UNCTAD Press Conference 24 January 2023

Bonjour Aetus, good afternoon everyone.

Good morning Ingo, welcome on board.

We are going to present Co production by UNECE, UNCTAD and UN DESA, The World Economic and World Economic Situation and Prospects 2023.

This report, this press conference and the press kit.

Everything's on the embargo until tomorrow, 6:00 PM Geneva time, 12 noon New York time.

We will start with our colleague from UN DESA, Ingo Pitali.

Welcome to Geneva and you will speak first your senior economist at the UN Department of Economic and Social Affairs in New York.

Then we will have Jeremy Capaldo from Monkstad who will complete the global presentation of the situation or the situation of the global presentation.

And Jose Palacin will emphasise the the situation in Europe and the CIS countries.

Am I right?

Yes.

So we'll start with you.

Ingo over to you.

You have the floor.

I think you have a PowerPoint presentation.

I will share the PowerPoint.

There are two for this press conference.

I will share them with you in in a few minutes.

Over to you, Ingo.

Yeah, thank you and hello from from New York and good afternoon to everyone.

Let me share my screen with you here and PowerPoint presentation, can you see it just to make sure?

Very well.

OK.

So I'm very pleased to share with you the main takeaways from this year's World Economic Situation and Prospects report, which as was already announced UND SA has produced in partnership with UMTAH and the five regional commissions and which will be officially launched tomorrow.

We in the report, we're presenting a rather gloomy short term outlook for the world economy due to the multiple and interconnected shocks that we've seen in recent years.

The war in Ukraine exacerbated already severe food and cost of living crisis at a time when many countries were still reeling from the effects of the COVID-19 pandemic.

At the same time, we're seeing that the shift in global and macroeconomic and financial conditions last year has increased the risks of debt crisis in a number of developing countries.

And of course, the climate crisis continues to impose a heavy tall heat waves, wildfires, floods and hurricanes are inflicting massive economic damages while also generating humanitarian crisis in many countries.

These crises are setting back short term growth prospects, but more importantly, they threaten to undermine longer term sustainable development as we are about to approach the midpoint of the 2030 SDG timeline.

So against the backdrop of this crisis, we project that global growth was low from an estimated 3% last year to only about 1.9% in 2023.

This would be one of the lowest growth rates in recent decades, apart from the contractions during the global financial crisis and the COVID-19 crisis.

In most countries, we expect that private consumption and investment will weaken due to declining real incomes and higher interest rates.

Several countries will see a marked recession before growth is forecast to pick up in the second-half of this year and into 2024.

But I should emphasise that the forecasts for for next year are extremely uncertain.

There's an exceptionally **** degree of uncertainty around our baseline forecast this year.

Let us now take a quick look at our forecast for the largest economy.

For the US, we expect that GDP will expand by only .4% this year following 1.8% last year, and consumers will cut back spending due to the higher interest rates, lower real incomes and significant declines in household network.

For the European Union, we forecast average growth by of only .2% this year, down from faster than expected 3.3% last year.

The worst case scenario of severe energy shortages that has dominated the headlines some months ago will likely be avoided, but households and firms across the region will still continue to feel the impact of **** energy costs, **** inflation and the monetary tightening.

Japan's economy will likely perform better than most developed countries as economic activity continues to be supported by accommodative fiscal and monetary policies.

And then turning to to China.

So we expect China, China's growth to accelerate to 4.8% this year, up from 3% last year.

And the 4.8% is a slight upgrade from our previous forecast following the Chinese government's decision to abandon it's 0 COVID-19 policy and to also to ease monetary and fiscal policies going forward.

But we also believe that the reopening path of of China will likely be very bumpy and there could be significant and setbacks for the way we outlook at on, on developing regions more broadly, most of them are expected to see lower growth this year.

The main exception is East Asia, mainly thanks to the rebound in in China.

Let me highlight that we're forecasting really weak growth in Latin America where the region's largest economies are are struggling to move to to stronger growth.

And let me also point out that our growth outlook for Africa is relatively moderate, But when we factor in still very **** population growth, 4% annual growth is not enough to address the region's massive development challenges.

In this context, it's also important to highlight that developing countries generally have recovered more slowly from the pandemic than developed countries, and there's still a lot of room to to to need to catch up.

