent level recorded prior to the ongoing financial crisis that erupted in 2019 (Lebanon, Central To contain increasing inflationary pressures, Administration of Statistics and ILO, 2022). central banks in the GCC countries, Israel and Jordan have shifted to a tightening cycle. Economic expansion in Western Asia is expected The impact on domestic demand is expected to moderate looking forward given several to materialize gradually over 2023 as robust factors. While domestic demand is projected to growth in the money stock continued in these recover steadily, external economic conditions, countries in 2022. Türkiye lowered the policy including terms of access to international interest rate in July and September to stimulate finance, are expected to remain tight, limiting investment, despite rising double-digit inflation. growth prospects. The region’s currencies, The Lebanese central bank struggled to stabilize including those pegged to the dollar, remain the financial sector amid increasing concerns under pressure, forcing them to maintain tight from depositors whose foreign currency deposits monetary stances. The looming global economic made prior to 17 October 2019 remained subject slowdown may weaken demand for crude oil to strict withdrawal restrictions. and adversely affect oil-producing countries. Moreover, considerable risks remain in the Countries in the region are likely to embrace absence of political resolutions of persistent fiscal consolidation. Benefiting from greater oil conflicts in several parts of the region. revenues, fiscal expenditures in GCC countries 104 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Box III.4 food imports come primarily from European The war in Ukraine and food countries . the share of Russian and ukrainian cereals in imports in lebanon, libya and Sudan security in the Arab region exceeds 50 per cent . in Egypt and tunisia, the share is slightly smaller (between 40 and 50 per cent) but the Russian federation and ukraine, due to their high volumes make these imports difficult to replace vast and fertile land resources and favourable (see figure III.4.2). climate conditions, are among the largest cereals exporters in the world . in 2020, they took second At 12 per cent, the prevalence of undernourishment and third place globally, with 9 and 8 per cent shares in Arab countries already surpasses the world of exports, respectively .a c they account for almost average of 10 per cent . As wheat is the most 30 per cent of cereals imports in Arab countries . important source of inexpensive calories, any the war in ukraine and the following blockade of significant movements of its price affect the lower ukrainian ports therefore severely distorted food strata of societies, pushing even more people into security in the Arab region . Even though exports undernourishment . resumed in August 2022 after the successful The crisis has overlapped with several country- black Sea Grain initiative agreement brokered by specific challenges. Damage to silos by the 2020 türkiye and the united nations, domestic prices Beirut port blast has significantly impeded the of food remain elevated, causing concern among storage of grain in lebanon . in Egypt, inexpensive governments . Several factors make the situation bread plays a significant role in the social contract.d particularly dangerous for Arab countries: As a result of the shock to oil and food prices, Arab Wheat production in the region is relatively difficult countries may lose an estimated average of 0 .6 due to climate conditions and the relative lack of per cent of GDP growth in 2022 (EScWA, 2022a) . water . Even though iraq and the Syrian Arab Republic lebanon, morocco, the State of Palestine, the Syrian before its civil war have produced more wheat than Arab Republic and yemen would feel the biggest hits they consume,b Saudi Arabia’s decision to reduce as they import both food and energy commodities . wheat production in 2008 to save water underlines All these countries could shed between 3 and 5 how Arab countries lack comparative advantages in percentage points of GDP growth in 2022 due to the growing this crop . conflict in Ukraine.e the surge in food prices could Dietary patterns in Arab countries encourage push an additional 3 .7 million people into poverty wheat consumption . Algeria, morocco and tunisia in 2023 and 2 .8 million more people into extreme are among the highest per capita consumers of poverty (EScWA, 2022b) . As poverty correlates with wheat in the world . that tendency, coupled with undernourishment, this surge will affect the health climate conditions, pushes most Arab countries status of Arab peoples . food subsidy expenditures towards heavy dependence on wheat imports (see were rationalized in some countries before the figure III.4.1). war . for example, between 2018 and 2021, food a See the International Trade Centre Trade Map. b Saudi Arabia was also self-sufficient before 2008 but abandoned its programme to subsidize wheat production to save water. c World Development Indicators database, 2020. d The special role of bread subsidies in Egyptian society traces back to the post-war era of the 1940s, with these subsidies eventually becoming part of the social contract. Over the years, bread has remained part of the subsidized basket despite numerous modifications, although the size of loaf was gradually reduced. As of 2022, the nominal price of subsidized bread, received by two thirds of the population, remains at its 1988 level. In March 2022, a price cap on unsubsidized bread was imposed. e These figures are the result of a simulation using the World Economic Forecasting Model developed by UN DESA. The simulation, performed in March 2022, shows the percentage-point deviation from baseline GDP growth projections (published in the 2022 World Economic Situation and Prospects) if the oil price rises by 40 per cent and prices of other commodities climb by 50 per cent. Despite the moderation in oil and commodity prices since then, and the likelihood of a more moderate impact, the simulation clearly shows which countries have gained and lost from the Ukraine conflict. Figure III.4.1 Figure III.4.2 Per capita wheat production (2020) and food Shares of the Russian Federation and Ukraine consumption of wheat (2019), by country in cereals imports to the Arab countries, latest available data Non-Arab countries Arab countries Russian Federation Ukraine Wheat consumption per capita, kg 250 Percentage Saudi Arabia, 2021 200 Yemen, 2015 Qatar, 150 2020 Morocco, 2021 100 United Arab Emirates, 2020 Jordan, 2020 50 Oman, 2018 Syrian Arab 0 Republic, 2010 0 50 100 150 200 250 Wheat production per capita, kg Mauritania, 2021 Source: FAOSTAT. Egypt, Note: The diagonal line is a 45-degree line. 2021 Tunisia, 2021 subsidy expenses fell from 2 .4 to 0 .4 per cent of Lebanon, GDP in tunisia and from 1 .7 to 1 .2 per cent of GDP 2021 in Egypt . yet in Egypt, food subsidies still account Libya,2019 for 4 .8 per cent of government expenditures . Any Sudan, increase would put considerable pressure on 2018 government finance.f 0 10 20 30 40 50 60 70 80 90 Actions taken by Arab countries to shield their Source: International Trade Centre Trade Map. citizens from shock mostly include shifting towards Note: The year in the label for each country represents the year of the other suppliers and seeking alternative import latest available data. directions (such as European union countries, the united States or latin America) . Egypt has also has envisaged a plan to rebuild the beirut port banned wheat exports and provided new incentives storage facilities and support local farmers to boost to enlarge local supplies . measures such as domestic supply . morocco, already affected by mixing wheat with sweet potatoes or increasing catastrophic drought limiting domestic production, the amount of flour extracted from wheat from announced greater production of fertilizers to help 82 to 87 .5 per cent have been proposed . lebanon farmers from other countries enhance yields and f No data on food subsidy expenditures exist for other Arab countries, except Jordan, where they are negligible, and Sudan, where in 2016 they constituted 0.2 per cent of GDP and 1.5 per cent of total public expenditures. contracted additional deliveries from Argentina production capacities to improve resilience to and france . it also expanded storage capacities . such shocks in the future . these actions are very costly, however, as they require increasing the water Summing up, the black Sea Grain initiative and the supply and reducing land degradation . over the long availability of other suppliers have spared Arab run, more lasting solutions lie in a gradual shift in countries the most acute consequences of cuts consumption patterns towards less water-intensive in wheat and edible oil deliveries from the Russian crops that can be sustainably grown in the region . federation and ukraine . nevertheless, the potentially dire consequences of the crisis highlight the need Author: Jan Gaska, United Nations Economic to diversify supply sources and invest in domestic and Social Commission for Western Asia cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 107 Latin America and the Caribbean 6.6 5.9 3.8 2.5 3.1 1.4 -0.6 1.8 0.6 -1.4 -7.4 Total Per capita -8.1 2019 2020 2021 2022e 2023f 2024f FOOD SECURITY INDEX GDP Weighted average by population Per capita 2022 2022 63 World $11,115 78 Developed economies $45,445 65 Economies in transition $ 6,721 60 Developing economies $ 5,794 48 Africa $ 1,944 70 East Asia $ 9,960 58 South Asia $ 2,078 60 Western Asia $12,599 64 Latin America and the Caribbean $ 8,443 Note: the boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the united nations . the map represents countries and/or territories or parts thereof for which data are available and/or analysed in World Economic Situation and Prospects 2023 . the shaded areas therefore do not necessarily overlap entirely with the delimitation of their frontiers or boundaries . Aggregate data for Africa exclude libya . e = 2022 estimates . f = 2023-2024 forecasts. Source for food security data: un DESA calculations, based on data from Economist impact's World food Security index 2022 . based on data availability, 27 economies are covered in developed economies; 8 in economies in transition; 78 in developing economies, including 32 in Africa, 11 in East Asia, 5 in South Asia, 11 in Western Asia and 19 in latin America and the caribbean . Latin America and the and the United States could further reduce Caribbean: A sharp growth exports from, and financial flows into, Latin America and the Caribbean. Tightening global slowdown exacerbates policy and domestic monetary conditions could dilemmas exacerbate public and private sector debt risks. Policymakers navigating a complex economic ● Regional growth is projected to environment face difficult trade-offs among decelerate sharply in 2023, amid elevated growth, inflation, financial stability and inflation, significant global headwinds mounting social demands, with the risk that and domestic structural vulnerabilities. missteps could aggravate the slowdown. A rapid ● Fiscal and monetary policy space is move towards fiscal consolidation or aggressive limited. Policy missteps in managing and prolonged monetary tightening could drive trade-offs among growth, inflation further deterioration in the outlook. and financial stability could The largest economies in the region are braced worsen the outlook. for a broad-based slowdown. GDP growth ● Slow growth and subdued job creation in Brazil is projected to slow sharply to only in the near term will limit gains in 0.9 per cent in 2023, amid still elevated inflation, poverty reduction. higher interest rates and slower export growth. Fiscal consolidation pressures, including rising Latin America and the Caribbean’s economic debt-servicing costs, will limit the expansion outlook is rapidly deteriorating amid of social spending and public investments. challenging external conditions, limited Economic activity in Mexico will remain macroeconomic policy space, and elevated subdued, with GDP projected to enlarge by and persistent inflation. Recurrent global only 1.1 per cent due to the slowdown in the shocks – the COVID-19 pandemic, the war in United States, lower credit growth and supply Ukraine, and now the severe tightening of chain disruptions hampering industrial activity. global monetary and financing conditions – Argentina’s economy remains mired in crisis, continue to impede growth. In 2022, higher amid record-high inflation that topped 80 per borrowing costs, together with lower capital cent in October 2022 and monetary policy flows, restricted credit growth, increased tightening. GDP is projected to expand by 1 financial volatility and limited investment per cent in 2023 yet the possibility of a further (see box III.5). In addition, the slowdown in slowdown looms large. the major economies will constrain export growth throughout 2023. On the domestic Inflation remains elevated, illustrating the more front, the impact of restrictive monetary policy persistent nature of price pressures across the