The lead author of the World Economic Situations and Prospects mid-year update, the flagship report from DESA released on 16 May, outlines the main findings in an interview with UN News.
Hamid Rashid Inflation has come down significantly from the 2022 peak, but not to the extent that central banks can say that they have won the war. There’s still room for improvement.
At the launch of the report, we mentioned that the US Federal Reserve targets “personal consumption expenditure inflation”, which is not about what you buy, but what you consume, and includes rent, including “imputed rent” [what homeowners would pay if they were still renting, and how much it would have gone up].
Those numbers are pretty slow moving, and that really make it difficult for the number to come down very quickly.
Some developing countries still have very high inflation, but, overall, the trend is very positive.
UN News And the reason we care about this is because there’s very often a lag between the cost of things and how much wages go up?
Hamid Rashid Exactly. It boils down to standard of living. If prices are going up higher than your wage growth rates, you are basically worse off in real terms.
When inflation is very high, people feel very nervous because they are not able to spend as much. And that becomes a self-fulfilling prophecy. They spend less, so the economy slows down even more. And that’s the challenge.
UN News The Ukraine war has been going on for over two years, and now we have a catastrophic war in Gaza. What effect does conflict have on the global economy?
Hamid Rashid When the war in Ukraine started, we saw a huge spike in commodity prices. Oil prices shot up. Grain prices shot up. But they have normalized. Similarly, when the Gaza war began last October, we saw some increases in oil prices and some commodity prices but, again, they stabilized.
The global market is responding to this crisis more efficiently, and alternative sources are emerging, so we haven’t seen a severe effect on prices from the Gaza war. However, we are seeing other effects; freight prices have gone up because the Red Sea route is restricted.
In the early months of the Ukraine war, shipping was disrupted, causing a huge spike in grain and other commodity prices (file August 2022)
UN News Because ships can’t travel through that area?
Hamid Rashid Yes. And when you’re diverted around the Cape of Good Hope, you’re adding another 15 days of travel time, which really adds up a lot of costs.
In general, the biggest headwind right now is geopolitical risk, which is why we have adjusted downward the growth forecast for the majority of the countries in Africa.
UN News Turningto the impact of COVID, your report graph shows that, when COVID hit, the global economy almost comes to a standstill. But then there’s quite a sharp rebound after that. Are we getting back to where we would have been if there hadn’t been a pandemic? Or is it still going to be several years before we fully recover?
Hamid Rashid There’s an illusion there in terms of a huge spike in 2021; it’s what we call the base effect. For example, if you have a massive drop, to minus 10 per cent growth, and the next year you have three per cent growth, it looks amazing.
We absolutely have not gone back to the pre-COVID trajectory of global growth. 2023 was a very slow year. Trade is a major driver of economic growth, especially for developing countries that are very dependent on exporting their commodities or manufactured goods, and trade is not back to normal.
UN News And many countries ended up cutting back on public spending and basic services?
Hamid Rashid Yes, and we have always been very critical of austerity measures, especially when an economy is on a recovery path, because then you slow down the recovery. That goes for developed and developing countries: we saw this in Greece, Argentina and many other countries.
Governments have to spend to keep the economic momentum going, because it brings in private investment. For example, when you build a new road, a company can build a factory: if there’s no road, no one can get to the factory. So, public investment is often a critical catalyst for private investment and economic activities.
A technician installs solar panels on a health centre in Burundi.
UN News The UN is urging the international community to speed up the transition to an economy that is no longer based on burning the fossil fuels which are driving the climate crisis. One of the consequences is a massive ramping up of the mining of the rare earth minerals that are needed to, for example, power an electric car. In the report, you say that this could create a new version of the so-called resource curse, meaning that those who mine these minerals we will need to power this cleaner economy, won’t necessarily benefit from the wealth they create.
Hamid Rashid Yes, but this is not inevitable, and we suggest that, if countries have the right policies in place, they can avoid this consequence. Many are actually moving in the right direction, because they’ve learned from past mistakes.
For example, in many African and Latin American countries, the goal was to get as many minerals out of the earth and export it as raw ore and minerals. But this model is not very sustainable because you don’t get much value.
A ton of copper ore doesn’t give you much money, but if you can turn it into copper wires and other materials, you can add a lot more value. And that’s what countries are trying to do, with innovation and industrial policies.
You have to bring the technology and the right investment. We are more optimistic about the strategic decisions that governments can make.
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