The economic trajectory this year and next year will significantly driven by trends in inflation and the monetary and fiscal policy response, says.

The good news is that energy, food and fertiliser prices have already come down considerably from their peaks in the middle of last year.

However, food insecurity remains an immense global challenge.

The number of people facing acute food security has more than doubled since 2019.

Moreover, what we're seeing is that inflation pressures have become a lot more broad based over the course of 2022 as higher energy prices, transportation and other costs have been pushing up the prices throughout the economy.

In addition, while supply side issues have eased considerably, they're still above pre pandemic levels and they could flare up.

So according to our estimates, global inflation in last year averaged 9%, which was the highest rate in several decades.

Peak inflation has likely passed, but price pressures are expected to ease only gradually.

And, and while we we believe that inflation will remain well above central bank's comfort zones in the near term, we expect that the declining trend will allow central banks to slow the pace of rate hikes over the coming quarters.

Last year, we have seen very aggressive and broad based monetary policy tightening with over 85% of monetary authorities worldwide hiking rates.

But as the figure on on the right here shows, the pace of interest rate increases has already slowed in the last quarter and this trend will likely continue in the in the coming quarters.

In our report, we highlight that due to rising interest rates, the strong dollar and tighter global financial conditions, concerns about debt vulnerabilities have increased further.

As the figure shows, external debt service burdens have steadily gone up since 2013 and this means that governments are spending an ever growing share of revenues on servicing the debt instead of investing in sustainable development.

And it also means that the risks of debt crisis and debt defaults have gone up in many parts of the world.

For many developing countries, the short and medium term fiscal outlooks is highly challenging and the the main reason is that we need to look at this a little from a broader or a longer term perspective is that the current shock is only the latest in a series of shocks since the global financial crisis.

And with each shocks, the fiscal pressures have increased and the fiscal space has become tighter while the spending needs both from an economic but also from a social perspective have been rising.

And this means that monetary and and fiscal policy are now at a crossroads and at a very, very decisive moment.

And I would like to hand over now to to chairman to talk a little bit more about the policy messages from our report.

Thank you, Ingo.

Good morning, everybody.

So what are the implications of policy for policy of this situation there?

There's several, but the, the key point to keep in mind is that the, the global economic situation is unclear and it is at a, at a, at an Inflexion point.

We, we are looking at a slowdown.

We, it might be a more than a slowdown in some countries, and it might, it might recover a little bit in some others, but the situation is very uncertain.

As a consequence, macroeconomic policies should be careful not to contribute to the uncertainty and to contribute to the slow down on on the monetary side.

The concern is particularly we've, we've witnessed this fast increases in interest rates that have discouraged spending in developed countries and have driven up interest rates everywhere causing a problem especially for developing countries that are now facing much more serious debt, debt service conditions.

The the key point to remember here is that the causes of inflation have little to do with what concerns policy makers the most, which is the possibility of wage price barrels and have everything to do or almost everything to do with commodity prices, especially energy prices for developed countries and exchange rates depreciation for for developing countries.

Now these causes are not addressed by interest rate increases, which introduces special concerns and, and A and a potential disconnect between the the monetary policy responses and and the the consequences for the global economy.

Now, so for sure a, a major, a major important point is for monetary policies not to over tighten and, and we do face the risk of over tightening.

But we, we also want to emphasise the importance that these decisions have not just for developed countries where the major central banks are introducing these decisions, but for developing countries as well.

For the point for, for the, for the implication of debt, but also for the implications they have more in general on, on exchange rates and their and their fluctuations.

The Federal Reserve, while while raising rates has published an important study on the impact that it it's decisions of rate increases have on in terms of, of slowing down the growth of GDP in, in, in developing countries.

So there is an awareness there.

Now the, the more general implication is that monetary policy should hopefully refrain from adhering too closely to very rigid schemes where like inflation targeting, where we see an increase in inflation in in some data and we immediately raise interest rates.

But would hopefully consider a wider range of macroeconomic indicators, especially the prospects of growth, which which is what comes out of this analysis that we've just heard about on on the fiscal side, clearly it's not time for austerity that the risk is always there.

This unfortunately has never gone away in the last 1012 years.