stances on economic activity will become more region (figure III.17). Increased inflation has visible. Still-elevated inflation will continue been driven by higher energy and food prices, to affect real incomes. Regional GDP growth is significant depreciation of domestic currencies projected to slow to 1.4 per cent in 2023, after an and supply-side constraints. In 2022, inflation estimated expansion of 3.8 per cent in 2022. reached record highs in Argentina, Chile, Colombia and Mexico, and jumped substantially The region needs to urgently lift growth in Central America and the Caribbean. Due performance, which remains largely insufficient to rising food prices, food insecurity has to improve living standards and socioeconomic worsened, affecting more than 90 million people conditions. Poverty indicators have stagnated (ECLAC, 2022c). Vulnerable groups in countries for over a decade. Downside risks may worsen reliant on imports and with limited fiscal space, the outlook even more in the near term. More such as in the Caribbean and Central America, deterioration in growth in China, Europe confront particular risks. cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 109 Figure III.17 Figure III.18 Inflation for selected countries in Latin America Unemployment rates in selected countries and the Caribbean in Latin America and the Caribbean Monthly average 2021 January 2020 October 2022 September 2022 or latest available Monthly average 2016-2020 Peak unemployment rate during the pandemic Percentage Percentage 14 30 12 25 10 20 8 15 6 10 4 2 5 0 0 Chile Colombia Costa Rica Mexico Peru Brazil Costa Rica Colombia Brazil Uruguay Chile Peru Argentina Mexico Source: UN DESA, based on data from Trading Economics. Source: UN DESA, based on data from Trading Economics. As aggregate demand slows and commodity gains for women. Given the growth slowdown prices soften, inflation is projected to gradually and subdued labour market prospects, ease in 2023, as already observed in some significant reductions in poverty across the countries. In Brazil, annual inflation reached region are unlikely in the near term. Poverty 12 per cent in April 2022. Since then, it has and extreme poverty remain well above pre- declined rapidly, reaching 6.5 per cent in pandemic levels. In 2022, 32.1 per cent of people October (figure III.17). In 2023, regional inflation in the region lived in poverty and 13.1 per cent is projected to decline to 5.4 per cent on the in extreme poverty (ECLAC, 2022a). heels of an estimated 9.2 per cent in 2022.35 Fiscal policy needs to strike a balance between The prospects for labour markets are supporting growth and investment, protecting challenging. Unemployment rates have declined vulnerable groups from higher energy and to pre-pandemic levels or lower in several food prices, and maintaining the credibility economies (figure III.18). Aggressive monetary of fiscal frameworks. Yet fiscal policy space tightening, rising production costs and slowing is constrained by elevated public debt. After growth, however, may curtail job creation in reaching a peak of 56.6 per cent of GDP in 2020, 2023. Rising prices may continue to undermine Latin America’s gross public debt fell to about workers’ real wages. In 2021, average real wages 52.1 per cent in 2022. In the Caribbean, gross were still about 7 per cent below pre-pandemic public debt is higher at about 84.1 per cent levels (ECLAC and ILO, 2022). Recovery in of GDP, and above 100 per cent in Barbados, employment has been uneven, driven by low- Belize and Suriname. Sovereign bond yields quality and informal jobs, with much weaker have increased substantially. By November 35 These figures exclude Argentina and the Bolivarian Republic of Venezuela. 110 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Figure III.19 expenditures (e.g., tax exclusions, exemptions, Policy interest rates in selected countries deductions and credits) could also strengthen in Latin America and the Caribbean fiscal revenues. In the medium term, however, the region will need to make concrete efforts Brazil Colombia Chile Mexico Peru to strengthen fiscal revenues through income Percentage and wealth taxes, a process that should build on 15 increasingly progressive tax systems. With elevated inflation and reduced capital 12 inflows, most central banks have accelerated monetary tightening. Central banks 9 aggressively increased interest rates in Brazil, Chile, Colombia and Mexico (figure III.19). 6 Early and swift monetary decisions have helped preserve the credibility of monetary 3 frameworks. Higher interest rates are projected to slow credit growth substantially in 2023, 0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct however, particularly in Brazil, Colombia 2020 2021 2022 and Peru. In Brazil, credit growth fell from 16.3 per cent in 2021 to 14.2 per cent in 2022 Source: UN DESA, based on data from Trading Economics. and is projected to retreat further to 8.2 per cent in 2023 (CBB, 2022). Central bank interventions in foreign exchange markets and 2022, 10-year government bond yields stood the use of international reserves also became above 12 per cent in Brazil and Colombia, and at more prevalent. Central banks now need to about 9 per cent in Mexico. Central government carefully calibrate ways forward, depending on liquidity positions have deteriorated. In Brazil, country-specific situations. The effectiveness interest payments on central government debt of further increases in interest rates remains represent about 23 per cent of fiscal revenues. doubtful, given the key role of supply-side Between 2015 and 2022, interest payments as a constraints in inflation. Overly aggressive and share of government revenues in Colombia and prolonged monetary tightening could in fact Mexico almost doubled. inflict further harm and exacerbate solvency risks for households and firms. In economies At a moment of elevated development needs, where inflation trended down throughout 2023, the region will need to expand its fiscal space and depending on specific circumstances, and strengthen fiscal sustainability. In the short central banks might consider easing policy term, more widespread use of digitalization interest rates to encourage investment and could lessen tax avoidance, which represents consumer spending. about 6 per cent of regional GDP. Reducing tax cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 111 Box III.5 Figure III.5.1 Latin America and the Caribbean: Real annual Latin America and the Caribbean investment growth and average growth by decade faces major investment challenges Percentage As a region, latin America and the caribbean faces 20 16.1 major investment challenges, underlining the 15 imperative to considerably increase investment 10 and put economies on a sustainable, inclusive 5 3.6 3.4 development path that reduces poverty and 0.50 inequality, and cuts greenhouse gas emissions . -5 Greater investment would help mitigate the -10 8.1 coordination problems that inhibit the adoption of -12.8 new and better technology and obstruct productivity -15 -13.7 growth . Such investment should encompass -20 1990 1995 2000 2005 2010 2015 2020 all forms of human, physical, social and natural capital . the current juncture could be used as an Source: ECLAC, based on official data. opportunity to harness more investment to “build back better”, such as by replacing ageing and polluting machinery and equipment to usher in more levels equivalent to, or below, those of the main sustainable, inclusive and resilient development . advanced economies prevents the convergence this would mean almost doubling investment in the of public capital stock levels between the two sets coming decades . of countries . Expanding public capital stock is a key way to boost potential economic growth and investment trends in the region changed drastically improve public service delivery . At the same time, after the debt crisis . from the 1990s onwards, public investment has been used as the main fiscal investment has grown slowly . between 1951 and adjustment variable during the last decade . this 1979, it rose by an annual average of 5 .9 per cent has affected not only economic infrastructure but from 1990 to 2020 the rate was only 2 .7 per projects but also the acquisition of fixed assets cent . figure iii .5 .1 clearly shows that the decade for social services such as health and education, from 2010 to 2019 saw the worst investment leaving the region more exposed to the impacts performance since 1990 (EclAc, 2022b) . of the COVID-19 pandemic and to lags in human investment in latin America and the caribbean capital formation . has become more volatile, with more frequent, Stimulating public investment could shore up longer and deeper contractionary cycles . Weak economic growth and create the capital stock performance has affected both the private and needed to achieve the SDGs . in a context of scarce public sectors, although the latter more intensely . resources, giving strategic direction to public the relatively weaker performance of the public spending is essential . this process should prioritize sector has led to a significant reduction in its share, capital formation and strengthen the institutional which dropped from an average of 26 per cent in the framework for public investment to improve its 1970s to 20 .1 per cent in the 2010s . efficiency and effectiveness. At the same time, the sluggish performance of public investment given the magnitude of the investment required to imposes economic and social costs, making close existing development gaps and respond to the it harder to achieve sustainable development . challenges posed by climate change, it is important the fact that economies in the region invest at to review fiscal incentives for investment, improve their design and governance, and align them with cooperation needs to support this process, requiring investment goals and sustainable development a significant increase in official development priorities . Strengthening national public investment assistance and financing from global financial systems should aim to promote consistent, efficient institutions and development banks . and effective public investment . Governments could Public sector investment should both increase also focus on improving investment coordination considerably and become more efficient. In tandem, between the public and private sectors to advance governments could create conditions to redirect the adoption of new and greener technologies existing private investment towards “clean” and (EclAc, 2022b) . higher productivity activities consistent with the these efforts will have to unfold in a very complex energy transition . context, with a growing risk of a global recession, changes in the orientation and dynamics of foreign ever greater international macrofinancial volatility, direct investment and oDA should give them key weak economic growth in the region, stalled job roles in promoting investment in sectors that creation and investment in a downswing phase . enhance environmental sustainability and ensure compounding these concerns are growing that no one is left behind in achieving the SDGs . inflationary pressures and heightened exchange International financial institutions and regional rate volatility, both of which have worsened since development banks could act as catalysts for the outbreak of the war in ukraine . Policy space has this major investment drive, not only through narrowed significantly, with debt levels restricting direct financing but also in helping to attract room for fiscal manoeuvre, while central banks have private investors . reacted to more intensive inflationary pressures by implementing contractionary policies . Author: Economic Development Division, A major share of financing to increase investment United Nations Economic Commission for must be raised domestically . yet international Latin America and the Caribbean cHAPtER iii . REGionAl DEvEloPmEntS AnD outlooK 113 Statistical Annex Country classifications other organizations for several reasons, including differences in timing, sample composition Data sources, country classifications and aggregation methods. Historical data may and aggregation methodology differ from those in previous editions of the The statistical annex contains a set of data that WESP because of updating and changes in the the World Economic Situation and Prospects availability of data for individual countries. (WESP) employs to delineate trends in various dimensions of the world economy. Country classifications For analytical purposes, the WESP classifies all Data sources countries of the world into one of three broad The annex was prepared by the Economic categories: developed economies, economies 2 Analysis and Policy Division (EAPD) of the in transition and developing economies. Department of Economic and Social Affairs of the The composition of these analytical groupings, United Nations Secretariat (UN DESA). It is based specified in tables A, B and C, is intended to on information obtained from the Statistics reflect basic economic country conditions, Division and the Population Division of UN DESA, and are not strictly aligned with the regional as well as from the five United Nations regional classifications defined by the Statistics Division 3 commissions, the United Nations Conference of UN DESA known as M49. Table A.4 reports on Trade and Development (UNCTAD), the estimates for regional GDP growth according International Monetary Fund (IMF), the to the M49 definitions for comparison. Several World Bank, the Organization for Economic countries (in particular the economies in Cooperation and Development (OECD), Eurostat transition) have characteristics that could place and national sources. Estimates for 2022 and them in more than one category; however, forecasts for 2023 and 2024 were made by EAPD in for purposes of analysis, the groupings have consultation with the regional commissions and been made mutually exclusive. Within each UNCTAD, partly guided by the World Economic broad category, some subgroups are defined Forecasting Model (WEFM) of EAPD.1 Longer- based either on geographical location or on ad term projections are based on a technical model- hoc criteria, such as the subgroup of “major based extension of the WEFM. Data presented developed economies”, which is based on the in the WESP may differ from those published by membership of the Group of Seven. 