The United Nations is forecasting that the global economy will expand by more than 3 percent this year and next year — but it warns that increasing risks could trigger “a shock to investment and trade” and a sharp drop to 1.8 percent growth in 2019.

 

The U.N.’s mid-year report on the World Economic Situation and Prospects launched Thursday says growth in the world economy is surpassing expectations, reflecting further economic expansion in developed countries and broadly favorable investment conditions.

 

However, the report said, “downside risks” have increased including “a rise in the probability of trade conflicts between major economies.”

 

Dawn Holland, chief of the U.N.’s Global Economic Monitoring Branch, cited the Trump administration’s imposition of tariffs in January and proposed new tariffs against China as well as the renegotiation of the U.S. trade agreement with Mexico and Canada, which has left “a void of uncertainty.”

 

There are also negotiations between the European Union and the United States partly linked to tariffs on steel, she said, and an increasing number of disputes have been raised with the World Trade Organization over the last six months.

 

The report said other factors also pose risks including uncertainty over monetary policy, increasing debt levels, and greater geopolitical tensions including in the Korean peninsula, Middle East, South China Sea and Ukraine.

 

But the U.N.’s assessment was generally upbeat citing continued economic improvements over the last several months including accelerating wage growth, improved investment prospects, and the short-term impact of the U.S. fiscal stimulus package.

 

“Many commodity-exporting countries will also benefit from the higher level of energy and metal prices,” the report said.

 

According to the U.N., world growth is now forecast to reach 3.2 percent in both 2018 and 2019, up from its forecast in December of 3 percent growth this year and 3.1 percent next year.

 

While many countries will experience growth, the report said output is expected to decline in central Africa and southern Africa, the report said. And the forecast for economies in transition including Russia and the world’s poorest countries have been revised “marginally downward” for 2018.

 

Assistant Secretary-General for Economic Development Elliott Harris cautioned, however, that “there is a strong need not to become complacent in response to upward trending headline figures.”

 

The report not only highlights the risks to economic growth but “the need to urgently address a number of policy challenges, including threats to the multilateral trading system, high inequality and the renewed rise in carbon emissions,” he told a press conference launching the report.

 

And it warned that if trade tensions and barriers were to “spiral over the course of 2018, through widespread retaliations and extensive disruption to global value chains, this could trigger a sharp drop in global investment and trade.”
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