The discussion is there in different terms.

Sometimes we talk about re establishing the fiscal buffers.

We don't talk about austerity anymore.

But the, the, the, the notion is the same.

The problem with fiscal austerity, not only it harms growth tremendously, as we've known, but it also has very serious distributional consequences, especially for specific groups.

And women is certainly one of those groups because the economic sectors they tend to be mostly involved in are the ones that are most, most seriously harmed by the the spending cuts.

So a strategic approach rather than a blanket approach that comes with austerity is important in which the expenditure instead of being cut is focused on the sectors that have the most positive impact on growth and the foreign employment generation.

And this is a discussion that that needs certainly more attention that it's been given from from the point of view of the of longer term development and, and impacts from macroeconomically.

The key concern for us is to see resources go into a, a, the SDG stimulus package, which is a series of intervention, mostly investment based.

It's an investment plan that and a social protection plan that is aimed at making the global economy more resilient, rebalancing and distribution while sustaining growth and setting the conditions for for the energy transition that is enshrined in the SDGS.

Thank you very much.

Thank you.

Let's focus now on Europe.

Jose Parasin, you have the floor.

Thank you.

Good afternoon to everybody.

Good morning to invite LINGO.

Yeah.

Good afternoon to everybody and good morning to Ingo in in New York as say, I'll be talking on on the situation in Europe as covering the publication and also a little bit on on the CIS and and Georgia.

So let's start with with Europe.

Ingo already mentioned that there will be a slowdown projected to slow down to 0.2 in this year with a rebound next year to 1.6.

And the reasons for this due performance that is taking away the economy further away from the pre COVID growth trajectory are three, four.

According to the report, the war in Ukraine and the energy crisis, the shift in monetary policy and increase borrowing cost and an external environment that is less conducive to increase economic performance and this has been the present the the various components on demand.

However, the report also signal that more disrupted scenarios have not materialised in 2023 as it was considered in in previous outlooks, and that the worst cause, the scenario of energy shortages are likely to be avoided also in 2024.

So it's also interesting to remark, as the report does, that those factors are affecting countries in different ways, reflecting different degrees of vulnerability to **** energy prices and increase borrowing costs.

However, there are a number of countries that may be under ****** of a mild recession, particularly Italy, Germany, the UK and Sweden.

Then a country like Spain that is doing particularly well in a relative basis is also a country that has not recovered yet pre COVID output levels.

And regarding the energy crisis, it's interesting to to remark on both the demand and supply aspects of this crisis.

On the supply basis, of course, we have the disruption with Russian energy supplies, but also a number of problems with hydropower and due to to climate questions and with nuclear and on demand side.

And what we have seen is a very strong adjustment, a significant adjustment that comes not only from the households that react to higher prices and companies, but also for increases in efficiency of companies.

And those increases in efficiency reacting to the new supply situation, to the new price environment are likely to stay.

So there are some long lasting consequences of the current crisis regarding inflation.

Inflation reached in 2022 levels which were not seen in a long time, that were driven by a combination of **** energy prices but also exchange rate weaknesses in some countries and still lingering supply issues.

Inflationary pressures were exacerbated by the war in Ukraine but started earlier as economies reopen post COVID.

Again, the relative importance of these factors have determined the dispersion of inflation rates across the region, which have been also influenced by subsidies granted at the national level by different governments.

And there you have countries like the parties with inflation of around 20% and countries where inflation has been much more due.

As it was mentioned by INGO, there are also signs in Europe that inflation is coming down, driven by falling energy prices.

But the report projects still elevate the levels of inflation next this year, declining from 8.6 to 6.6 in 2023.

Core inflation, so stripping the effects of energy prices and food, has already been picked up.

And in Thai labour markets, the report mentions the possibility that wage pressures may building up.

We are facing now, as mentioned, the end of negative rates.

Faced with rising inflation, monetary authorities have reacted.

By hiking interest rates through the region.

But in inflation in Europe, as was mentioned by Geronim, in a more general terms, inflation is rather the result of a cost push rather than excessive demand, which limits the effectiveness of monetary policy in this context.

So central banks will have to balance the desire to get inflation under control with the evidence of the slowing economies and public finances are being impacted by the energy crisis, the economic slowdown and increasing borrowing costs.