1 See Altshuler and others (2016). 2 These analytical groupings are not strictly aligned with geographic groupings designated by the Statistics Division of UN DESA. 3 Full details of the M49 standard can be found on the Statistics Division website at https://unstats.un.org/unsd/methodology/m49. countRy clASSificAtionS 115 In parts of the analysis, a distinction is made and environmental vulnerabilities at the United between fuel exporters and fuel importers. An Nations Conference on Environment and economy is classified as a fuel exporter if the Development (UNCED), also known as the Earth share of fuel exports in its total merchandise Summit, held from 3 to 14 June 1992 in Rio de exports is greater than 20 per cent and the level Janeiro, Brazil. This group comprises 38 UN of fuel exports is at least 20 per cent higher than Member States and 20 non-UN members/ that of the country’s fuel imports (table D). This Associate Members of Regional Commissions. criterion is drawn from the share of fuel exports in the total value of world merchandise trade. The landlocked developing countries Fuels include coal, oil and natural gas. (LLDCs) represent 32 countries and include some of the poorest countries in the world, For other parts of the analysis, countries have including 17 LDCs. been classified by their level of development as measured by per capita gross national The WESP also refers to the group of heavily income (GNI). Accordingly, countries have indebted poor countries (HIPCs), which are been grouped as high-income, upper-middle- considered by the World Bank and IMF as part income, lower-middle-income and low-income of their debt-relief initiative (the Enhanced 6 (table E). To maintain compatibility with similar HIPC Initiative). In March 2020, there were classifications used elsewhere, the threshold 39 HIPCs (table G). levels of GNI per capita are those established by the World Bank. Countries with a GNI per capita Aggregation methodology of $1,085 or less are classified as low-income countries, those with between $1,086 and $4,255 Aggregate data are either sums or weighted as lower-middle-income countries, those with averages of individual country data. Unless between $4,256 and $13,205 as upper-middle- otherwise indicated, multi-year averages of income countries, and those with incomes of growth rates are expressed as compound annual more than $13,205 as high-income countries. GNI percentage rates of change. The convention per capita in dollar terms is estimated using the followed is to omit the base year in a multi-year World Bank Atlas method,4 and the classification growth rate. For example, the 10-year average in table E is based on data for 2021. growth rate for the decade of the 2000s would be identified as the average annual growth rate for The list of the least developed countries (LDCs) the period from 2001 to 2010. is determined by the United Nations Economic and Social Council and, ultimately, by the The WESP utilizes market exchange rate General Assembly, based on recommendations conversions of national data to aggregate made by the Committee for Development Policy. output of individual countries into regional The basic criterion for inclusion requires that and global totals. The growth of output in each certain thresholds be met regarding per capita group of countries is calculated from the sum GNI, a human assets index and an economic of gross domestic product (GDP) of individual vulnerability index.5 As of December 2022 there countries measured at 2015 prices and exchange were 46 LDCs (table F). rates. This method supplies a reasonable set of aggregate growth rates for a period of about Small Island Developing States (SIDS) were 15 years, centered on 2015. recognized as a distinct group of developing countries facing specific social, economic 4 See http://data.worldbank.org/about/country-classifications. 5 Handbook on the Least Developed Country Category: Inclusion, Graduation and Special Support Measures (United Nations Publication, Sales No. E.18.II.A.1). Available from https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/2018CDPhandbook.pdf. 6 International Monetary Fund, “Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative”. Available from https://www.imf.org/en/About/Factsheets/ Sheets/2016/08/01/16/11/Debt-Relief-Under-the-Heavily-Indebted-Poor-Countries-Initiative. 116 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 The exchange rate-based aggregation method weights. The reason is developing countries, differs from the one mainly applied by the in the aggregate, have seen significantly IMF for their estimates of world and regional higher economic growth than the rest of the economic growth, which is based on purchasing world in the 1990s and 2000s and the share in power parity (PPP) weights. Over the past two WGP of these countries is larger under PPP decades, the growth of world gross product measurements than under market exchange (WGP), based on the exchange rate-based rates. Table I.1 in Chapter I reports world output approach, has been below that based on PPP growth with PPP weights as a comparator. Table A Developed economies Major developed Northern America Europe economies (G7) Canada European Union Other Europe Canada United States Austriaa Italya Iceland France Developed Asia Belgiuma Latviaa Norway Germany and the Pacific Bulgaria Lithuaniaa Switzerland Italy Australia Croatia a Luxembourga United Kingdomb Japan Japan Cyprus a Maltaa United Kingdom New Zealand Czechia Netherlands a United States Denmark Poland Estoniaa Portugala Finlanda Romania Francea Slovakiaa Germanya Sloveniaa Greecea Spaina Hungary Sweden Irelanda a Member of euro area. Croatia became the 20th member of the euro area on 1 January 2023. Economic indicators for the euro area in this report refer to the 19 countries that had joined earlier. b The United Kingdom withdrew from the EU on 31 January 2020 and is therefore excluded from all EU aggregations. Table B Economies in transition South-Eastern Europe Commonwealth of Independent States and Georgiaa Albania Armenia Kazakhstan Tajikistan Bosnia and Herzegovina Azerbaijan Kyrgyzstan Turkmenistan Montenegro Belarus Republic of Moldova Ukraineb North Macedonia Georgiaa Russian Federation Uzbekistan Serbia a Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this group of countries for reasons of geographic proximity and similarities in economic structure. b The Government of Ukraine has advised the United Nations that it is not in a position to provide statistical data concerning the Autonomous Republic of Crimea and the city of Sevastopol. countRy clASSificAtionS 117 Table C Developing economies by regiona Latin America Africa Asia and the Caribbean East Africa North Africa East Asiab South Asia Caribbean Burundi Algeria Brunei Darussalam Afghanistan Bahamas Comoros Egypt Cambodia Bangladesh Barbados Democratic Republic of the Libya China Bhutan Belize Congo Mauritania Democratic People's India Guyana Djibouti Morocco Republic of Korea Iran (Islamic Republic of) Jamaica Eritrea Sudan Fiji Maldives Suriname Ethiopia Tunisia Hong Kong SARc Nepal Trinidad and Tobago Kenya Central Africa Indonesia PakistanMadagascar Kiribati Sri Lanka Mexico and Central Rwanda Cameroon Lao People’s Democratic America Somalia Central African Republic Republic Western Asia Costa RicaSouth Sudan Chad Malaysia Cuba Uganda Congo Mongolia Bahrain Dominican Republic United Republic of Equatorial Guinea Myanmar Iraq El Salvador Tanzania Gabon Papua New Guinea Israel Guatemala West Africa Sao Tome and Principe Philippines Jordan HaitiRepublic of Korea Kuwait Honduras Benin Southern Africa Samoa Lebanon Mexico Burkina Faso Singapore Oman Cabo Verde Angola Nicaragua Solomon Islands Qatar Botswana PanamaCôte d'Ivoire Taiwan Province of China Saudi Arabia Gambia Eswatini Thailand State of Palestine South America Ghana Lesotho Timor-Leste Syrian Arab Repuplic Malawi ArgentinaGuinea Vanuatu Türkiye Bolivia (Plurinational State Guinea-Bissau Mauritius Viet Nam United Arab Emirates Mozambique of)Liberia Yemen Brazil Mali Namibia Chile Niger South Africa Colombia Nigeria Zambia Zimbabwe EcuadorSenegal Paraguay Sierra Leone Peru Togo Uruguay Venezuela (Bolivarian Republic of) a Economies systematically monitored for the World Economic Situation and Prospects report. These analytical groupings differ from the geographical aggregations defined according to M49. b Throughout the report the term ‘East Asia’ is used in reference to this set of developing countries, and excludes Japan. c Special Administrative Region of China. 118 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table D Fuel-exporting countries Developed countries Developing countries Norway Latin America and the Caribbean Africa East Asia Western Asia Bolivia (Plurinational State of) Algeria Brunei Darussalam Bahrain Colombia Angola Indonesia Iraq Ecuador Cameroon Mongolia Kuwait Trinidad and Tobago Chad Papua New Guinea Oman Economies Venezuela Congo South Asia Qatar in transition (Bolivarian Republic of) Equatorial Guinea Saudi ArabiaGabon Iran (Islamic Republic of) United Arab Emirates Azerbaijan Ghana Yemen Kazakhstan Libya Russian Federation Mozambique Turkmenistan Nigeria Source: UN DESA, based on data from UNCTAD. Table E Economies by per capita GNI (as of 1 July 2022)a High-income Upper-middle-income Lower-middle-income Low-income Australia New Zealand Albania Mexico Algeria Lesotho Afghanistan Austria Norway Argentina Montenegro Angola Mauritania Burkina Faso Bahamas Oman Armenia Namibia Bangladesh Mongolia Burundi Bahrain Panamac Azerbaijan North Macedonia Benin Morocco Central African Barbados Poland Belarus Paraguay Bhutan Myanmar Republic Belgium Portugal Belizec Peru Bolivia Nepal Chad Brunei Qatar Bosnia and Republic of (Plurinational Nicaragua Democratic People’s Darussalam Republic of Korea Herzegovina Moldova State of) Nigeria Republic of Korea Canada Romaniac Botswana Russian Cabo Verde Pakistan Democratic Republic Chile Saudi Arabia Brazil Federation Cambodia Papua New of the Congo Croatia Singapore Bulgaria Serbia Cameroon Guinea Eritrea Cyprus Slovakia China South Africa Comoros Philippines Ethiopia Czechia Slovenia Colombia Suriname Congo Samoa Gambia Denmark Spain Costa Rica Thailand Côte d’Ivoire Sao Tome and Guinea Estonia Sweden Cuba Türkiye Djibouti Principe Guinea-Bissau Finland Switzerland Dominican Turkmenistan Egypt Senegal Liberia France Taiwan Province Republic El Salvador Solomon Islands Madagascar Germany of China Ecuador Eswatini Sri Lanka Malawi Greece Trinidad and Equatorial Guinea Ghana State of Palestine Mali Hong Kong SARd Tobago Fiji Haiti Tajikistan Mozambique Hungary United Arab Gabon Honduras Timor-Leste Niger Iceland Emirates Georgia India Tunisia Rwanda Ireland United Kingdom Guatemala Indonesia Ukraine Sierra Leone Israel United States Guyana Iran (Islamic United Republic Somalia Italy Uruguay Iraq Republic of) of Tanzania South Sudan Japan Jamaica Kenya Uzbekistan Sudan Kuwait Jordan Kiribati Vanuatu Syrian Arab Latvia Kazakhstan Kyrgyzstan Viet Nam Republic Lithuania Libya Lao People’s Zimbabwe Togo Luxembourg Malaysia Democratic Uganda Malta Maldives Republic Yemen Netherlands Mauritius Lebanonb Zambiab Source: World Bank, Country classification by income (https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups). Note: Venezuela (Bolivarian Republic of) has been temporarily unclassified in July 2021 pending release of revised national accounts statistics. a Economies systematically monitored for the World Economic Situation and Prospects report, based on World Bank country classifications by income. b Indicates the country has been shifted downward by one category from previous year's classification. c Indicates the country has been shifted upward by one category from previous year's classification. d Special Administrative Region of China. countRy clASSificAtionS 119 Table F Least developed countries (as of December 2022) Latin America Africa East Asia South Asia Western Asia and the Caribbean Angola Madagascar Cambodia Afghanistan Yemen Haiti Benin Malawi Kiribati Bangladesh Burkina Faso Mali Lao People’s Bhutan Burundi Mauritania Democratic Nepal Central African Mozambique Republic Republic Niger Myanmar Chad Rwanda Solomon Comoros Sao Tome and Principe Islands Democratic Republic Senegal Timor Leste of the Congo Sierra Leone Tuvalua Djibouti Somalia Eritrea South Sudan Ethiopia Sudan Gambia Togo Guinea Uganda Guinea-Bissau United Republic Lesotho of Tanzania Liberia Zambia Source: UN DESA (https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/publication/ldc_list.pdf). a Economies not systematically monitored for the World Economic Situation and Prospects report. Table G Heavily indebted poor countries (as of March 2020) Post-completion point HIPCsa Pre-decision point HIPCsb Afghanistan Honduras Eritrea Benin Liberia Sudan Bolivia Madagascar Burkina Faso Malawi Burundi Mali Cameroon Mauritania Central African Republic Mozambique Chad Nicaragua Comoros Niger Congo Rwanda Côte D’Ivoire Sao Tome and Principe Democratic Republic of the Congo Senegal Ethiopia Sierra Leone Gambia Somalia Ghana Togo Guinea Uganda Guinea-Bissau United Republic of Tanzania Guyana Zambia Haiti Source: The World Bank and the International Monetary Fund (https://www.worldbank.org/en/topic/debt/brief/hipc). a Countries that have qualified for irrevocable debt relief under the HIPC Initiative. b Countries that are potentially eligible and may wish to avail themselves of the HIPC Initiative or the Multilateral Debt Relief Initiative (MDRI). 