World Economic Situation and Prospects 2023

Context:  United Nations recently released its World Economic Situation and Prospects 2023 report.

Highlights of the Report

• Report is written by the UN’s Department of Economic and Social Affairs, the UN Conference on Trade and Development, and the regional economic commissions for Africa, Europe, Latin America and the Caribbean, Asia and the Pacific, and Western Asia.
• Lowest Growth Rates: World output growth is projected to decelerate from an estimated 3.0 per cent in 2022 to 1.9 per cent in 2023, marking one of the lowest growth rates in recent decades.
  • Reason: Series of severe and mutually reinforcing shocks — the COVID-19 pandemic, the war in Ukraine and resulting food and energy crises, surging inflation, debt tightening, as well as the climate emergency.
• Threat of Recession: Current downturn has slowed the pace of economic recovery from the COVID-19 crisis, threatening several countries with the prospects of recession in 2023.
• Employment Scenario: Most developing countries have seen a slower job recovery in 2022.
  • Gender Inequality: Disproportionate losses in women’s employment during the initial phase of the pandemic have not been fully reversed.
• Forecast: Global growth is forecast to moderately pick up to 2.7 per cent in 2024.
  • China is projected to grow at 4.8 per cent in the calendar year 2023 and 4.5 per cent in 2024.
  • The US is estimated to register a 0.4 per cent economic growth this year and 1.7 per cent in 2024.
• Positive Impact on Russia: Russian exports increased in 2022 as trade with China, India and Turkey surged.
• South Asia: Economic outlook has deteriorated due to high food and energy prices, monetary tightening and fiscal vulnerabilities.
  • Average GDP growth is projected to moderate from 5.6 per cent in 2022 to 4.8 per cent in 2023.
  • Challenging prospects for economies like Bangladesh, Pakistan and Sri Lanka, who have sought financial assistance from the International Monetary Fund (IMF) in 2022.

India-Specific Points

• Lower GDP Forecast: UN has cut its GDP growth forecast for India for the calendar year 2023 to 5.8 per cent from 6.4%.
  • Reasons: Tighter monetary policy and weak global demand.
  • Reserve Bank of India (RBI) has hiked the policy repo rate by 225 basis points in 2022 to 6.25 per cent.
• Annual inflation is estimated at 7.1 per cent in 2022, exceeding the 2 to 6 per cent medium-term inflation target band set by the Central Bank.
• Uneven Progress in the labour market: Unemployment rate in 2022 declined to pre-pandemic levels through stepped-up urban and rural employment, indicating strong domestic demand.
  • However, youth employment remained below pre-pandemic levels, particularly among young women.
• Silver-Lining: India is a “bright spot” in the world economy presently and is on a “strong footing”.
  • India will grow at 6.7 per cent in 2024, the fastest-growing major economy in the world.
  • India’s inflation is expected to decelerate to 5.5 per cent in 2023 as global commodity prices moderate and slower currency depreciation eases imported inflation.
  • SDG: India could reduce poverty globally by sustaining this growth rate in the coming future.

Report Recommendations

• Stronger international cooperation to address the global challenges created by the pandemic, the food and energy crisis, the climate crisis and the looming debt crisis
• Avoid fiscal austerity: It would stifle growth and disproportionately affect the most vulnerable groups, affect progress in gender equality and stymie development prospects across generations.
• Reallocation and Reprioritization of public expenditures through direct policy interventions that will create jobs and rejuvenate growth.
• SDG financing: Stronger international commitment is urgently needed to expand access to emergency financial assistance  and scale up SDG financing for:
  • Strengthening of social protection systems, ensuring continued support through targeted and temporary subsidies, cash transfers, and discounts on utility bills, which can be complemented with reductions in consumption taxes or custom duties.
  • Strategic public investments in education, health, digital infrastructure, new technologies and climate change mitigation and adaptation can offer large social returns, accelerate productivity growth, and strengthen resilience to economic, social and environmental shocks.

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