In fact, governments have adopted initiatives to shelter household and companies from the impact of the energy crisis, which of course around 3.5 more than 3.5 in Europe and and and the UK.

So all together, the report expects to be the fiscal stance in 2023, neutral or moderately expensive with limited increases in debt.

All together, the main risk and policy challenges for Europe is escalation of the conflict in in Ukraine.

They're emerging over an earth risk.

I mean, the energy crisis was the most damaging impact of the energy crisis.

Most disrupted ones were avoided.

But there are still great concerns about what would happen the next winter.

Also, the trade-offs between slowing growth and elevated inflation and very importantly, the need for fiscal support to avoid that the vulnerable groups suffer from the current vote of inflation.

So that would be for, for Europe.

And now I will pass on to cover and the CIA Saint George, which I'll refer as the CIA for for brevity.

For in my my intervention, the work in Ukraine has changed everything.

So the shocks emanating from Russia and Ukraine has reverberated through through the regions from multiple channels, trade, remittances, financial flows and so forth.

But as we'll see later, not all the shocks in the short term at least have have negative implications for some countries in the region.

But the long term consequences will be for region with implications on trade and financial flows and they're all partner of integration and the world economy for many countries in the region.

So GDP is estimated to have contracted for the CIS in Georgia for the aggregate by 3.3 in 22, driven by declines in output in Russia, Federation and Ukraine.

And for 2023, the outlook remains negative.

But very importantly, given the **** degrees of uncertainty, the report does not include forecasts for Ukraine in 2023 and beyond.

With exclusion of of Ukraine, the decline is expected to reach 1% for the region into 2023, stating A moderate recovery in 2024 with a 2.3 growth.

As you can see in the graphic, without Russia and Ukraine, performance of the rise of the region has been much better.

There has been large variation in growth rates and there will be also a great variation in future prospects for Ukraine, the country that has been hit by the by the war.

Output shrunk by around 1/3 in 2022 as a result of the destruction infrastructure, the disruption of supplies lines and the displacement of the the population.

Russian aggression in Ukraine prompted a wave of sanctions by most OECD countries and a number of key sector transport energy has been affected.

The central bank has also been targeted and a number of sanctions targeting the energy sector have introduced it either recently or will start to have a PET only in in coming months.

Nevertheless, the decline of output in the Russian Federation was less than initially expected in 2022, with GDP estimated to have shrunk by around 3%.

Although some sectors by the car industry suffer particularly.

However, so the country has benefited by **** energy prices and also by the existence of **** inventory levels that offset problems in supply.

The economy is expected to contract this year as well by a similar amount and the report remarks that under the current circumstances with difficult access to technology and so the long term growth potential of economy has has declined to around 1%.

It's long term consequences of the current situation.

So the sanctions prompted a strong reaction by monetary authorities in in the Russian Federation increasing the rate and introducing capital contracts.

And this, together with a large Karanakan surplus strengthened the ruble and eventually made possible the reversal of monetary tainting.

And now rates are well below pre war levels.

The current account surplus in the Russian Federation has reached record levels, reflecting **** energy prices, but also very importantly, a large fall in in imports.

But if you look at trade, it's very interesting to see the significant orientation in trade flows that the current situation has created, in particular the redirection of energy exports.

And over the immediate future, we will see continued attempts to rebuild supply chains, including within the European Economic Union, and to promote import substitution.

The pattern of remittances has changed in ways that were not initially predicted.

Remittances, personal money transfer, have been much more resilient that was considered initially and that has to do with the resilience of the the Russian economy, but even more importantly with new migratory patterns.

A number of Russians nationals have been moving to other countries in the region have then generated patterns of money transfer that were unexpected.

And that has prompted significant growth in some countries in the region and particularly Armenia and Georgia where we have seen there the presence of many IT specialists with a number of other consequence.

But that's not only in these two countries in the Caucasus, but also in, in some other economies of of the region.

This is related also to the strengthening of of the ruble and also to the use of banking system in other, in other countries in in the region.

So we have a very different pattern of money transfers that was expected in the region before the crisis.