120 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table H Small island developing States Non-UN members/Associate members United Nations members of the Regional Commissionsa Antigua and Barbudaa Marshall Islandsa American Samoa Bahamas Mauritius Anguilla Bahrain Naurua Aruba Barbados Palaua Bermuda Belize Papua New Guinea British Virgin Islands Cabo Verde Saint Kitts and Nevisa Cayman Islands Comoros Saint Luciaa Commonwealth of Northern Marianas Cuba Saint Vincent and the Grenadinesa Cook Islands Dominicaa Samoa Curaçao Dominican Republic Sao Tome and Príncipe French Polynesia Federated States of Micronesiaa Seychellesa Guadeloupe Fiji Singapore Guam Grenadaa Solomon Islands Martinique Guinea-Bissau Suriname Montserrat Guyana Timor-Leste New Caledonia Haiti Tongaa Niue Jamaica Trinidad and Tobago Puerto Rico Kiribati Tuvalua Sint Maarten Maldives Vanuatu Turks and Caicos Islands U.S. Virgin Islands Source: UN DESA (https://sustainabledevelopment.un.org/topics/sids/list). a Economies not systematically monitored for the World Economic Situation and Prospects report. Table I Landlocked developing countries Landlocked developing countries Afghanistan Ethiopia Paraguay Armenia Kazakhstan Republic of Moldova Azerbaijan Kyrgystan Rwanda Bhutan Lao People’s Democratic Republic South Sudan Bolivia (Plurinational State of) Lesotho Tajikistan Botswana Malawi Turkmenistan Burkina Faso Mali Uganda Burundi Mongolia Uzbekistan Central African Republic Nepal Zambia Chad Niger Zimbabwe Eswatini North Macedonia Source: UN-OHRLLS (https://www.un.org/ohrlls/content/list-lldcs). countRy clASSificAtionS 121 Table J International Organization for Standardization of Country Codes ISO ISO ISO ISO Code Country Code Country Code Country Code Country AFG Afghanistan DZA Algeria LBN Lebanon ROU Romania AGO Angola ECU Ecuador LBR Liberia RUS Russian Federation AIA Anguilla EGY Egypt LBY Libya RWA Rwanda ALB Albania ERI Eritrea LCA Saint Lucia SAU Saudi Arabia AND Andorra ESP Spain LIE Liechtenstein SDN Sudan ARE United Arab Emirates EST Estonia LKA Sri Lanka SEN Senegal ARG Argentina ETH Ethiopia LSO Lesotho SGP Singapore ARM Armenia FIN Finland LTU Lithuania SLB Solomon Islands ATG Antigua and Barbuda FJI Fiji LUX Luxembourg SLE Sierra Leone AUS Australia FRA France LVA Latvia SLV El Salvador AUT Austria FSM Micronesia (Federated MAR Morocco SMR San Marino AZE Azerbaijan States of) MCO Monaco SOM Somalia BDI Burundi GAB Gabon MDA Republic of Moldova SRB Serbia BEL Belgium GBR United Kingdom of MDG Madagascar SSD South Sudan BEN Benin Great Britain and MDV Maldives STP Sao Tome and Principe BFA Burkina Faso Northern Ireland MEX Mexico SUR Suriname BGD Bangladesh GEO Georgia MHL Marshall Islands SVK Slovakia BGR Bulgaria GHA Ghana MKD North Macedonia SVN Slovenia BHR Bahrain GIN Guinea MLI Mali SWE Sweden BHS Bahamas GMB Gambia MLT Malta SWZ Eswatini BIH Bosnia and Herzegovina GNB Guinea-Bissau MMR Myanmar SYC Seychelles BLR Belarus GNQ Equatorial Guinea MNE Montenegro SYR Syrian Arab Republic BLZ Belize GRC Greece MNG Mongolia TCD Chad BOL Bolivia (Plurinational GRD Grenada MOZ Mozambique TGO Togo State of) GTM Guatemala MRT Mauritania THA Thailand BRA Brazil GUY Guyana MSR Montserrat TJK Tajikistan BRB Barbados HND Honduras MUS Mauritius TKM Turkmenistan BRN Brunei Darussalam HRV Croatia MWI Malawi TLS Timor-Leste BTN Bhutan HTI Haiti MYS Malaysia TON Tonga BWA Botswana HUN Hungary NAM Namibia TTO Trinidad and Tobago CAF Central African Republic IDN Indonesia NER Niger TUN Tunisia CAN Canada IND India NGA Nigeria TUR Türkiye CHE Switzerland IRL Ireland NIC Nicaragua TUV Tuvalu CHL Chile IRN Iran NLD Netherlands TZA United Republic of CHN China (Islamic Republic of) NOR Norway Tanzania CIV Côte D’Ivoire IRQ Iraq NPL Nepal UGA Uganda CMR Cameroon ISL Iceland NRU Nauru UKR Ukraine COD Democratic Republic of ISR Israel NZL New Zealand URY Uruguay the Congo ITA Italy OMN Oman USA United States of COG Congo JAM Jamaica PAK Pakistan America COL Colombia JOR Jordan PAN Panama UZB Uzbekistan COM Comoros JPN Japan PER Peru VCT Saint Vincent and the CPV Cabo Verde KAZ Kazakhstan PHL Philippines Grenadines CRI Costa Rica KEN Kenya PLW Palau VEN Venezuela (Bolivarian CUB Cuba KGZ Kyrgyzstan PNG Papua New Guinea Republic of) CYP Cyprus KHM Cambodia POL Poland VNM Viet Nam CZE Czechia KIR Kiribati PRK Democratic People’s VUT Vanuatu DEU Germany KNA Saint Kitts and Nevis Republic of Korea WSM Samoa DJI Djibouti KOR Republic of Korea PRT Portugal YEM Yemen DMA Dominica KWT Kuwait PRY Paraguay ZAF South Africa DNK Denmark LAO Lao People’s PSE State of Palestine ZMB Zambia DOM Dominican Republic Democratic Republic QAT Qatar ZWE Zimbabwe 122 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Annex tables Table A.1 Developed economies: growth of real GDP Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Developed economies 1.7 2.3 1.7 2.4 2.3 1.8 -4.6 5.2 2.6 0.4 1.6 United States 2.0 2.7 1.7 2.3 2.9 2.3 -3.4 5.7 1.8 0.4 1.7 Canada 2.3 0.7 1.0 3.0 2.8 1.9 -5.2 4.5 3.6 0.8 1.9 Japan 0.8 1.5 0.7 1.7 0.7 -0.4 -4.7 1.7 1.6 1.5 1.3 Australia 3.0 2.3 2.7 2.4 2.8 2.0 -2.2 4.9 3.9 1.9 1.8 New Zealand 2.8 4.2 4.0 4.0 4.3 3.3 -1.0 5.1 3.3 1.9 2.0 European Union 1.3 2.3 2.0 2.8 2.0 1.8 -5.7 5.3 3.3 0.2 1.6 Austria 1.5 1.0 2.0 2.3 2.5 1.5 -6.7 4.6 4.7 -0.1 1.3 Belgium 1.7 2.0 1.3 1.6 1.8 2.1 -5.7 6.2 2.7 0.2 1.2 Bulgaria 3.6 3.4 3.0 2.8 2.7 4.0 -4.4 4.2 3.0 1.5 3.0 Croatia 1.7 2.5 3.5 3.4 2.9 3.5 -8.1 10.2 5.8 2.1 2.5 Cyprus 1.8 3.4 6.5 5.9 5.7 5.3 -5.0 5.5 5.3 1.8 2.6 Czechia 2.6 5.4 2.5 5.2 3.2 3.0 -5.5 3.5 2.3 0.0 2.3 Denmark 1.0 2.3 3.2 2.8 2.0 1.5 -2.0 4.9 2.9 -0.3 1.1 Estonia 3.9 1.9 3.2 5.8 3.8 3.7 -0.6 8.0 0.0 1.0 2.1 Finland 1.5 0.5 2.8 3.2 1.1 1.2 -2.2 3.0 2.5 -0.4 1.3 France 1.4 1.1 1.1 2.3 1.9 1.8 -7.8 6.8 2.6 0.1 1.4 Germany 1.2 1.5 2.2 2.7 1.0 1.1 -3.7 2.6 1.7 -0.4 1.6 Greece 0.1 -0.2 -0.5 1.1 1.7 1.8 -9.0 8.3 6.2 0.7 2.5 Hungary 2.2 3.7 2.2 4.3 5.4 4.6 -4.5 7.1 5.6 1.0 3.0 Ireland 3.2 24.4 2.0 9.0 8.5 5.4 6.2 13.6 8.2 3.0 3.2 Italy 0.2 0.8 1.3 1.7 0.9 0.5 -9.0 6.6 3.7 -0.3 1.1 Latvia 3.8 3.9 2.4 3.3 4.0 2.5 -3.8 4.5 2.0 -0.2 2.5 Lithuania 4.3 2.0 2.5 4.3 4.0 4.6 -0.1 5.0 2.3 0.5 2.3 Luxembourg 3.0 2.3 5.0 1.3 2.0 3.3 -1.8 6.9 1.7 0.5 2.1 Malta 3.2 9.6 3.4 11.1 6.0 5.9 -8.3 9.4 5.9 2.4 3.2 countRy clASSificAtionS 123 Table A.1 Developed economies: growth of real GDP (continued) Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Netherlands 1.3 2.0 2.2 2.9 2.4 2.0 -3.9 4.9 4.6 0.2 1.3 Poland 3.6 4.2 3.1 4.8 5.4 4.7 -2.2 5.9 4.6 1.0 2.6 Portugal 0.3 1.8 2.0 3.5 2.8 2.7 -8.4 4.9 6.6 0.5 1.7 Romania 3.7 3.0 4.7 7.3 4.5 4.2 -3.8 6.0 6.0 2.0 2.5 Slovakia 3.9 5.2 1.9 3.0 3.8 2.6 -4.4 3.0 1.7 0.8 2.1 Slovenia 2.0 2.2 3.2 4.8 4.4 3.3 -4.2 8.1 6.0 1.2 2.3 Spain 1.5 3.8 3.0 3.0 2.3 2.1 -10.8 5.1 4.5 0.9 2.2 Sweden 2.2 4.5 2.1 2.6 2.0 2.0 -2.2 5.1 2.9 -0.9 1.0 Other Europe 1.8 2.4 2.1 2.0 1.8 1.5 -7.3 6.5 3.8 -0.4 1.2 Iceland 2.7 4.4 6.3 4.2 4.9 2.4 -6.8 4.4 6.4 1.5 2.2 Norway 1.7 2.0 1.1 2.3 1.1 0.7 -0.7 3.9 2.7 0.9 1.6 Switzerland 2.0 1.6 2.1 1.4 2.9 1.1 -2.4 4.2 2.2 0.6 1.6 United Kingdomd 1.7 2.6 2.3 2.1 1.7 1.7 -9.3 7.4 4.3 -0.8 1.0 Memorandum items: Northern America 2.0 2.5 1.6 2.3 2.9 2.3 -3.5 5.6 1.9 0.4 1.7 Developed Asia and the Pacific 1.3 1.8 1.3 1.9 1.3 0.3 -4.0 2.6 2.2 1.6 1.4 Europe 1.4 2.3 2.0 2.7 2.0 1.8 -5.4 5.2 3.3 0.2 1.6 Major developed economies 1.6 2.1 1.6 2.2 2.2 1.6 -4.8 5.1 2.2 0.3 1.5 Euro area 1.2 2.0 1.9 2.6 1.8 1.6 -6.1 5.3 3.2 0.1 1.6 Source: UN DESA, based on data of the United Nations Statistics Division and individual national sources. Note: Regional aggregates calculated at 2015 prices and exchange rates. a Average percentage change. b Partly estimated. c Baseline scenario forecasts, based on UN DESA World Economic Forecasting Model. d The United Kingdom withdrew from the EU on 31 January 2020 and is therefore excluded from all EU aggregations. 124 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.2 Economies in transition: growth of real GDP Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Economies in transitiond 5.0 -1.3 0.6 2.3 3.2 2.5 -2.6 4.9 -3.0 -0.8 2.3 South-Eastern Europe 3.5 2.4 3.2 2.6 4.1 3.6 -2.9 7.4 2.8 2.3 2.8 Albania 4.6 2.2 3.3 3.8 4.0 2.1 -3.5 8.5 3.5 2.5 3.0 Bosnia and Herzegovina 3.0 3.1 3.1 3.2 3.7 2.8 -3.2 7.6 3.6 1.5 2.3 Montenegro 3.5 3.4 2.9 4.7 5.1 4.1 -15.2 13.0 3.6 3.0 3.2 North Macedonia 2.8 3.9 2.8 1.1 2.9 3.2 -4.5 4.0 2.5 2.0 3.0 Serbia 3.7 1.8 3.3 2.1 4.5 4.3 -0.9 7.4 2.3 2.5 2.9 Commonwealth of Independent States and Georgiad,e 5.1 -1.5 0.5 2.3 3.1 2.5 -2.6 4.8 -3.3 -1.0 2.3 Commonwealth of Independent States and Georgia - net fuel 5.1 -1.4 0.1 2.0 2.9 2.1 -2.7 4.7 -2.3 -1.7 2.0 exporters Azerbaijan 11.1 1.0 -3.1 0.2 1.5 2.5 -4.3 5.6 5.0 3.0 3.0 Kazakhstan 7.7 1.2 1.1 4.1 4.1 4.5 -2.5 4.1 2.6 3.4 4.0 Russian Federation 4.6 -2.0 0.2 1.8 2.8 2.0 -2.7 4.7 -3.5 -2.9 1.5 Turkmenistan 7.5 1.5 -4.7 0.5 1.3 -7.7 -3.4 6.2 6.0 5.8 4.8 Commonwealth of Independent States and Georgia - net fuel 4.9 -1.7 2.7 3.7 4.3 4.1 -1.8 5.5 -8.5 3.7 4.3 importersd,e Armenia 7.0 3.2 0.2 7.5 5.2 7.6 -7.4 5.7 14.0 4.0 4.5 Belarus 5.9 -3.8 -2.5 2.5 3.2 1.4 -0.9 2.3 -4.8 -1.2 1.5 Georgiae 5.8 3.0 2.9 4.8 4.8 5.0 -6.8 10.4 10.8 5.2 4.6 Kyrgyzstan 4.5 3.9 4.3 4.7 3.8 4.6 -8.6 3.6 7.1 6.0 3.6 Republic of Moldova 4.8 -0.3 4.4 4.7 4.3 3.7 -7.0 13.9 -3.0 1.5 3.2 Tajikistan 7.7 8.8 6.9 8.8 7.6 7.4 4.5 9.2 7.1 4.3 4.4 Ukrained,f 2.9 -9.8 2.4 2.5 3.4 3.2 -3.8 3.4 -36.0 .. .. Uzbekistan 6.9 7.4 6.1 4.5 5.4 5.8 1.6 7.4 5.8 5.8 5.6 Source: UN DESA, based on data of the United Nations Statistics Division and individual national sources. Note: Regional aggregates calculated at 2015 prices and exchange rates. a Average percentage change. b Partly estimated. c Baseline scenario forecasts, based in part on the UN DESA World Economic Forecasting Model. d Ukraine is excluded from 2023 and 2024 individual and regional group forecasts. e Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this group of countries for reasons of geographic proximity and similarities in economic structure. f The Government of Ukraine has advised the United Nations that it is not in a position to provide statistical data concerning the Autonomous Republic of Crimea and the city of Sevastopol. countRy clASSificAtionS 125 Table A.3 Developing economies: growth of real GDP Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Developing countriesd 5.9 4.5 4.2 4.7 4.5 3.4 -1.5 6.7 3.9 3.9 4.1 Africa 4.9 3.5 1.7 3.6 3.4 2.5 -2.1 4.5 3.7 4.0 3.8 North Africa 3.8 3.8 3.0 5.5 4.1 2.0 -2.8 4.9 3.9 4.8 3.8 Algeria 3.7 3.7 3.2 1.4 1.2 1.0 -5.1 3.5 4.7 2.4 1.7 Egypte 4.4 5.8 5.8 5.4 5.0 5.4 3.5 3.3 6.6 5.1 4.6 Libya -0.4 -0.8 -1.5 32.5 7.9 -11.2 -29.4 28.2 -15.1 18.0 6.1 Mauritania 3.4 5.4 1.3 3.5 2.1 5.8 -1.8 3.1 4.1 4.7 9.0 Morocco 4.7 4.3 0.5 5.1 3.1 2.9 -7.2 7.9 1.7 3.6 3.5 Sudane 5.9 4.0 3.6 4.7 2.8 1.3 -1.6 -2.0 3.7 5.1 5.8 Tunisia 3.6 1.0 1.1 2.2 2.5 1.4 -8.7 3.3 2.7 2.0 2.4 East Africa 5.9 6.4 4.6 5.4 6.2 6.3 2.1 5.5 5.1 5.1 4.9 Burundi 3.3 -0.4 3.2 3.8 5.3 4.5 0.3 3.1 3.4 4.0 4.9 Comoros 2.6 1.3 3.3 3.8 3.8 2.0 0.2 2.2 3.3 3.6 4.2 Democratic Republic of the Congo 4.8 6.4 0.4 3.7 4.8 4.5 1.7 6.2 7.1 6.0 6.1 Djibouti 5.4 7.5 7.1 5.5 4.8 5.5 1.2 4.5 3.2 3.1 2.6 Eritrea 2.6 -20.6 7.4 -10.0 13.0 3.8 -0.6 2.2 3.9 3.2 3.1 Ethiopia 9.1 9.0 8.6 8.2 7.6 7.2 6.1 4.0 4.4 4.5 4.3 Kenya 4.4 5.0 4.2 3.8 5.6 5.1 -0.3 7.5 5.6 4.9 4.6 Madagascar 2.7 3.1 4.0 3.9 3.2 4.4 -7.1 4.4 3.5 3.8 4.4 Rwanda 7.8 8.9 6.0 4.0 8.6 9.5 -3.4 10.9 6.1 6.7 7.0 Somalia 3.0 4.6 4.7 2.2 3.7 2.7 -0.3 2.9 3.6 4.5 5.2 South Sudan 3.2 6.9 -6.6 -3.5 3.8 11.4 3.1 1.0 2.7 3.5 4.0 Uganda 7.3 8.0 0.2 6.8 5.5 7.7 -1.3 6.0 4.7 5.7 5.0 United Republic of Tanzania 6.5 6.2 6.9 6.8 7.0 7.0 4.8 4.9 4.8 5.4 5.4 Central Africa 5.1 0.9 -1.5 -0.1 0.6 1.9 -2.4 1.4 3.4 3.4 3.4 Cameroon 4.2 5.7 4.6 3.5 4.1 3.7 -1.5 3.6 3.8 4.5 4.7 Central African Republic -1.2 4.3 4.8 4.5 3.8 3.0 1.0 1.0 1.8 3.2 3.8 Chad 8.9 1.8 -6.4 -2.4 2.3 3.0 -0.8 -1.2 3.1 3.3 3.4 Congo 5.2 -3.2 -10.2 -4.6 -6.2 -0.4 -8.2 -2.1 2.7 3.7 5.9 Equatorial Guinea 11.5 -9.1 -8.8 -5.7 -6.2 -6.0 -4.9 -0.7 3.8 -1.4 -4.6 Gabon 2.1 3.9 2.1 0.5 0.8 3.9 -0.8 1.5 3.0 3.4 3.3 Sao Tome and Principe 4.8 3.9 4.2 3.8 2.9 2.2 3.1 1.8 1.3 2.2 2.9 West Africa 6.5 3.7 0.4 2.6 3.2 3.3 -0.8 4.2 3.6 3.8 4.0 Benin 6.0 13.0 3.3 5.7 6.7 6.9 2.0 7.0 5.7 6.2 6.1 126 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.3 Developing economies: growth of real GDP (continued) Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Burkina Faso 5.6 3.9 6.0 6.2 6.7 5.7 2.0 6.9 3.5 4.3 5.2 Cabo Verde 4.4 1.0 4.7 3.7 4.5 5.7 -14.8 7.0 3.9 4.6 5.3 Côte D’Ivoire 4.0 14.9 7.2 7.4 6.9 6.2 2.0 7.0 5.7 6.8 6.7 Gambia 2.7 4.1 1.9 4.8 7.2 10.5 -6.2 4.7 4.7 5.3 6.0 Ghana 6.3 2.1 3.4 8.1 6.2 6.5 0.4 5.4 3.6 3.1 3.7 Guinea 3.4 3.8 10.8 10.3 6.4 5.6 7.1 3.6 4.5 5.1 5.6 Guinea-Bissau 2.3 6.1 6.3 5.9 3.4 4.5 -1.4 4.6 3.5 4.2 4.5 Liberia 6.8 9.3 -0.5 2.5 1.2 -2.3 -2.9 4.7 3.2 3.6 5.4 Mali 8.6 7.5 8.9 6.7 6.8 6.3 -0.1 3.1 2.5 4.1 4.6 Niger 4.7 4.8 5.7 5.0 7.2 5.9 3.6 1.4 5.6 6.8 11.3 Nigeria 7.1 2.7 -1.6 0.8 1.9 2.2 -1.8 3.6 3.2 3.0 3.0 Senegal 3.6 6.4 6.4 7.4 6.2 4.4 0.8 6.4 4.9 8.1 10.5 Sierra Leone 9.2 -20.5 6.3 3.8 3.4 5.5 -2.2 3.8 3.1 3.5 4.7 Togo 4.4 11.1 11.6 4.0 4.0 3.6 0.7 5.1 5.2 6.0 6.5 Southern Africa 4.3 1.6 0.5 1.4 1.3 0.1 -5.4 4.1 2.5 2.3 2.7 Angola 7.5 0.9 -2.6 -0.1 -2.0 -0.6 -4.0 0.8 2.9 2.9 3.7 Botswana 4.6 -1.7 4.3 2.9 4.5 3.0 -7.9 11.4 4.0 4.0 4.0 Eswatini 3.1 2.2 1.1 2.0 2.4 2.2 -5.6 7.2 1.7 2.0 2.4 Lesotho 4.1 3.1 3.6 -3.2 -1.2 2.6 -6.5 1.5 2.2 2.6 2.5 Malawi 5.8 8.5 7.8 10.5 4.4 5.6 0.9 3.6 1.4 2.8 3.4 Mauritius 4.2 3.6 3.8 3.8 3.8 3.0 -14.9 3.7 6.0 5.5 4.2 Mozambique 7.4 6.7 3.8 3.7 3.4 2.3 -1.2 2.3 4.0 5.0 7.5 Namibia 4.8 4.3 0.0 -1.0 1.1 -0.6 -8.0 2.1 2.7 2.7 2.8 South Africa 3.2 1.3 0.7 1.2 1.5 0.3 -6.3 4.9 2.0 1.5 1.8 Zambia 6.7 2.9 3.8 3.5 4.0 1.4 -2.8 3.9 2.6 3.9 4.3 Zimbabwe 3.8 1.8 0.8 4.7 4.8 -8.3 0.8 6.3 3.0 2.9 3.0 Africa – net fuel exporters 5.6 2.3 -0.6 2.7 1.9 1.0 -4.2 4.3 2.5 3.6 3.2 Africa – net fuel importers 4.4 4.3 3.3 4.1 4.4 3.5 -0.8 4.7 4.4 4.2 4.2 East and South Asia 7.4 6.0 6.1 6.1 5.8 4.8 0.1 7.1 3.6 4.4 4.6 East Asia 7.8 5.9 5.9 6.1 5.9 5.2 0.9 7.0 3.2 4.4 4.3 Brunei Darussalam 1.1 -0.4 -2.5 1.3 0.1 3.9 1.1 -1.6 -1.8 3.4 3.2 Cambodia 7.8 7.0 6.9 7.0 7.4 7.1 -3.1 3.0 5.0 5.6 7.0 China 9.8 7.0 6.8 6.9 6.7 6.0 2.2 8.1 3.0 4.8 4.5 Democratic People’s Republic of Korea 1.1 -1.1 3.9 -3.5 -4.1 0.4 -4.5 -1.6 1.5 1.1 1.1 Fiji 1.9 4.5 2.4 5.4 3.8 -0.6 -17.2 -4.1 11.9 6.7 5.3 countRy clASSificAtionS 127 Table A.3 Developing economies: growth of real GDP (continued) Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Hong Kong SARf 4.0 2.4 2.2 3.8 2.8 -1.2 -6.1 6.3 -3.0 1.7 3.0 Indonesia 5.3 4.9 5.0 5.1 5.2 5.0 -2.1 3.7 5.3 5.0 5.4 Kiribati 1.2 9.9 -0.5 -0.2 5.3 -0.5 -0.5 1.5 1.6 2.2 3.0 Lao People’s Democratic Republic 7.3 7.3 7.0 6.9 6.2 5.5 3.3 3.5 2.1 3.0 4.0 Malaysia 5.1 5.1 4.4 5.8 4.8 4.4 -5.5 3.1 8.5 3.0 4.2 Mongolia 7.6 2.4 1.5 5.6 7.2 5.5 -4.4 1.4 2.5 5.0 6.6 Myanmare 10.3 7.5 6.4 5.8 6.4 6.7 3.2 -5.9 0.5 3.0 3.3 Papua New Guinea 3.8 6.6 5.5 3.5 -0.3 4.5 -3.5 1.2 4.1 3.6 4.5 Philippines 5.1 6.3 7.1 6.9 6.3 6.1 -9.5 5.7 7.0 5.0 6.1 Republic of Korea 4.5 2.8 2.9 3.2 2.9 2.2 -0.7 4.1 2.7 2.0 2.5 Samoa 2.5 6.7 3.7 -0.6 0.7 2.4 -9.2 -7.1 -4.0 3.5 3.8 Singapore 5.8 3.0 3.6 4.7 3.7 1.1 -4.1 7.6 3.8 1.0 3.0 Solomon Islands 3.3 1.4 5.9 5.3 3.9 1.2 -4.3 -0.8 -2.5 3.3 2.8 Taiwan Province of China 4.1 1.5 2.2 3.3 2.8 3.1 3.4 6.6 3.3 2.2 2.9 Thailand 4.1 3.1 3.4 4.2 4.2 2.2 -6.2 1.5 3.3 3.8 4.2 Timor-Leste 5.1 2.8 3.4 -3.1 -0.7 2.1 -8.6 1.5 3.0 4.0 2.6 Vanuatu 3.0 0.2 3.5 4.4 2.9 3.3 -9.2 0.4 1.8 2.9 3.5 Viet Nam 6.5 6.7 6.2 6.8 7.1 7.0 2.9 2.6 7.0 6.3 6.4 South Asia 5.7 6.2 7.4 6.1 5.3 2.8 -4.3 7.2 5.6 4.8 5.9 Afghanistane 8.4 -1.4 1.5 2.7 1.2 3.9 -2.4 -20.7 -10.4 -6.6 2.0 Bangladeshe 5.9 6.6 7.1 6.6 7.3 7.9 3.4 6.9 7.2 6.0 5.9 Bhutan 7.6 6.6 8.1 4.7 3.1 5.8 -10.1 -3.7 4.2 4.0 4.5 Indiae 6.4 8.0 8.3 6.8 6.5 3.7 -6.6 8.7 6.2 6.0 6.2 Iran (Islamic Republic of)e 3.9 -1.4 8.8 2.8 -1.8 -3.1 3.3 4.7 2.7 2.3 2.3 Maldives 5.2 2.9 6.3 7.2 8.1 7.1 -33.5 41.7 8.4 6.5 6.8 Nepale 5.2 4.0 0.4 9.0 7.6 6.7 -2.4 4.3 5.8 4.7 4.4 Pakistane 4.1 4.1 4.6 4.6 6.1 3.1 -0.9 5.7 6.0 4.1 3.1 Sri Lanka 5.6 5.0 4.5 3.6 3.3 2.3 -3.6 3.7 -9.0 -3.2 2.0 East and SouthAsia – net fuel exporters 4.8 3.2 5.4 4.7 3.1 1.7 -1.2 3.8 4.5 4.2 4.5 East and SouthAsia – net fuel importers 7.7 6.2 6.2 6.2 6.0 5.0 0.2 7.3 3.5 4.4 4.6 Western Asia 4.6 3.9 3.7 2.3 2.5 1.2 -3.1 6.2 6.4 3.5 3.4 Western Asia – net fuel exporters 4.6 3.3 4.0 -0.8 2.0 1.1 -5.5 3.0 7.5 3.6 3.4 Bahrain 5.1 2.5 3.6 4.3 2.1 2.2 -4.9 2.2 5.1 2.7 3.1 128 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.3 Developing economies: growth of real GDP (continued) Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Iraq 3.8 2.6 13.8 -1.8 2.6 5.5 -11.3 2.8 8.4 3.2 3.1 Kuwait 4.5 0.6 2.9 -4.7 2.4 -0.6 -8.9 2.4 9.1 2.8 2.1 Oman 3.6 5.0 5.0 0.3 1.3 -1.1 -3.2 3.0 4.4 3.0 2.3 Qatar 11.1 4.8 3.1 -1.5 1.1 0.9 -3.6 1.6 5.2 3.4 3.6 Saudi Arabia 4.1 4.1 1.7 -0.7 2.5 0.3 -4.1 3.2 8.5 3.6 3.4 United Arab Emirates 4.7 6.8 5.6 0.7 1.3 1.1 -5.0 3.9 6.9 4.2 4.1 Yemen 3.2 -28.0 -9.4 -5.1 0.8 1.4 -8.5 -1.7 2.0 3.3 4.0 Western Asia – net fuel importers 4.6 4.6 3.4 6.1 3.0 1.3 -0.3 9.8 5.3 3.5 3.3 Israel 3.8 2.3 4.5 4.4 4.0 3.8 -2.2 8.2 5.6 2.9 2.7 Jordan 5.2 2.5 2.0 2.5 1.9 1.9 -1.6 2.2 2.7 2.2 2.5 Lebanon 4.5 0.5 1.6 0.9 -1.9 -6.9 -25.9 -11.7 5.7 4.6 4.4 State of Palestine 3.7 3.7 8.9 1.4 1.2 1.4 -11.3 7.0 4.7 3.2 2.5 Syrian Arab Republic -1.2 -3.2 -5.6 -0.7 1.5 3.7 -2.2 -3.2 0.6 1.9 3.7 Türkiye 5.1 6.0 3.3 7.5 3.1 0.8 1.8 11.6 5.4 3.7 3.5 Latin America and the Caribbeang 3.1 0.1 -1.3 1.0 0.7 -0.6 -7.4 6.6 3.8 1.4 2.5 South America 3.4 -1.3 -3.0 0.3 -0.1 -1.1 -7.0 7.0 3.9 1.1 2.5 Argentina 2.5 2.7 -2.1 2.8 -2.6 -2.1 -9.9 10.4 4.9 1.0 2.5 Bolivia (Plurinational State of) 4.2 4.9 4.3 4.2 4.2 2.2 -8.8 6.1 3.5 2.9 4.0 Brazil 3.3 -3.5 -3.3 1.3 1.8 1.4 -4.1 4.6 2.9 0.9 2.0 Chile 4.2 2.3 1.7 1.2 3.7 0.9 -5.8 11.7 2.3 -1.1 2.5 Colombia 4.2 3.0 2.1 1.4 2.6 3.3 -6.8 10.7 8.0 1.5 3.3 Ecuador 4.3 0.1 -1.2 2.4 1.3 0.0 -7.8 4.2 2.7 2.0 2.6 Paraguay 4.5 3.0 4.3 4.8 3.2 -0.4 -1.0 4.2 -0.3 4.0 3.0 Peru 5.3 3.3 4.0 2.5 4.0 2.2 -11.1 13.3 2.7 2.2 3.5 Uruguay 3.4 1.8 3.1 1.6 0.5 0.4 -5.9 4.4 5.4 2.9 3.0 Venezuela (Bolivarian Republic of) 2.8 -6.2 -17.0 -15.7 -19.6 -35.0 -32.0 0.5 12.0 5.0 4.0 Mexico and Central America 2.5 3.6 2.9 2.5 2.5 0.6 -8.2 5.8 3.3 1.6 2.5 Costa Rica 4.2 3.7 4.2 4.2 2.1 2.2 -4.5 7.8 4.4 2.6 3.3 Cuba 4.5 4.4 0.5 1.8 2.2 -0.2 -10.9 1.3 2.0 1.5 3.0 Dominican Republic 4.8 6.9 6.7 4.7 7.0 5.1 -6.7 12.3 5.1 4.6 4.2 El Salvador 1.8 2.4 2.5 2.3 2.4 2.6 -7.9 10.2 2.6 1.6 2.0 Guatemala 3.5 4.1 2.7 3.1 3.3 3.9 -1.5 8.0 4.0 3.2 3.2 Haitie 2.4 1.6 2.3 2.5 1.7 -1.7 -3.3 -2.4 -0.1 -1.7 0.3 Honduras 4.1 3.8 3.9 4.8 3.8 2.7 -9.0 12.5 4.2 2.7 3.7 countRy clASSificAtionS 129 Table A.3 Developing economies: growth of real GDP (continued) Annual percentage change 2000-   2014a 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Mexico 2.1 3.3 2.6 2.1 2.2 -0.1 -8.3 4.8 2.9 1.1 2.1 Nicaragua 3.7 4.8 4.6 4.6 -3.4 -3.7 -2.0 10.3 3.8 2.1 3.7 Panama 6.3 5.7 5.0 5.6 3.6 3.0 -17.9 15.3 8.4 4.2 4.5 Caribbean 2.5 1.2 -2.0 0.0 1.4 0.7 -7.1 6.4 10.7 7.9 5.8 Bahamas 0.9 1.6 0.1 1.6 2.8 0.7 -14.5 16.0 8.0 4.1 1.4 Barbados 0.6 2.5 2.5 0.4 -0.6 -1.3 -17.6 1.0 10.0 3.5 2.5 Belize 4.0 2.9 -0.2 2.1 2.0 2.0 -16.7 16.4 9.5 5.0 2.8 Guyana 6.0 0.7 3.8 3.7 4.4 5.4 43.5 22.7 52.0 30.0 18.0 Jamaica 0.6 0.9 1.4 1.0 1.9 0.9 -10.2 4.6 2.8 3.0 2.2 Suriname 4.5 -2.6 -4.9 1.6 4.9 1.1 -15.9 -3.5 2.1 2.4 2.1 Trinidad and Tobago 4.6 1.8 -6.3 -2.7 -0.7 -0.2 -7.4 -0.7 2.0 2.0 2.8 Latin America and the Caribbean – net fuel exporters 3.5 -1.6 -7.0 -5.3 -5.5 -8.9 -12.5 7.1 7.2 2.3 3.3 Latin America and the Caribbean – net fuel importers 3.0 0.4 -0.3 2.0 1.6 0.6 -6.7 6.6 3.4 1.3 2.4 Memorandum items: Least developed countries 6.2 3.5 3.9 4.9 5.1 4.7 1.5 2.4 4.3 4.4 5.4 Africa (excluding Libya) 5.1 3.6 1.8 3.0 3.3 2.9 -1.5 4.1 4.1 3.8 3.8 North Africa (excluding Libya) 4.3 4.1 3.3 3.8 3.8 3.1 -0.9 3.7 5.1 4.1 3.7 East Asia (excluding China) 4.8 3.6 3.8 4.3 4.0 3.3 -2.3 4.2 3.9 3.2 3.9 South Asia (excluding India) 4.6 3.1 5.8 5.0 3.1 0.8 1.5 3.7 3.7 2.6 4.0 Western Asia (excluding Israel and Türkiye) 4.5 3.1 3.8 -0.7 1.9 0.9 -6.0 2.6 7.2 3.5 3.4 Arab Statesh 4.3 3.3 3.5 1.2 2.6 1.3 -4.9 3.4 6.1 4.0 3.5 Landlocked developing countries 6.8 3.7 2.7 4.5 4.7 3.8 -1.2 4.6 3.6 4.0 4.4 Small island developing States 4.8 3.5 3.0 3.7 3.4 1.6 -6.2 6.6 4.5 2.6 3.6 Source: UN DESA, based on data of the United Nations Statistics Division and individual national sources. Note: Regional aggregates calculated at 2015 prices and exchange rates. a Average percentage change. b Partly estimated. c Baseline scenario forecasts, based in part on the UN DESA World Economic Forecasting Model. d Covering countries that account for 98 per cent of the population of all developing countries. e Fiscal year basis. f Special Administrative Region of China. g Figures for Latin America and the Caribbean for 2022–2023 were provided by UN ECLAC. h Currently includes data for Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, and Yemen. 130 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.4 Growth of world output and gross domestic product by SDG regions Annual percentage change   2020 2021 2022a 2023b 2024b World -3.3 5.8 3.0 1.9 2.7 Africa -2.1 4.5 3.7 4.0 3.8 North Africa -2.8 4.9 3.9 4.8 3.8 East Africa 1.0 5.2 4.5 4.8 4.7 Middle Africa -2.4 2.0 3.9 3.7 4.1 Southern Africa -6.5 5.1 2.1 1.7 2.0 West Africa -0.8 4.2 3.6 3.8 4.1 Americas -4.3 5.8 2.3 0.6 1.9 Northern America -3.5 5.6 1.9 0.4 1.7 Latin America and the Caribbean -7.4 6.6 3.8 1.4 2.5 Caribbean -8.9 6.0 3.4 2.9 3.3 Central America -8.2 5.8 3.3 1.5 2.4 South America -7.0 7.0 4.0 1.2 2.5 Asia -1.0 6.2 3.6 4.0 4.1 Central Asia -1.3 5.4 4.1 4.4 4.5 East Asia 0.3 6.4 2.6 3.9 3.7 South Asia -4.3 7.2 5.6 4.8 5.9 South-east Asia -3.7 3.7 5.4 4.2 4.9 Western Asia -3.2 6.2 6.4 3.5 3.4 Europe -5.8 5.5 2.7 -0.1 1.6 Eastern Europe -3.1 4.9 -1.1 -0.7 2.1 Northern Europe -5.8 6.9 4.1 -0.3 1.3 Southern Europe -9.4 6.2 4.3 0.3 1.7 Western Europe -5.1 4.5 2.5 0.0 1.5 Oceania -2.1 4.8 3.8 1.9 1.9 Source: UN DESA, based on data of the United Nations Statistics Division and UN DESA forecasts. Notes: Regional aggregates in this table follow geographic regions defined under the Standard Country or Area Codes for Statistical Use (known as M49) and are not strictly comparable to those in the WESP. Full details on the M49 standard can be found on the United Nations Statistics Division website. Calculated at 2015 prices and exchange rates. Figures are based on the countries actively monitored for the World Economic Situation and Prospects report. a Partly estimated. b Baseline scenario forecasts, based in part on UN DESA World Economic Forecasting Model. countRy clASSificAtionS 131 Table A.5 Developed economies: consumer price inflation Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Developed economies 1.4 0.3 0.8 1.8 2.0 1.5 0.8 3.3 7.5 5.2 2.7 United States 1.6 0.1 1.3 2.1 2.4 1.8 1.2 4.7 8.1 4.8 2.5 Canada 1.9 1.1 1.4 1.6 2.3 1.9 0.7 3.4 6.8 4.6 2.7 Japan 2.8 0.8 -0.1 0.5 1.0 0.5 0.0 -0.2 2.0 1.2 0.7 Australia 2.5 1.5 1.3 2.0 1.9 1.6 0.9 2.8 6.5 4.9 3.1 New Zealand 1.2 0.3 0.6 1.9 1.6 1.6 1.7 3.9 6.6 4.0 3.1 European Union 0.4 0.2 0.2 1.5 1.8 1.4 0.5 2.7 8.6 6.6 3.3 Austria 1.5 0.8 1.0 2.2 2.1 1.5 1.4 2.8 8.6 6.6 3.6 Belgium 0.5 0.6 1.8 2.2 2.3 1.2 0.4 3.2 9.8 6.8 3.6 Bulgaria -1.6 -1.1 -1.3 1.2 2.6 2.4 1.2 2.9 14.0 7.5 3.2 Croatia 0.2 -0.3 -0.6 1.3 1.5 0.8 0.0 2.7 9.0 6.0 3.2 Cyprus -0.3 -1.5 -1.2 0.7 0.8 0.5 -1.1 2.3 8.5 4.4 2.8 Czechia 0.5 0.2 0.7 2.4 1.9 2.6 3.3 3.3 17.0 10.2 3.7 Denmark 0.4 0.2 0.0 1.1 0.7 0.7 0.4 1.9 7.9 4.6 2.8 Estonia 0.5 0.1 0.8 3.7 3.4 2.3 -0.6 4.5 21.0 6.1 3.1 Finland 1.2 -0.2 0.4 0.8 1.2 1.1 0.4 2.1 6.9 4.4 2.6 France 0.6 0.1 0.3 1.2 2.1 1.3 0.5 2.1 5.8 4.2 2.8 Germany 0.7 0.7 0.4 1.7 1.9 1.4 0.3 3.2 8.1 7.6 3.7 Greece -1.4 -1.1 0.0 1.1 0.8 0.5 -1.3 0.6 9.9 5.9 2.7 Hungary 0.0 0.1 0.4 2.4 2.9 3.4 3.4 5.2 13.9 14.2 3.6 Ireland 0.3 0.0 -0.2 0.3 0.7 0.9 -0.5 2.4 8.0 6.3 2.8 Italy 0.2 0.1 -0.1 1.4 1.2 0.7 -0.2 1.9 8.5 6.5 3.2 Latvia 0.7 0.2 0.1 2.9 2.6 2.7 0.1 3.2 17.5 6.9 3.1 Lithuania 0.2 -0.7 0.7 3.7 2.5 2.2 1.1 4.6 20.1 10.2 2.5 Luxembourg 0.7 0.1 0.0 2.1 2.0 1.7 0.0 3.5 8.3 6.2 3.6 Malta 0.8 1.2 0.9 1.3 1.7 1.5 0.8 0.7 6.2 5.0 2.8 Netherlands 0.3 0.2 0.1 1.3 1.6 2.7 1.1 2.8 11.0 7.2 4.5 Poland 0.1 -0.7 -0.2 1.6 1.2 2.1 3.6 5.2 15.1 12.1 4.6 Portugal -0.2 0.5 0.6 1.6 1.2 0.3 -0.1 0.9 8.0 6.2 3.4 Romania 1.4 -0.4 -1.1 1.1 4.1 3.9 2.3 4.1 11.7 8.8 5.7 Slovakia -0.1 -0.3 -0.5 1.4 2.5 2.8 2.0 2.8 12.0 11.1 4.1 Slovenia 0.4 -0.8 -0.1 1.6 1.9 1.7 -0.3 2.1 9.0 6.2 3.3 Spain -0.2 -0.6 -0.3 2.0 1.7 0.8 -0.3 3.0 8.5 4.9 2.5 