DUSHANBE, December 19 2013, Asia-Plus -- Global economic growth should increase over the next two years with continuing signs of improvement, according to the United Nations World Economic Situation and Prospects 2014 (WESP) report, launched on December 18. The global economy is expected to grow at a pace of 3.0 percent in 2014 and 3.3 percent in 2015, compared with an estimated growth of 2.1 percent for 2013.

The world economy experienced subdued growth for a second year in 2013, but some improvements in the last quarter have led to the UN’s more positive forecast.  The euro area has finally ended a protracted recession.  Growth in the United States strengthened somewhat. A few large emerging economies, including China and India, managed to backstop the deceleration they experienced in the past two years and veered upwards moderately. These factors point to increasing global growth.

According to WESP, inflation will remain tame worldwide, but the employment situation will continue to be challenging.  While growth in international trade flows is expected to pick up moderately to 4.7 per cent in 2014, the prices of most primary commodities are projected to be flat, although any unexpected supply-side shocks, including geo-political tensions, could push some of these prices higher. The report warns that international capital flows to emerging economies are expected to become more volatile.

Growth prospects among large developing countries and economies in transition are mixed.  In the Russian Federation growth weakened further in 2013, as industrial output and investment faltered, and is expected to recover modestly to 2.9 per cent in 2014.

The report stressed that the risks associated with a possible bumpy exit from the quantitative easing programs by the U.S Federal Reserve (Fed) threaten the global economy.  As already seen somewhat during the summer of 2013, efforts by the Fed to pull out of quantitative easing programs could lead to a surge in long-term interest rates in developed and developing countries.  Tapering could also lead to a sell-off in global equity markets, a sharp decline of capital inflows to emerging economies and a spike in the risk premium for external financing in emerging economies.  These first-round shocks in international financial markets could transmit quickly to developed and developing economies.

The report warns that as the Fed is expected to taper and eventually unwind its quantitative easing programs, emerging economies will face more external shocks. While economic fundamentals and the policy space in many emerging economies are better than when the Asian financial crisis erupted in 1997, emerging economies with large external imbalances remain particularly vulnerable.

Other uncertainties and risks include the remaining fragility in the banking system and the real economy in the euro area and the continued political wrangling in the U.S. on the debt ceiling and the budget. Beyond the economic domain, geopolitical tensions in Western Asia and elsewhere remain serious risks.

With multiple and complex challenges facing the world economy, the report calls for strengthening international policy coordination.

WESP is produced at the beginning of each year by the UN Department of Economic and Social Affairs (UN/DESA), the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions.  The full version of the report will be available 20 January 2014.