So regarding inflation, while we have also a situation of sustained **** inflation that had been eroding real incomes and pressures started to build already in 2021, strengthened last year and now we have seen already some weakening of these inflationary pressures.

But the moderation will remain still moderated and will contain to constrain household spending and create hardship for vulnerable households in public finances.

Well, there is a clear difference between energy exporters who have done relatively better and energy importers who have done done not so well.

In Russia, the rapid growth of expenditures have exceeded the increase in revenues, which nevertheless has been supported by **** hydrocarbon prices.

But going forward, hydrocarbon revenues are expected to fall and the deficit to increase.

But their report underlies that that should not create a major financing problems in the presence of significant buffers, including the assets accumulated in the National Welfare Fund.

Regarding Ukraine, obviously the war resulted in a very large deficit, which was covered to a large extent by international support.

However, direct monetary financing by the National Bank of Ukraine is still significant, around 1/3 and that creates potential destabilising FX.

And also the report remarked that part of international aid is not grants, they have loans and therefore is adding to the overall debt burden for for the country.

And with that I conclude the CIS and quickly I would like to say a few words on Southeastern Europe where we see also a pattern of accelerating growth and declining inflation.

So after a good stir, good start of the year in 2022, expansion and accelerated and we expect GDP to increase by 2.3 this year after having increased 2.8 in 2022 and returned to a similar pattern of growth 2.9 into 2024.

So the dynamics largely reflect the evolution of the European Union, which is the main commercial partner and source of investment over remittances.

And inflation has reached double digit levels driven by food and fuel, but also rapid wage growth.

It will decline the report specs in 2023, but will remain also well above past historical standards.

So thank you for your attention.

Thank you very much.

You, you've had a very extensive presentation of the global European and CIS situation.

So the floor is open.

Please indicate your name and the name of your media and to whom your question is addressed.

Thank you.

Yes, yes.

Good morning, Yuria Prelev for Yeah, Novosi.

My question is to you, Mr Palassin, how to explain such a discrepancy between the expected effect on the Russian economic of the sanctions at the start of previous year about recession?

About 1015% was expected, but in fact it was less, really less.

And the second question is can we say that the European sanctions have also it Europe itself hard economically?

Thank you.

Regarding the the first part of the of the question, there have been a number of positive factors that are covered in the report.

One is the factor energy prices have continued to to support performance.

There have been a very appropriate response by the by the central bank.

This is certainly that managed to to stabilise the the situation.

There's been a certain degree of economic substitution within the the country that has allowed to cover some of the gaps that have been created.

And the report mentions also the existing of large levels of inventories that have allowed to cover for the time being some of the supply caps that have been left.

So that's been based the the elements that the report covers about the difference between expectations that were certainly much worse than the the results that we have observed.

Nevertheless, the report also points out that then the outlook remains not very positive.

That's one of the exceptional factors that are support performance this year and may not play the same way next year.

Regarding the second part about where the sanctions have hurt the European economy, but I will answer a different question.

Yes, there's been an energy crisis in Europe to some extent that's clear.

And there has come out on, on the figures on, on inflation.

It is also true, as it happens in Russia that we were expected.

I mean, not only we, but generally, if you want the, the, the economic, the economist community that the, the performance in Europe will be worse than it's actually been.

So probably economies have have a capacity to adapt to crisis that were better than than the ones we we thought.

And there have been some interesting aspects also regarding the, the adaptation of the, the European economies to the energy crisis, which as I mentioned is the impact they may have in terms of uncovering some efficiencies in the, in the use of energy.

That's very clear.

There were all these fears about the industrialisation and the devastation of industrial sectors because of higher that have not happened.

Also on the on the supply side, there's been some success on activating other sources of supplies and on demand size, a very important factor.

It's been a very good winter.

The report also highlights that there is still a significant degree of uncertainty ahead that there is a next winter we have to go through and then we'll we'll see how long you have the floor.

Hi, my name is Paula Ducardeviasse with Geneva Solutions.

I actually had a question possibly for Mr Peterlee about the the case of Latin America, which you mentioned just in in passing.

I just wanted to know, you know, how much the economy may be affected by the political instabilities that we've seen in in a number of the the large countries, especially those who are exporting raw materials.