Sweden 0.2 0.7 1.1 1.9 2.0 1.7 0.7 2.7 8.2 7.0 2.9 132 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.5 Developed economies: consumer price inflation (continued) Annual percentage change   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Other European countries 1.3 0.1 0.8 2.2 2.2 1.6 0.7 2.4 7.6 6.5 3.6 Iceland 1.0 0.3 0.8 -1.6 0.7 2.0 1.2 3.7 8.1 5.9 3.5 Norway 1.9 2.0 3.9 1.8 3.0 2.3 1.2 3.9 6.0 4.1 3.3 Switzerland 0.0 -0.8 -0.5 0.6 0.9 0.4 -0.7 0.6 2.9 2.5 1.4 United Kingdomd 1.5 0.0 0.7 2.7 2.4 1.8 0.9 2.6 9.0 7.8 4.1 Memorandum items: Northern America 1.6 0.2 1.3 2.1 2.4 1.8 1.2 4.6 8.0 4.8 2.5 Developed Asia and the Pacific 2.7 0.9 0.2 0.8 1.2 0.7 0.2 0.5 3.0 2.0 1.3 Europe 0.4 0.2 0.3 1.5 1.7 1.4 0.5 2.7 8.3 6.3 3.3 Major developed economies 1.5 0.3 0.8 1.8 2.1 1.5 0.8 3.4 7.2 4.9 2.6 Euro area 0.4 0.2 0.3 1.5 1.7 1.3 0.3 2.6 8.1 6.2 3.3 Source: UN DESA, based on OECD Main Economic Indicators, Eurostat and individual national sources. a Data for country groups are weighted averages, where weights for each year are based on 2015 GDP in United States dollars. b Partly estimated. c Baseline scenario forecasts, based on UN DESA World Economic Forecasting Model. d The United Kingdom withdrew from the EU on 31 January 2020 and is therefore excluded from all EU aggregations. countRy clASSificAtionS 133 Table A.6 Economies in transition: consumer price inflation Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Economies in transitiond 7.7 14.6 8.0 5.4 4.4 5.0 4.1 7.2 14.5 8.0 4.8 South-Eastern Europe 1.1 1.1 0.3 2.5 2.0 1.3 1.0 3.4 11.3 6.4 3.5 Albania 1.6 3.5 -0.4 2.1 2.0 1.4 1.6 3.5 6.5 4.9 3.1 Bosnia and Herzegovina -0.9 -1.0 -1.6 0.8 1.4 0.6 -1.1 2.0 14.0 5.9 3.1 Montenegro -0.7 1.5 -0.3 2.4 2.6 0.4 -0.3 2.6 11.6 6.4 2.4 North Macedonia 0.0 0.1 0.2 2.1 2.3 0.7 1.2 3.4 14.0 6.2 2.8 Serbia 2.3 1.5 1.3 3.4 2.0 1.9 1.7 4.1 10.8 7.1 4.2 Commonwealth of Independent States 8.0 15.2 8.3 5.5 4.5 5.2 4.3 7.3 14.6 8.1 4.8 and Georgiad,e Commonwealth of Independent States and Georgia – net fuel exporters 7.4 13.9 8.0 4.5 3.5 4.5 3.9 6.9 14.1 8.1 4.8 Azerbaijan 1.4 4.0 12.4 12.9 2.3 2.6 2.8 6.7 12.7 8.1 5.3 Kazakhstan 6.7 6.7 14.5 7.4 6.0 5.2 6.7 8.0 14.8 7.7 4.2 Russian Federation 7.8 15.5 7.0 3.7 2.9 4.5 3.4 6.7 14.3 8.3 4.8 Turkmenistan 6.0 7.4 3.6 8.0 13.3 5.1 7.6 8.1 5.2 6.1 3.9 Commonwealth of Independent States and Georgia – net fuel importersd,e 11.2 22.3 9.8 10.9 10.2 8.7 6.7 9.9 17.5 7.6 5.5 Armenia 3.0 3.7 -1.4 1.0 2.5 1.4 1.2 7.1 8.8 4.3 3.9 Belarus 18.1 13.5 11.8 6.0 4.9 5.6 5.5 10.6 17.8 9.2 7.0 Georgiae 3.1 4.0 2.1 6.0 2.6 4.9 5.2 9.6 12.4 8.4 3.2 Kyrgyzstan 7.5 6.5 0.4 3.2 1.5 1.1 6.3 7.9 13.9 11.9 7.3 Republic of Moldova 5.1 9.7 6.4 6.6 3.0 4.8 3.8 8.3 23.5 12.0 3.1 Tajikistan 6.1 5.7 6.0 7.3 3.8 7.8 8.6 9.0 7.9 6.9 6.4 Ukrained,f 12.1 48.7 13.9 14.4 11.0 7.9 2.7 9.4 25.7 .. .. Uzbekistan 9.3 8.8 8.1 13.9 17.5 14.5 12.9 10.7 11.0 6.0 5.1 Source: UN DESA, based on data of the United Nations Statistics Division and individual national sources. Note: Regional aggregates calculated at 2015 prices and exchange rates. a Average percentage change. b Partly estimated. c Baseline scenario forecasts, based in part on the UN DESA World Economic Forecasting Model. d Ukraine is excluded from 2023 and 2024 individual and regional group forecasts. e Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this group of countries for reasons of geographic proximity and similarities in economic structure. f The Government of Ukraine has advised the United Nations that it is not in a position to provide statistical data concerning the Autonomous Republic of Crimea and the city of Sevastopol. 134 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.7 Developing economies: consumer price inflation Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Developing countries by regiond 4.2 3.8 4.7 4.1 3.6 5.1 5.4 6.6 10.8 8.5 5.5 Africa 7.2 7.3 11.8 14.1 11.1 10.7 17.1 21.9 20.1 14.4 9.6 North Africa 9.2 8.3 11.2 17.6 15.1 10.0 18.9 41.1 25.6 16.0 10.8 Algeria 2.9 4.8 6.4 5.6 4.3 2.0 2.4 7.2 9.4 4.2 2.9 Egypt 10.1 10.4 13.8 25.6 14.4 9.4 5.1 5.2 13.1 10.7 11.3 Libya 2.4 9.9 25.8 25.9 13.6 -2.2 1.4 2.8 5.3 4.9 3.5 Mauritania 3.5 0.5 1.5 2.3 3.0 2.3 2.4 3.6 6.8 4.2 5.1 Morocco 0.4 1.6 1.6 0.8 1.8 0.3 0.7 1.4 6.3 5.0 3.9 Sudan 36.9 16.9 17.8 32.4 63.3 51.0 153.6 359.8 160.2 89.2 40.7 Tunisia 4.6 4.4 3.6 5.3 7.3 6.7 5.6 5.7 8.3 7.9 7.6 East Africa 5.3 7.2 13.0 16.5 11.7 8.7 9.8 10.6 14.4 11.0 8.8 Burundi 4.4 5.5 5.6 16.1 -2.8 -0.7 7.5 8.3 13.8 8.6 9.0 Comoros 0.0 0.9 0.8 0.1 1.7 3.7 0.8 -0.2 9.8 6.7 5.1 Democratic Republic of the Congo 1.2 0.7 3.2 35.3 31.7 4.7 11.3 9.4 10.5 7.6 7.6 Djibouti 1.3 -0.8 2.7 0.6 0.1 3.3 1.8 1.2 6.7 3.1 2.8 Eritrea 10.0 28.5 -5.6 -13.3 -14.4 1.0 4.8 5.1 7.3 6.3 5.6 Ethiopia 6.9 9.6 6.6 10.7 13.8 15.8 20.4 26.3 34.5 24.9 16.2 Kenya 6.9 6.6 6.3 8.0 4.7 5.1 5.5 6.2 7.4 7.0 6.7 Madagascar 6.1 7.4 6.0 8.6 8.6 5.6 4.2 5.8 9.3 8.6 7.8 Rwanda 2.4 2.5 7.2 8.3 -0.3 3.3 9.9 -0.5 18.1 8.7 6.6 Somalia 1.3 0.9 0.1 4.0 4.3 4.7 4.1 4.6 7.5 6.4 4.2 South Sudan 1.8 52.1 351.5 240.3 93.3 88.2 32.6 16.8 11.6 10.3 12.4 Uganda 3.1 5.4 5.4 5.6 2.6 2.4 2.7 2.2 7.4 6.8 6.3 United Republic of Tanzania 6.1 5.6 5.2 5.3 3.5 3.5 3.3 3.7 4.4 4.1 4.1 Central Africa 2.8 2.3 1.4 0.8 2.2 1.8 2.8 1.3 4.4 3.6 3.2 Cameroon 1.8 2.7 0.9 0.6 1.1 2.5 2.4 2.3 4.6 2.8 2.7 Central African Republic 14.9 1.4 4.9 4.2 1.6 2.7 1.7 4.3 6.5 6.4 2.8 Chad 1.7 4.4 -0.8 -1.5 4.3 -1.0 4.5 -0.8 4.9 3.2 3.1 Congo 0.9 3.2 3.2 0.5 1.2 2.2 1.8 2.0 3.5 3.2 3.1 Equatorial Guinea 4.3 1.7 1.4 0.7 1.3 1.2 4.8 -0.1 5.1 5.8 5.3 Gabon 4.7 -0.3 2.1 2.7 4.7 2.5 1.2 1.1 3.5 3.2 2.6 Sao Tome and Principe 7.0 5.3 5.4 5.7 7.9 7.7 9.8 8.1 15.0 11.2 5.7 West Africa 7.2 8.2 13.0 13.4 9.9 9.0 11.1 14.0 17.3 15.1 11.0 Benin -0.5 0.2 -0.8 1.8 0.6 -0.7 3.0 1.7 4.9 1.9 2.1 Burkina Faso -0.3 0.7 0.4 1.5 2.0 -3.2 1.9 3.9 14.2 1.7 1.2 Cabo Verde -0.2 0.1 -1.4 0.8 1.3 1.1 0.6 1.9 6.5 3.6 2.1 countRy clASSificAtionS 135 Table A.7 Developing economies: consumer price inflation (continued) Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Côte D’Ivoire 0.4 1.3 0.7 0.7 0.4 -1.1 2.4 4.2 5.5 4.1 1.9 Gambia 5.9 6.8 7.2 8.0 6.5 7.1 5.9 7.4 11.3 11.1 8.5 Ghana 15.5 17.1 17.5 12.4 7.8 7.1 9.9 10.0 27.1 21.1 14.9 Guinea 7.1 10.8 8.2 8.9 9.8 9.5 10.6 12.6 12.7 12.3 10.3 Guinea-Bissau -1.5 1.5 1.5 1.7 0.4 0.2 1.5 3.3 5.5 4.1 3.1 Liberia 9.9 7.7 8.8 12.4 23.6 27.0 17.0 7.8 6.8 8.6 5.2 Mali 0.9 1.5 -1.8 1.8 0.3 -1.7 0.4 3.8 8.0 3.1 2.6 Niger -0.9 -0.6 1.7 2.8 3.0 -2.5 2.9 3.8 4.5 3.1 2.6 Nigeria 8.1 9.0 15.7 16.5 12.1 11.4 13.2 17.0 18.9 17.3 12.7 Senegal -1.1 0.1 0.8 1.3 0.5 1.8 2.5 2.2 7.5 3.2 2.1 Sierra Leone 4.6 6.7 10.9 18.2 16.0 14.8 13.4 11.9 25.9 27.0 21.0 Togo 0.2 2.6 1.3 -1.0 0.9 0.7 1.8 4.3 5.6 2.2 2.0 Southern Africa 6.2 5.6 12.3 10.8 8.2 16.4 28.5 13.5 21.0 14.6 7.6 Angola 7.3 9.2 30.7 29.8 19.6 17.1 22.3 25.8 21.7 11.8 10.0 Botswana 4.4 3.1 2.8 3.3 3.2 2.8 1.9 6.7 11.2 5.8 4.6 Eswatini 5.7 5.0 7.8 6.2 4.8 2.6 3.9 3.7 4.9 4.3 4.5 Lesotho 5.4 3.2 6.6 4.4 4.8 5.2 5.0 6.0 8.1 6.2 5.5 Malawi 23.8 21.9 21.7 11.5 12.4 9.4 8.6 9.3 18.4 16.6 12.8 Mauritius 3.2 1.3 1.0 3.7 3.2 0.4 2.6 4.0 10.2 6.1 5.7 Mozambique 2.6 3.6 17.4 15.1 3.9 2.8 3.1 5.7 11.3 8.9 8.6 Namibia 5.4 3.4 6.7 6.1 4.3 3.7 2.2 3.6 6.4 5.0 4.5 South Africa 6.1 4.5 6.6 5.2 4.5 4.1 3.2 4.6 6.8 5.3 5.0 Zambia 7.8 10.1 17.9 6.6 7.5 9.2 15.7 22.0 12.5 9.7 7.9 Zimbabwe -0.2 -2.4 -1.5 0.9 10.6 255.3 557.2 98.5 284.9 204.8 36.2 Africa – net fuel exporters 6.6 8.1 15.3 15.1 10.6 8.6 10.7 13.8 16.0 12.7 9.5 Africa – net fuel importers 7.7 6.7 9.4 13.4 11.6 12.2 21.6 27.6 22.9 15.6 9.7 East and South Asia 3.1 2.3 2.4 2.1 2.8 4.0 3.2 2.5 5.0 4.5 3.6 East Asia 2.1 1.5 1.9 1.8 2.1 2.4 2.0 1.4 3.0 2.9 2.5 Brunei Darussalam -0.2 -0.5 -0.3 -1.3 1.0 -0.4 1.9 1.7 3.8 2.1 1.2 Cambodia 3.9 1.2 3.0 2.9 2.5 1.9 2.9 2.9 5.2 3.8 3.1 China 1.9 1.4 2.0 1.6 2.1 2.9 2.4 1.0 2.2 2.5 2.4 Democratic People’s Republic of Korea 3.7 3.1 -0.6 7.2 2.3 -4.6 1.1 2.8 4.8 3.9 3.2 Fiji 0.5 1.4 3.9 3.3 4.1 1.8 -2.6 -1.5 5.2 3.7 3.1 Hong Kong SARe 0.8 2.0 2.0 4.3 0.6 2.3 5.3 1.6 1.9 2.4 2.6 Indonesia 6.4 6.4 3.5 3.8 3.2 3.0 1.9 1.6 4.6 5.5 3.2 Kiribati 2.1 0.6 1.9 0.4 0.6 -1.8 2.5 2.6 5.1 3.5 3.3 136 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.7 Developing economies: consumer price inflation (continued) Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Lao People’s Democratic Republic 4.1 1.3 1.6 0.8 2.0 3.3 5.1 4.0 19.0 9.2 5.3 Malaysia 3.1 2.1 2.1 3.9 0.9 0.7 -1.1 2.5 3.4 2.5 1.9 Mongolia 12.3 5.7 0.7 4.3 6.8 7.3 3.7 7.1 14.5 12.1 8.3 Myanmar 5.0 9.5 6.9 4.6 6.9 8.8 5.7 6.2 16.0 13.0 8.0 Papua New Guinea 5.2 6.0 6.7 5.4 4.4 3.9 4.9 4.5 6.6 5.4 4.9 Philippines 3.6 0.7 1.3 2.9 5.3 2.4 2.4 3.9 5.3 4.3 3.2 Republic of Korea 1.3 0.7 1.0 1.9 1.5 0.4 0.5 2.5 5.3 3.6 2.4 Samoa -0.4 0.7 1.3 1.7 4.2 1.0 -1.6 0.2 9.2 8.5 7.9 Singapore 1.0 -0.5 -0.5 0.6 0.4 0.6 -0.2 2.3 5.9 3.4 3.0 Solomon Islands 5.2 -0.6 0.5 0.5 3.5 1.6 3.0 3.5 4.7 4.5 3.5 Taiwan Province of China 1.2 -0.3 1.4 0.6 1.4 0.6 -0.2 2.0 3.1 2.1 1.4 Thailand 1.9 -0.9 0.2 0.7 1.1 0.7 -0.8 1.2 6.0 2.5 1.8 Timor-Leste 0.8 0.6 -1.5 0.5 2.3 1.0 0.5 3.8 7.0 3.8 2.5 Vanuatu 0.8 2.5 0.8 3.1 2.3 2.8 5.3 4.7 5.3 4.2 3.5 Viet Nam 4.1 0.6 2.7 3.5 3.5 2.8 3.2 1.8 3.1 4.0 4.0 South Asia 7.8 6.4 5.2 3.7 6.6 11.9 9.3 8.6 15.6 12.4 9.4 Afghanistan 4.7 -0.7 4.4 5.0 0.6 2.3 5.6 5.2 7.4 9.6 14.1 Bangladesh 7.0 6.2 5.5 5.7 5.5 5.6 5.7 3.4 7.9 7.4 6.4 Bhutan 8.3 4.5 3.2 5.0 2.7 2.7 5.6 4.2 6.1 7.2 5.0 India 6.4 5.9 4.9 2.5 4.9 7.7 5.6 4.9 7.1 5.5 5.0 Iran (Islamic Republic of) 16.6 12.5 7.2 8.0 18.0 39.9 30.6 29.1 47.3 38.1 28.5 Maldives 2.1 1.0 0.5 2.8 -0.1 0.2 -1.4 4.7 5.0 4.1 3.5 Nepal 8.4 7.9 8.8 3.6 4.1 5.6 5.1 6.2 8.5 8.0 6.7 Pakistan 7.2 2.5 3.8 4.1 5.1 10.6 9.7 10.2 22.9 16.7 14.0 Sri Lanka 3.2 3.8 4.0 7.7 2.1 3.5 6.2 7.2 71.4 59.5 18.3 East and South Asia – net fuel exporters 9.6 8.2 4.7 5.1 7.9 14.7 11.0 10.4 18.2 15.8 11.3 East and South Asia – net fuel importers 2.6 1.9 2.3 1.9 2.4 3.2 2.6 2.0 4.1 3.6 3.0 Western Asia 4.3 3.8 3.9 4.2 6.5 4.3 6.6 11.1 28.1 16.2 6.4 Net fuel exporters 2.5 2.5 2.5 1.1 2.5 -1.0 1.3 3.6 4.7 3.8 3.0 Bahrain 2.6 1.8 2.8 1.4 2.1 1.0 -2.3 -0.6 3.8 2.6 3.4 Iraq 2.2 1.4 1.4 0.2 0.4 -0.2 0.6 6.0 5.4 4.4 3.5 Kuwait 2.9 3.3 3.2 2.2 0.5 1.1 2.1 3.4 3.8 3.2 3.3 Oman 1.0 0.1 1.1 1.6 0.9 0.1 -0.9 1.6 3.0 2.2 2.5 Qatar 3.3 1.8 2.7 0.4 0.3 -0.5 -2.6 2.3 5.0 4.7 4.2 Saudi Arabia 2.2 1.2 2.1 -0.8 2.5 -2.1 3.4 3.1 2.6 2.8 2.4 United Arab Emirates 2.3 4.1 1.6 2.0 3.1 -1.9 -2.1 0.2 4.8 3.8 2.5 countRy clASSificAtionS 137 Table A.7 Developing economies: consumer price inflation (continued) Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Yemen 8.1 22.0 21.3 30.4 27.6 12.0 23.1 47.1 42.6 20.4 9.7 Net fuel importers 6.6 5.5 5.8 8.1 11.5 11.0 13.2 20.5 57.3 31.8 10.6 Israel 0.5 -0.6 -0.5 0.2 0.8 0.8 -0.6 1.5 4.2 3.4 1.7 Jordan 2.9 -0.9 -0.8 3.3 4.5 0.3 0.4 1.4 4.4 3.7 2.6 Lebanon 1.9 -3.7 -0.8 4.4 6.1 2.9 84.3 150.7 176.4 50.7 21.6 State of Palestine 1.7 1.4 -0.2 0.2 -0.2 1.6 -0.7 1.2 4.0 3.5 2.7 Syrian Arab Republic 21.7 38.2 47.7 19.4 0.9 13.4 116.4 77.5 65.5 25.1 13.1 Türkiye 8.9 7.7 7.8 11.1 16.2 15.5 12.3 19.4 71.8 42.4 13.5 Latin America and the Caribbeand 7.0 7.7 10.1 6.7 1.5 7.1 7.5 12.1 18.3 16.3 10.2 South Americad 8.5 10.1 13.7 7.6 9.1 10.0 9.3 14.6 21.8 20.2 12.7 Argentina 21.4 21.5 40.5 25.7 34.2 37.6 27.7 48.4 75.5 82.5 45.9 Bolivia (Plurinational State of) 5.8 4.1 3.6 2.8 2.3 0.6 -0.8 0.7 2.9 3.4 3.3 Brazil 6.3 9.0 8.7 3.4 3.7 4.0 5.5 8.3 9.5 5.3 5.2 Chile 4.7 4.3 3.8 2.2 2.4 2.4 7.8 4.5 11.6 7.9 3.9 Colombia 2.9 5.0 7.5 4.3 3.2 3.7 1.6 3.5 9.8 6.8 5.5 Ecuador 3.6 4.0 1.7 0.4 -0.2 0.1 0.4 0.1 3.4 3.5 2.0 Paraguay 5.0 3.1 4.1 3.6 4.0 3.6 3.1 4.8 9.4 5.1 4.5 Peru 3.2 3.6 3.6 2.8 1.3 1.9 3.5 4.0 7.4 5.1 3.3 Uruguay 8.9 8.7 9.6 6.2 7.6 8.0 9.8 8.1 9.2 8.0 7.5 Venezuela (Bolivarian Republic of) 62.2 121.7 254.9 438.1 65374.1 18999.9 2355.0 1588.0 216.1 188.4 145.3 Mexico and Central America 3.8 2.6 2.5 5.1 -15.0 1.0 3.7 6.9 11.1 8.2 5.2 Costa Rica 4.5 0.9 0.0 1.6 2.2 2.3 0.7 1.7 8.5 6.3 4.7 Cuba 1.1 4.9 -0.5 -1.1 1.9 1.7 14.7 31.4 65.4 43.5 15.7 Dominican Republic 3.0 0.8 1.6 3.3 3.6 2.7 5.1 8.2 8.8 7.5 7.0 El Salvador 1.1 -0.7 0.6 1.0 1.1 1.6 1.5 3.5 7.2 5.6 2.7 Guatemala 3.4 2.4 4.4 4.4 3.8 4.5 3.5 4.3 6.4 5.6 5.0 Haiti 4.6 9.0 13.8 14.7 14.0 18.3 22.9 15.9 25.5 20.4 18.9 Honduras 6.1 3.2 2.7 3.9 4.3 4.0 4.8 4.5 8.2 8.0 6.4 Mexico 4.0 2.8 2.8 6.0 -21.2 0.4 3.0 5.7 7.9 6.0 4.2 Nicaragua 6.0 3.9 3.4 4.0 4.8 4.9 5.7 4.9 9.6 7.1 6.1 Panama 2.6 0.1 0.7 0.9 0.8 0.4 -2.3 1.6 3.9 3.0 2.9 Caribbean 4.5 3.2 5.8 4.0 2.4 2.5 5.3 7.5 9.8 8.1 6.2 Bahamas 1.2 1.9 -0.3 1.5 2.3 2.0 0.0 3.5 7.3 7.2 7.5 Barbados 1.9 -1.1 1.1 4.7 3.7 4.3 2.4 3.1 9.3 8.1 4.2 Belize 1.0 -0.7 0.7 1.1 0.3 0.8 0.1 2.6 6.3 4.7 3.9 Guyana 0.6 -1.0 0.8 1.9 1.2 2.4 -19.2 4.0 7.3 6.6 5.2 138 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.7 Developing economies: consumer price inflation (continued) Annual percentage changea   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Jamaica 8.3 3.7 2.3 4.4 3.7 2.9 5.3 5.9 9.2 8.2 6.6 Suriname 3.4 6.9 53.0 21.5 6.9 9.0 66.8 59.1 45.8 29.2 22.8 Trinidad and Tobago 5.7 4.6 3.1 1.9 1.0 0.9 0.3 1.5 4.9 4.6 2.7 Latin America and the Caribbean – net fuel exporters 3.4 4.7 5.7 3.2 2.3 2.5 1.1 2.4 7.6 5.7 4.4 Latin America and the Caribbean – net fuel importers 7.3 8.0 10.6 7.1 1.4 7.6 8.1 13.1 19.3 17.4 10.8 Memorandum items: Least developed countries 8.2 8.0 12.6 14.5 14.5 11.7 21.8 39.7 26.4 16.6 10.7 East Asia (excluding China) 2.7 1.7 1.6 2.4 2.0 1.4 1.1 2.2 4.8 3.8 2.6 South Asia (excluding India) 10.6 7.5 5.7 6.3 10.1 20.6 16.9 16.1 32.9 26.5 18.5 Western Asia (excluding Israel and Türkiye) 2.7 2.7 2.8 1.5 2.6 -0.7 5.0 8.6 10.4 5.4 3.6 Arab Statesf 4.7 4.4 5.4 6.5 6.5 2.6 9.3 18.7 15.1 8.7 5.9 Landlocked developing countries 5.8 6.2 10.8 9.1 7.7 13.1 21.7 11.2 20.5 13.7 6.9 Small island developing States 2.0 1.4 1.2 1.7 1.8 1.7 3.7 7.8 15.4 10.4 6.1 Source: UN DESA, based on data of the United Nations Statistics Division, individual national sources and UN DESA forecasts. a Data for country groups are weighted averages, where weights for each year are based on 2015 GDP in United States dollars. b Partly estimated. c Baseline scenario forecasts, based in part on UN DESA World Economic Forecasting Model. d Regional aggregates exclude Venezuela (Bolivarian Republic of). e Special Administrative Region of China. f Includes data for Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, and Yemen. countRy clASSificAtionS 139 Table A.8 Developed economies: unemployment rates,a 2013-2023 Percentage of labour force   2013 2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c Developed economies Australia 5.7 6.1 6.1 5.7 5.6 5.3 5.2 6.5 5.1 3.8 3.9 Canada 7.1 6.9 6.9 7.1 6.4 5.9 5.7 9.6 7.5 5.3 5.9 Iceland 5.8 5.4 4.5 3.3 3.3 3.1 3.9 6.4 6.0 4.0 4.1 Japan 4.0 3.6 3.4 3.1 2.8 2.4 2.4 2.8 2.8 2.6 2.5 New Zealand 5.9 5.4 5.4 5.1 4.7 4.3 4.1 4.6 3.8 3.3 3.9 Norway 3.9 3.8 4.7 4.9 4.4 4.0 3.9 4.8 4.5 3.3 3.4 Switzerland 4.7 4.8 4.8 4.9 4.8 4.7 4.4 4.8 5.1 4.1 4.2 United Kingdom 7.6 6.2 5.4 4.9 4.4 4.1 3.8 4.6 4.5 3.7 4.4 United States 7.4 6.2 5.3 4.9 4.4 3.9 3.7 8.1 5.4 3.7 4.2 European Union Austria 5.7 6.0 6.1 6.5 5.9 5.2 4.8 6.0 6.2 4.8 5.2 Belgium 8.6 8.7 8.7 7.9 7.2 6.0 5.5 5.8 6.3 5.5 5.7 Bulgaria 13.9 12.4 10.1 8.6 7.2 6.2 5.2 6.1 5.3 4.3 4.5 Croatia 17.3 17.3 16.2 13.1 11.2 8.5 6.6 7.5 7.6 6.5 6.8 Cyprus 15.9 16.1 15.0 13.0 11.1 8.4 7.1 7.6 7.2 7.2 7.3 Czechia 7.0 6.1 5.1 4.0 2.9 2.2 2.0 2.6 2.8 2.4 2.6 Denmark 7.4 6.9 6.3 6.0 5.8 5.1 5.0 5.6 5.1 4.2 4.6 Estonia 8.6 7.3 6.4 6.8 5.8 5.4 4.5 6.9 6.2 5.5 5.8 Finland 8.3 8.7 9.4 8.9 8.7 7.5 6.8 7.7 7.6 6.9 7.3 France 10.3 10.3 10.3 10.1 9.4 9.0 8.4 8.0 7.8 7.6 7.9 Germany 5.0 4.7 4.4 3.9 3.6 3.2 3.0 3.7 3.6 3.0 3.3 Greece 27.8 26.6 25.0 23.9 21.8 19.7 17.9 17.6 15.3 12.4 12.2 Hungary 9.8 7.5 6.6 5.0 4.0 3.6 3.3 4.1 4.1 3.5 3.8 Ireland 13.8 11.9 9.9 8.4 6.7 5.8 5.0 5.9 6.3 4.5 4.7 Italy 12.4 12.9 12.0 11.7 11.3 10.6 9.9 9.3 9.5 8.3 8.6 Latvia 11.9 10.9 9.9 9.7 8.7 7.4 6.3 8.1 7.6 6.9 7.3 Lithuania 11.8 10.7 9.1 7.9 7.1 6.2 6.3 8.5 7.1 5.9 6.4 Luxembourg 5.9 5.9 6.7 6.3 5.5 5.6 5.6 6.8 6.0 4.8 5.0 Malta 6.1 5.7 5.4 4.7 4.0 3.7 3.6 4.4 3.4 3.1 3.2 Netherlands 8.2 8.4 7.9 7.0 5.9 4.9 4.4 4.9 4.2 3.7 4.2 Poland 10.6 9.2 7.7 6.3 5.0 3.9 3.3 3.2 3.4 2.9 3.1 Portugal 17.2 14.6 13.0 11.5 9.2 7.2 6.7 7.0 6.6 5.9 6.0 Romania 9.0 8.6 8.4 7.2 6.1 5.3 4.9 6.1 5.6 5.4 5.6 Slovakia 14.1 13.1 11.5 9.6 8.1 6.5 5.7 6.7 6.8 6.1 6.4 Slovenia 10.1 9.7 9.0 8.0 6.6 5.1 4.4 5.0 4.8 4.1 4.3 Spain 26.1 24.5 22.1 19.6 17.2 15.3 14.1 15.5 14.7 12.8 13.0 Sweden 8.2 8.1 7.6 7.1 6.8 6.5 7.0 8.5 8.8 7.3 7.8 Source: UN DESA, based on data from Eurostat, OECD, ILOSTAT and UN DESA forecasts. a Unemployment data are standardized by the OECD and Eurostat for comparability among countries and over time, in conformity with the definitions of the International Labour Organization (see OECD, Standardized Unemployment Rates: Sources and Methods (Paris, 1985)). b Partly estimated. c Baseline scenario forecasts, based in part on UN DESA World Economic Forecasting Model. 140 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.9 Selected economies: real effective exchange rates, broad measurementa,b   2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022c Developed economies Australia 100.0 94.9 90.3 81.2 82.0 84.8 81.6 77.7 76.7 81.7 84.5 Austria 100.0 101.7 103.2 101.1 102.5 103.3 104.3 103.4 105.2 105.3 105.4 Belgium 100.0 101.2 101.3 97.5 100.0 101.2 102.9 101.4 102.3 103.0 103.1 Bulgaria 100.0 99.9 99.6 96.9 96.8 96.5 100.2 100.0 102.5 103.7 110.2 Canada 100.0 96.5 90.3 81.3 79.3 80.4 79.8 79.0 77.9 81.9 81.6 Croatia 100.0 100.7 100.4 98.6 99.6 99.6 101.3 100.0 98.5 98.8 104.6 Czechia 100.0 97.4 92.3 91.4 93.8 96.8 100.8 101.0 101.2 105.1 120.6 Denmark 100.0 100.7 101.6 97.3 98.2 98.3 99.3 97.5 98.6 97.6 96.4 Finland 100.0 102.3 104.9 101.9 103.1 102.0 104.1 102.7 104.2 103.3 100.1 France 100.0 101.2 101.3 96.3 97.4 97.6 99.1 97.7 98.8 98.4 94.3 Germany 100.0 102.0 102.7 98.3 99.7 100.3 102.2 100.7 101.6 102.4 101.1 Greece 100.0 99.3 98.0 92.0 93.0 92.5 90.6 88.2 87.7 86.6 87.0 Hungary 100.0 98.4 95.1 92.6 93.2 94.3 93.6 92.6 88.6 88.9 86.8 Ireland 100.0 101.5 100.5 92.7 93.9 94.0 94.9 92.2 92.3 92.3 88.6 Italy 100.0 101.6 101.8 97.0 97.9 98.1 98.7 96.5 97.0 96.8 95.0 Japan 100.0 80.2 75.4 70.1 78.9 75.0 74.7 76.5 77.3 71.0 62.0 Netherlands 100.0 102.9 102.9 98.4 99.5 99.4 100.6 100.5 102.6 102.8 103.5 New Zealand 100.0 102.5 105.3 96.2 97.0 98.0 92.3 90.9 90.2 96.1 95.4 Norway 100.0 97.9 92.7 84.9 86.1 86.7 87.4 85.4 79.6 84.5 83.2 Poland 100.0 100.0 101.1 98.4 94.8 96.7 97.3 96.2 96.7 96.2 100.5 Portugal 100.0 100.0 99.3 96.9 98.3 97.4 96.1 95.1 96.7 95.0 92.6 Romania 100.0 103.7 105.1 102.5 101.3 99.0 101.1 100.6 101.3 101.2 106.7 Slovakia 100.0 101.1 101.9 99.8 100.0 99.0 100.4 101.0 103.5 103.2 105.3 Spain 100.0 101.7 101.0 95.8 96.3 96.9 96.2 94.7 95.4 96.0 95.6 Sweden 100.0 101.3 96.3 91.1 91.7 90.6 86.3 83.2 85.2 87.7 84.1 Switzerland 100.0 98.6 99.4 104.9 102.8 100.5 97.5 98.2 101.9 99.4 99.6 United Kingdom 100.0 98.8 105.6 110.3 98.4 93.3 94.9 94.4 94.4 98.1 99.0 United States 100.0 100.2 102.1 112.9 116.5 114.2 109.2 113.2 115.5 113.1 122.8 Economies in transition Azerbaijan 100.0 99.8 103.5 95.5 70.1 70.9 72.5 75.4 77.7 78.9 91.8 Belarus 100.0 107.8 119.6 110.1 101.4 98.8 97.0 99.3 92.9 93.4 84.6 Kazakhstan 100.0 100.6 93.3 93.2 70.9 76.7 75.8 72.4 71.8 71.0 73.2 Russian Federation 100.0 100.2 90.0 74.4 74.3 86.1 78.7 80.9 74.6 73.7 99.0 Ukrained 100.0 96.4 73.9 69.9 70.1 73.5 77.9 89.3 88.1 90.1 93.6 Developing economies Algeria 100.0 98.0 99.9 95.3 94.5 95.3 91.9 93.8 90.2 85.6 90.2 Argentina 100.0 90.9 74.4 87.5 75.8 78.9 52.7 43.4 39.5 38.9 34.0 countRy clASSificAtionS 141 Table A.9 Selected economies: real effective exchange rates, broad measurementa,b (continued)   2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022c Bangladesh 100.0 110.9 118.8 135.5 143.0 143.7 141.2 148.8 154.9 150.8 164.0 Brazil 100.0 94.6 92.5 75.5 78.8 84.9 67.7 67.5 54.5 54.9 63.8 Chile 100.0 99.0 89.7 87.1 87.9 90.5 88.9 84.6 81.6 87.0 83.7 China 100.0 104.5 107.8 115.8 110.1 106.0 105.9 104.7 106.1 109.7 111.2 Colombia 100.0 96.3 91.5 74.0 70.4 71.2 58.2 55.6 50.9 50.5 49.6 Dominican Republic 100.0 96.8 94.8 96.2 95.1 90.9 80.0 80.0 75.9 75.9 78.3 Egypt 100.0 94.3 101.1 112.0 98.4 67.2 75.8 89.1 98.2 97.9 108.0 Ethiopia 100.0 99.9 99.8 108.3 109.9 106.9 108.8 121.0 113.5 109.1 141.7 Guatemala 100.0 102.0 106.5 114.5 121.1 127.1 122.4 125.1 129.0 131.1 137.0 Hong Kong SARe 100.0 97.4 96.9 102.5 106.9 109.7 106.0 109.5 114.4 109.1 112.5 India 100.0 99.6 101.5 107.7 108.4 111.2 105.8 110.8 109.7 110.1 111.8 Indonesia 100.0 95.2 89.2 90.0 94.3 95.6 90.1 93.8 92.2 91.1 93.7 Iran, Islamic Republic of 100.0 88.6 72.7 76.6 78.1 77.2 72.5 99.9 131.0 162.5 235.1 Israel 100.0 106.5 107.7 106.2 108.2 112.7 111.1 113.5 115.9 119.3 122.4 Korea, Republic of 100.0 103.5 108.9 107.9 106.6 109.5 110.7 105.2 103.1 103.7 89.2 Kuwait 100.0 100.7 102.0 104.8 108.0 107.9 105.8 106.6 105.7 105.1 107.9 Malaysia 100.0 99.4 98.8 90.0 86.8 85.3 89.1 87.6 84.7 84.0 81.3 Mexico 100.0 105.6 104.4 92.4 79.9 81.2 59.5 59.4 54.3 58.1 59.7 Morocco 100.0 101.3 101.8 101.5 103.6 102.4 102.9 103.4 104.8 106.0 108.0 Nigeria 100.0 106.8 114.0 110.4 98.0 91.5 99.4 111.3 107.3 105.5 119.3 Pakistan 100.0 97.3 103.8 109.5 112.8 114.2 100.9 91.3 91.6 96.2 108.0 Peru 100.0 98.8 96.8 95.1 93.7 96.2 91.7 93.5 93.6 84.5 89.7 Philippines 100.0 102.3 101.3 105.5 102.2 97.2 95.1 99.4 104.9 105.1 99.8 Qatar 100.0 103.7 106.4 115.6 118.3 116.4 113.2 113.3 108.7 106.3 114.1 Saudi Arabia 100.0 103.0 104.5 112.2 114.6 111.2 111.1 109.5 111.5 109.2 113.7 Singapore 100.0 102.0 101.8 99.6 98.6 97.0 96.1 96.1 93.6 94.0 100.1 South Africa 100.0 88.9 83.8 81.2 76.6 85.6 86.8 81.1 69.3 74.3 71.1 Sri Lanka 100.0 104.5 105.8 110.5 107.5 107.0 98.7 92.5 93.5 89.4 95.1 Taiwan Province of China 100.0 100.5 99.3 99.7 99.6 104.7 104.1 102.4 105.6 108.6 109.5 Thailand 100.0 103.9 100.3 100.4 97.4 100.3 103.8 109.4 106.3 100.7 95.1 Türkiye 100.0 98.9 94.6 92.3 91.1 80.9 68.5 67.7 60.1 53.3 50.1 United Arab Emirates 100.0 101.1 103.7 113.4 115.3 115.1 117.0 112.9 107.0 101.3 106.1 Uruguay 100.0 106.9 103.4 104.5 103.6 106.5 88.5 87.2 86.1 87.9 100.7 Viet Nam 100.0 105.1 107.7 112.2 114.8 113.8 113.3 115.4 117.3 113.8 121.5 Source: UN DESA, Bank for International Settlements, IMF International Financial Statistics. a 2012=100. b CPI-based indices. The real effective exchange rate gauges the effect on international price competitiveness of currency changes and inflation differentials. A rise in the index implies a fall in competitiveness and vice versa. c Average for the first ten months. d The Government of Ukraine has advised the United Nations that it is not in a position to provide statistical data concerning the Autonomous Republic of Crimea and the city of Sevastopol. e Special Administrative Region of China. 142 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.10 Free market commodity price indices Index: Year 2015=100 Non-fuel commodities Vegetable Tropical oilseeds Agricultural Minerals All All groups   Food beverages and oils raw materials and metals groups excluding fuels Fuels 2013 120 90 136 131 138 170 131 194 2014 118 111 123 115 121 157 119 180 2015 100 100 100 100 100 100 100 100 2016 104 97 107 100 105 91 104 83 2017 103 94 106 105 116 106 110 104 2018 96 86 100 103 118 123 109 133 2019 98 81 93 99 125 114 112 116 2020 102 85 106 97 145 96 124 79 2021 121 109 157 110 175 149 153 146 2019 I 96 79 94 101 120 115 109 119 II 97 79 89 101 123 117 110 121 III 98 80 92 97 130 112 114 110 IV 102 87 98 97 127 113 114 112 2020 I 103 87 99 97 129 101 116 91 II 99 83 92 91 134 82 116 61 III 100 86 104 95 155 98 130 78 IV 104 85 127 104 160 105 137 85 2021 I 113 91 149 110 170 127 147 115 II 122 99 164 109 184 140 158 128 III 124 114 157 109 176 153 154 153 IV 125 134 160 112 168 174 152 188 2022 I 131 141 190 115 184 197 166 216 II 138 138 204 115 181 218 167 250 III 126 137 170 105 156 226 146 275 Source: UN DESA, based on data from UNCTAD, Monthly Commodity Price Bulletin. countRy clASSificAtionS 143 Table A.11 World oil supply and demand   2014 2015 2016 2017 2018 2019 2020 2021 2022a World oil supplyb,c (millions of barrels per day) 91.7 94.3 94.7 95.5 98.2 97.6 94.6 92.5 95.7 Developed economies 20.1 21.4 21.0 22.0 24.7 26.5 25.6 25.8 27.4 Economies in transition 14.0 14.1 14.3 14.4 14.7 15.0 13.5 13.8 14.9 Developing economies 55.3 56.6 57.1 56.8 56.5 53.8 53.1 50.6 51.0 OPEC 37.7 39.1 39.6 39.5 39.5 37.2 33.0 30.9 32.0 Non-OPEC 17.6 17.6 17.5 17.2 16.9 16.5 20.1 19.7 19.0 Processing gainsd 2.2 2.2 2.3 2.3 2.3 2.4 2.4 2.4 2.4 Global biofuelse 2.2 2.3 2.4 2.4 2.6 2.8 2.8 2.8 3.1 World total demandf 93.2 95.0 96.1 97.9 99.2 100.5 92.1 97.4 99.3 Oil prices (United States dollars per barrel) OPEC basketg 96.3 49.5 40.8 52.4 69.8 64.0 41.5 69.9 103.4 Brent oil 98.9 52.3 43.7 54.2 71.2 64.3 41.7 70.9 102.1 Sources: UN DESA, International Energy Agency; U.S. Energy Information Administration; and OPEC. a Partly estimated. b Including global biofuels, crude oil, condensates, natural gas liquids (NGLs), oil from non-conventional sources and other sources of supply. c Totals may not add up because of rounding. d Net volumetric gains and losses in the refining process and marine transportation losses. e Global biofuels comprise all world biofuel production including fuel ethanol from Brazil and the United States. f Measured as deliveries from refineries and primary stocks, comprises inland deliveries, international marine bunkers, refinery fuel, crude for direct burning, oil from non-conventional sources and other sources of supply. Includes Biofuels. g As of January 2022: The basket price includes Iraqi Basrah Medium instead of Basrah Light. 