And then also with regard to the impact of migration within the, the region that has sort of picked up once again in I guess in the last year or so with people, especially certain migrants coming from, from Venezuela who are moving on the move once again and sort of general migration from a number of other countries heading towards the north.

But because of issues at the Mexico or rather the policies, US policies are unable to, you know, complete their their, their route and perhaps contribute less when it comes to remittances.

Thank you.

And go.

You have the floor.

Can you hear me?

Can we unmute?

Yes, over to you.

OK.

Yeah, thank you.

Thank you for the question and also for for following up on on the situation in Latin America.

So let me first highlight that.

And when I talk about Latin America and the Caribbean and, and, and the, and the slow down and their relatively weak performance that this is not affecting all countries equally in the region.

And especially the, the Caribbean is still catching up from after being hit very hard by the COVID crisis and having a very delayed recovery.

So we're, we're expecting the Caribbean to perform a lot better than Central America and Mexico and also South America.

And now as I mentioned, the and the overall weak performance is driven by weakness in the, in the, in the largest economies, Mexico, Brazil and and and also Argentina, where in all cases we have very severe longer term structural issues which are kicking in.

We also do have significant policy uncertainty.

So I would broaden this on the, I would not necessarily say it's the the instability, but there's a lot of policy uncertainty.

There's also a lot of political policy swings which are which we're seeing in in the region.

So that's an effect and the impact of, of, of of of migrants from an macroeconomic perspective, at least from the global from the headline numbers which we're seeing is probably not of of first order.

Of course it does have a significant impact on at a local level, it causes a lot of disruptions here, but it is, but it is the main longer term issues which is a lack of investment, a lack of, of, of spending on, on productivity growth, a lot of which are, yeah, hindering Latin American countries to, to grow faster.

And that has been an issue which has been outlined for for really the past, say past decade or the period since the global financial crisis after the region did very well in the 2000s.

Thank you.

Hingo.

I see Jeremy launch Radio France online.

Can we unmute Jeremy?

Over to you, Jeremy.

Hi, I have a question for Mr Capaldo.

I think who who mentioned something about austerity and a bit earlier and I would like him to to elaborate a bit more maybe on the link between austerity and the risk that it will target more women.

He said something about it.

I want him to maybe mention this thing again.

How will austerity impact more women?

Yeah, yes.

So the, the, the, the, the, the, in, in reality, the way austerity takes place a lot of times and especially in, in the European Union, we've seen this since 2012 is there's, there's, there tends to be cuts, especially of social protection expenditure.

And that means well of two things, you know, social protection expenditure and caps on public employment, you know, state, state jobs.

Now both items of expenditure benefit tend to benefit women particularly, especially social protection and expenditure because there are a lot of benefits that are typically that typically see women as beneficiaries that leave them tend to tend to see their coverage produced.

So it's Healthcare is maternal care, childcare, maternity leave and related benefits.

And these are all things that we don't, we we'd see typically very much hit by by all forms of spending reviews that that are discussed left and right.

But it's not just that it's also teaching jobs, it's care jobs in the care economy.

They are very often funded through government schemes and other and other public programmes.

Thank you.

I don't see any question in the room nor online.

May I remind you that we are under embargo until tomorrow, 6:00 PM Geneva time, 12 noon, New York Times, New York Times, Sorry.

And of course, the the whole team is available until that time until the embargo is lifted to answer any question or clarification you you would need.

Ingo, do you want to to close the the press conference with a a final remark?

Can you hear me?

Yes, yes, thank you.

Yeah, yeah.

I I just want to highlight the, the, the main messages again from from the policy side where we, we strongly believe that often it is developing countries which are most severely affected by, by these shocks, but also by some policy decisions which are taken in, in the, in the developed by developed countries, central banks, by by governments, developed countries.

And they are to some extent at the at the mercy.

And we're seeing this now with the interest rate increase is the strong dollar with something which is really difficult.

And we therefore really emphasise the need for taking these spillover effects into consideration and also trying to strengthen global first communication, but then also collaboration and cooperation in, in solving these problems and these challenges, especially in the context of the of the Sustainable development Goals.

And that's a message which is at the core of of this year's West given the the current combination of of global economic, geopolitical and other crisis.

Thank you.

Thank you very much.