144 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.12 World trade:a Changes in value and volume of exports and imports by major country group Annual percentage change   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Dollar value of exports World 1.5 -11.0 -1.7 10.7 9.1 -1.4 -9.3 26.1 8.1 -0.1 7.1 Developed economies 3.0 -9.6 0.5 8.8 8.8 -1.2 -10.2 20.4 7.3 -0.9 7.1 Northern America 3.6 -6.3 -1.8 7.0 6.5 -0.3 -15.4 18.5 10.9 1.7 5.8 Europe 2.9 -10.8 1.5 9.5 9.9 -1.7 -7.7 22.2 6.2 -2.0 7.3 Developed Asia and the Pacific 1.8 -11.8 3.4 10.5 7.4 -1.2 -12.2 19.4 5.2 3.0 9.1 Economies in transitiond -5.7 -28.7 -11.7 21.3 20.6 -2.2 -18.5 54.8 12.3 -6.1 4.3 South-Eastern Europe 4.1 -10.0 9.3 15.1 16.5 1.2 -10.3 37.0 16.4 4.0 5.8 Commonwealth of Independent -6.1 -29.5 -12.8 21.7 20.9 -2.4 -19.0 56.1 12.0 States and Georgiad,e -6.8 4.2 Developing economies 0.3 -11.2 -3.7 12.6 8.6 -1.7 -7.4 31.5 8.8 1.3 7.3 Africa -2.7 -26.3 -7.6 16.8 15.8 -4.5 -19.3 48.1 15.9 5.5 8.4 East Asia 3.0 -5.9 -4.0 10.5 8.8 -2.2 -2.6 27.7 4.9 -0.3 7.2 South Asia -3.8 -9.4 2.5 12.9 12.5 0.9 -0.7 32.3 11.3 5.1 7.8 Western Asia -2.9 -24.1 -6.8 13.2 15.3 -1.8 -21.7 47.2 20.8 2.5 7.0 Latin American and the Caribbean -4.0 -12.7 -0.7 20.0 -3.8 0.8 -13.7 28.7 10.6 2.8 7.7 Dollar value of imports World 2.0 -9.6 -2.2 14.2 10.3 411.0 -34.2 5.2 8.5 1.3 3.2 Developed economies 3.0 -9.8 -0.4 8.7 9.6 -0.7 -9.9 20.9 14.4 -1.2 6.5 Northern America 3.6 -4.2 -2.2 6.8 7.0 -0.4 -11.2 21.7 15.1 -1.1 6.6 Europe 2.6 -11.5 1.7 10.2 10.8 -0.6 -8.1 21.3 13.4 -1.7 6.7 Asia and Oceania 1.7 -16.8 -4.1 9.4 10.3 -2.5 -13.1 18.7 17.3 2.1 5.1 Economies in transitiond -9.1 -28.3 -4.8 19.0 9.1 4.6 -13.8 38.6 -9.0 2.2 8.0 South-Eastern Europe 4.0 -13.8 5.4 14.6 16.6 2.3 -9.0 31.3 12.1 2.7 9.1 Commonwealth of Independent -9.9 -29.3 -5.7 19.5 8.4 4.8 -14.3 39.4 -11.1 States and Georgiad,e 2.1 7.8 Developing economies 1.8 -7.9 -4.3 21.5 11.4 931.5 -37.1 2.3 7.5 1.8 2.5 Africa 1.4 -12.7 -7.7 4.3 11.2 1.5 -9.7 32.6 9.6 0.6 7.3 East Asia 2.5 -10.2 -2.5 12.7 12.5 -3.0 -7.6 39.3 6.4 0.1 6.2 South Asia -2.9 -7.4 -0.1 17.4 13.2 1.4 -4.3 32.3 24.3 5.0 5.4 Western Asia 4.0 -8.7 -6.1 8.0 2.4 2.0 -13.0 30.5 14.3 6.2 9.5 Latin American and the Caribbean 0.0 3.5 -9.7 73.5 12.6 4097.6 -39.4 -1.9 7.1 1.9 1.8 Volume of exports World 4.1 3.0 2.4 5.5 4.2 1.0 -7.5 9.5 6.3 -1.2 2.4 Developed economies 4.3 4.7 2.8 5.0 3.4 2.1 -9.8 7.9 8.5 -2.0 1.5 Northern America 4.3 0.8 0.6 3.6 3.0 0.3 -12.9 3.9 7.8 -0.9 1.6 Europe 4.1 6.5 3.6 5.3 3.6 2.8 -8.1 10.3 8.5 -3.0 1.4 Developed Asia and the Pacific 8.5 4.1 2.8 6.0 3.5 0.1 -11.2 7.9 7.9 4.2 2.6 countRy clASSificAtionS 145 Table A.12 World trade:a Changes in value and volume of exports and imports by major country group (continued) Annual percentage change   2014 2015 2016 2017 2018 2019 2020 2021 2022b 2023c 2024c Economies in transitiond -0.8 1.8 3.2 5.1 5.3 1.8 -6.9 9.8 -2.5 -4.4 2.4 South-Eastern Europe 5.3 8.2 10.8 9.0 7.9 5.8 -11.1 20.8 12.5 -1.9 2.3 Commonwealth of Independent -1.1 1.5 2.8 4.9 5.2 1.6 -6.7 9.1 -3.5 -4.6 2.4 States and Georgiad,e Developing economies 4.1 1.1 1.9 6.2 5.3 -0.4 -4.6 11.5 4.3 0.0 3.4 Africa 0.2 -1.7 1.8 11.6 5.2 -0.9 -13.3 11.8 4.3 2.4 2.5 East Asia 5.8 1.0 1.6 7.2 4.6 -0.1 -1.5 11.3 3.2 -0.9 3.5 South Asia 3.4 -1.5 5.0 5.2 7.4 -3.0 -7.9 14.3 5.0 1.6 3.3 Western Asia 1.4 0.6 1.5 2.1 8.6 -0.5 -9.9 13.8 9.0 2.9 3.4 Latin American and the Caribbean 1.4 4.8 1.9 3.8 3.6 0.3 -8.6 7.8 5.1 -0.1 3.1 Volume of imports World 3.2 2.0 1.7 5.7 4.7 1.0 -8.2 11.6 5.6 0.4 2.6 Developed economies 4.6 5.7 3.0 4.7 3.9 3.0 -8.9 9.2 8.5 -1.1 1.9 Northern America 4.7 4.4 1.2 4.5 4.0 1.0 -9.2 13.0 8.6 -0.7 2.3 Europe 4.4 7.3 4.6 5.2 3.9 4.4 -7.8 8.5 8.4 -1.6 1.8 Developed Asia and the Pacific 5.7 1.0 -0.6 4.6 4.4 0.3 -9.0 6.2 6.7 2.6 1.7 Economies in transitiond -6.3 -16.7 -0.3 12.7 5.0 5.3 -11.9 13.6 -13.0 1.6 3.4 South-Eastern Europe 6.5 3.5 8.1 9.0 8.4 7.2 -9.1 17.5 9.1 1.8 3.8 Commonwealth of Independent -7.1 -18.2 -1.1 13.1 4.6 5.1 -12.2 13.2 -15.4 1.5 3.4 States and Georgiad,e Developing economies 2.2 -1.2 0.1 6.6 5.7 -1.8 -6.9 14.6 3.0 2.2 3.5 Africa 0.5 -3.0 -0.7 4.9 6.6 2.7 -9.8 5.2 1.6 0.8 3.0 East Asia 4.9 1.3 4.0 7.7 6.4 -2.5 -4.1 16.3 0.6 1.3 2.7 South Asia -0.8 -4.2 2.3 12.9 6.5 -2.1 -10.2 18.9 14.8 9.6 3.7 Western Asia 4.7 -1.6 -2.8 4.5 2.8 0.3 -9.1 8.2 8.4 5.6 4.9 Latin American and the Caribbean -4.8 -6.5 -11.1 1.5 4.1 -2.9 -13.3 15.1 2.3 -1.2 6.0 Source: UN DESA, based on UN DESA World Economic Forecasting Model. a Includes goods and services. b Partly estimated. c Baseline scenario forecasts, based in part on UN DESA World Economic Forecasting Model. d Ukraine is excluded from 2023 and 2024 forecasts for this regional group. e Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this group of countries for reasons of geographic proximity and similarities in economic structure. 146 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.13 Balance of payments on current accounts, by country or country group, summary table Billions of United States dollars   2013 2014 2015 2016 2017 2018 2019 2020 2021 2022a Developed economies 18.3 -21.6 -0.3 108.2 225.4 136.8 97.4 -69.5 7.0 -375.4 Japan 46.0 36.8 136.4 197.8 203.5 177.8 176.0 148.8 141.7 117.2 United States -339.5 -370.0 -408.9 -397.6 -361.7 -438.2 -472.1 -616.1 -806.6 -877.8 Europe 426.9 404.1 388.7 400.5 471.1 476.9 426.7 393.6 627.2 325.3 Europe excluding the United Kingdom 560.7 562.0 541.5 546.1 569.2 589.5 503.6 462.6 709.7 509.7 Other Europeb -6.5 -47.8 -54.4 -71.8 -31.1 -32.2 -23.9 -43.6 66.4 -23.2 Economies in transition 11.0 50.6 46.7 -4.7 14.3 106.4 44.5 20.9 111.3 242.7 South-Eastern Europe -5.6 -6.1 -3.8 -3.9 -5.1 -5.1 -6.5 -5.9 -5.7 -8.4 Commonwealth of Independent Statesc 17.6 58.4 52.3 1.1 20.6 112.7 51.9 28.8 118.9 253.5 Developing economies 369.9 380.2 176.9 177.0 277.3 165.7 210.5 393.0 688.0 890.6 Net fuel exporters 348.4 198.8 -166.6 -110.0 16.1 133.8 24.4 -87.7 175.9 590.6 Net fuel importers 21.5 181.4 343.5 287.0 261.2 31.9 186.2 480.7 512.1 300.1 Africa -64.2 -92.4 -144.2 -113.5 -84.5 -78.2 -97.8 -89.1 -52.6 -64.1 Net fuel exporters 15.8 -25.5 -73.1 -43.5 -20.2 -12.7 -34.2 -45.0 -8.2 6.1 Net fuel importers -79.9 -66.9 -71.1 -70.1 -64.3 -65.5 -63.6 -44.1 -44.4 -70.1 East and South Asia 287.8 432.5 543.6 460.2 405.6 171.8 273.6 555.0 594.0 464.1 Net fuel exporters -13.7 -8.5 -9.6 2.9 6.0 0.7 -22.7 -0.1 37.0 132.4 Net fuel importers 301.4 441.0 553.2 457.3 399.6 171.0 296.3 555.1 556.9 331.6 Western Asia 284.2 200.9 -72.2 -83.0 -14.3 122.6 95.5 -52.0 164.3 428.8 Net fuel exporters 348.4 243.6 -47.0 -51.4 32.2 152.6 92.2 -31.2 161.6 454.1 Net fuel importers -64.2 -42.7 -25.2 -31.6 -46.5 -30.0 3.4 -20.8 2.7 -25.3 Latin America and the Caribbean -172.4 -189.7 -172.6 -102.1 -94.3 -141.3 -107.3 -7.5 -81.0 -64.5 Net fuel exporters -2.1 -10.8 -36.9 -18.0 -1.9 -6.8 -10.9 -11.3 -14.6 -2.1 Net fuel importers -170.3 -178.8 -135.8 -84.1 -92.4 -134.4 -96.4 3.8 -66.4 -62.4 World residuald 399.2 409.1 223.3 280.5 516.9 409.0 352.3 344.4 806.3 757.9 Source: International Monetary Fund (IMF), World Economic Outlook database, October 2022. a Partially estimated. b Other Europe consists of Iceland, Norway, Switzerland and the United Kingdom (Table A). c Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this group of countries for reasons of geographic proximity and similarities in economic structure. d Statistical discrepancy. Other Notes: Africa includes South Sudan; Western Asia excludes the State of Palestine; and East Asia excludes Democratic People’s Republic of Korea countRy clASSificAtionS 147 Table A.14 Net ODA from major sources, by type Total ODA ODA as a (millions of Percentage distribution of ODA by type, 2021 Growth rate of ODA percent- United States (2020 prices and exchange rates) age of GNI dollars) Bilateral Multilateral Total (United Donor group 2000- 2010- Nations United or country 2010 2018 2019 2020 2021 2021 2021 Total & other) Nations Other Total DAC countriesa 5.3 2.4 -0.5 8.0 7.5 0.33 184,792 70.0 30.0 4.5 25.5 Total EU 4.5 2.8 -2.4 13.3 3.2 0.50 83,078 63.0 37.0 4.9 32.1 Austria 4.6 0.4 9.2 3.4 7.1 0.31 1,492 47.5 52.5 3.1 49.4 Belgium 9.1 -0.9 -2.6 4.4 4.0 0.44 2,649 51.0 49.0 6.1 42.9 Denmark 0.2 -0.3 3.4 -0.4 4.6 0.71 2,914 68.9 31.1 8.8 22.3 Finland 7.4 -2.7 21.3 7.9 10.0 0.49 1,498 46.9 53.1 16.0 37.1 Franceb 3.9 1.2 -2.8 28.0 -0.1 0.55 16,722 61.7 38.3 3.4 34.9 Germany 5.0 9.1 -2.9 17.5 3.5 0.75 32,456 73.8 26.2 2.8 23.4 Greece 4.9 -5.7 33.2 -12.3 -1.7 0.16 341 21.9 78.1 7.4 70.8 Ireland 8.1 -0.2 5.5 1.0 13.4 0.30 1,155 53.9 46.1 10.1 36.1 Italy 0.4 5.8 -11.9 -0.7 35.5 0.30 6,272 39.7 60.3 4.7 55.7 Luxembourg 35.2 -0.7 -4.2 -2.6 -1.2 0.99 539 67.6 32.4 13.4 19.0 Netherlands -19.9 1.0 4.4 -9.6 9.8 0.52 5,266 71.6 28.4 9.0 19.5 Portugal 3.1 -2.3 2.0 6.2 -0.3 0.18 439 34.5 65.5 3.5 62.0 Spain 8.8 -8.5 8.9 -1.7 16.3 0.24 3,358 34.9 65.1 4.0 61.2 Sweden 6.5 3.0 -7.9 17.0 -15.5 0.91 5,934 66.0 34.0 12.0 21.9 Australia 5.4 0.0 -4.5 -0.7 7.6 0.22 3,546 86.5 13.5 4.4 9.1 Canada 4.5 1.4 -1.6 7.7 11.8 0.32 6,258 78.1 21.9 4.4 17.5 Japan -2.1 2.6 14.2 13.2 19.4 0.31 15,765 73.7 26.3 3.0 23.3 New Zealand 3.2 3.5 2.4 -5.0 14.5 0.28 685 84.5 15.5 7.8 7.7 Norway 3.5 0.6 9.7 8.3 -11.6 0.93 4,673 74.7 25.3 10.8 14.4 Switzerland 3.4 2.3 1.7 14.2 1.1 0.50 3,911 75.5 24.5 7.5 17.0 United Kingdom 10.8 6.3 1.9 -6.5 -21.8 0.52 16,278 60.4 39.6 4.4 35.2 United States 9.0 0.1 -4.1 6.0 29.1 0.20 47,528 80.4 19.6 3.4 16.1 Source: UN DESA, based on OECD/DAC online database (accessed on 15 December 2022). a DAC stands for OECD’s Development Assistance Committee. b Excluding flows from France to the Overseas Departments, namely Guadeloupe, French Guiana, Martinique and Réunion. 148 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Table A.15 Total net ODA flows from OECD Development Assistance Committee countries, by type Billions of United States dollars   Net disbursements at current prices and exchange rates   2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Official Development Assistance 127.0 134.8 137.5 131.6 144.9 147.2 150.0 146.5 162.6 184.8 Bilateral official development assistance 88.5 93.5 94.8 94.2 103.1 105.6 105.2 103.5 114.8 129.3 in the form of:       Technical cooperation 18.2 16.9 17.3 14.9 15.7 16.5 15.8 16.9 17.1 18.8 Humanitarian aid 8.5 10.7 13.1 13.4 14.4 16.1 16.0 16.6 17.2 21.9 Debt forgiveness 3.3 6.1 1.4 0.3 2.1 0.4 0.3 0.1 0.8 0.7 Bilateral loans 2.6 1.4 5.3 6.0 5.8 6.6 6.3 6.2 14.3 13.3 Contributions to multilateral institutionsa 38.6 41.4 42.7 37.3 41.8 41.6 44.9 43.0 47.8 55.5 of which are:       UN agencies 6.6 6.9 6.8 6.1 5.9 6.2 6.6 7.6 8.0 8.4 EU institutions 12.0 12.8 13.3 11.9 13.8 13.9 15.2 15.5 16.4 17.5 World Bank 8.6 9.4 9.8 8.6 8.8 8.2 11.4 9.3 8.6 8.6 Regional development banks 3.9 3.9 4.0 3.2 4.6 4.2 4.2 3.9 3.0 3.8 Others 6.4 7.2 7.5 6.7 7.8 8.1 6.3 5.8 11.0 16.4 Memorandum item: Bilateral ODA to least developed countries 0.7 -0.8 0.5 1.2 1.2 2.2 2.4 2.8 4.7 3.7 Source: UN DESA, based on OECD/DAC online database (accessed on 15 December 2022). a Grants and capital subscriptions. Does not include concessional lending to multilateral agencies. countRy clASSificAtionS 149 Table A.16 Commitments and net flows of financial resources, by selected multilateral institutions Billions of United States dollars   2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Resource commitmentsa 189.8 130.8 185.0 119.9 245.4 256.7 224.8 225.0 247.1 291.9 Financial institutions, excluding International Monetary Fund (IMF) 96.5 98.8 99.2 99.9 106.9 108.0 114.6 129.3 143.7 152.3 Regional development banksb 43.0 45.8 41.1 46.9 49.8 54.0 56.0 59.8 56.5 59.3 World Bank Groupc 53.5 53.0 58.1 53.0 57.0 54.0 58.6 69.5 87.2 93.0 International Bank for Reconstruction and Development (IBRD) 20.6 15.2 18.6 23.5 29.7 22.6 23.0 28.0 30.5 33.1 International Development Association (IDA) 14.8 16.3 22.2 19.0 16.2 19.5 24.0 30.4 36.0 37.7 International Financial Corporation (IFC)d 9.2 11.0 10.0 10.5 11.1 11.9 11.6 11.1 20.7 22.2 International Fund for Agricultural Development (IFAD) 1.0 0.8 0.7 1.3 0.8 1.3 1.3 1.7 0.8 1.0 International Monetary Fund (IMF) 82.5 19.6 72.7 6.2 123.9 132.9 89.9 75.6 73.5 65.1 United Nations operational agenciese 10.8 12.4 13.1 13.7 14.7 15.8 20.4 20.1 29.8 74.5 Net flows 35.1 8.8 -5.1 17.7 32.2 36.3 82.6 62.8 84.4 62.5 Financial institutions, excluding IMF 26.3 22.2 25.0 35.5 33.8 36.6 46.8 49.4 61.1 58.1 Regional development banksb 8.6 5.7 11.2 15.4 14.2 13.1 14.2 15.2 24.0 15.2 World Bank Groupc 17.7 16.5 13.8 20.1 19.6 23.6 32.7 34.2 37.1 42.9 International Bank for Reconstruction and Development (IBRD) 8.0 7.8 6.4 9.0 10.0 13.2 17.4 17.4 16.9 18.2 International Development Association (IDA) 7.8 7.0 7.4 9.9 8.8 8.8 14.7 15.3 19.6 23.3 International Financial Corporation (IFC) 1.9 1.6 0.1 1.3 0.8 1.6 0.6 1.6 0.6 1.4 International Fund for Agricultural Development (IFAD) 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.2 0.3 International Monetary Fund (IMF) 8.9 -13.4 -30.1 -17.9 -1.5 -0.4 35.8 13.4 23.3 4.3 Source: Annual reports of the relevant multilateral institutions, various issues. a Loans, grants, technical assistance and equity participation, as appropriate; all data are on a calendar-year basis. b African Development Bank (AfDB), Asian Development Bank (ADB), Caribbean Development Bank (CDB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IaDB) and the International Fund for Agricultural Development (IFAD). c Data is for fiscal year. d Effective 2012, data does not include short-term finance. e United Nations Development Program (UNDP), United Nations Population Fund (UNFPA), United Nations Children’s Fund (UNICEF), and the World Food Programme (WFP). 150 WORLD ECONOMIC SITUATION AND PROSPECTS 2023 Bibliography ActionAid (2019). 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