A new United Nations report concludes that high trade tensions and policy uncertainty are damaging global economic growth prospects.
A further escalation of the trade dispute between the U.S. and China threatens both short- and medium-term global growth prospects, according to the United Nations World Economic Situation and Prospects (WESP) mid-2019 report released Tuesday at UN headquarters in New York.
The report said that global merchandise trade-volume growth has slowed more sharply than expected, particularly in late 2018 and early 2019.
Data from the U.S. Census Bureau showed that bilateral merchandise trade between the two countries has declined by more than 15 percent since September 2018, when the second round of tariffs went into effect.
"This has also impacted global value chains in East Asia and other trading partners," the report said.
"We've seen the trade tariffs that have been introduced on both sides have already been damaging trade," said Dawn Holland, chief of the Global Economic Monitoring Branch in the UN Department of Economic and Social Affairs.
Holland said the adverse effects of trade tensions on economic growth in China "has been partly offset by some stimulus measures".
According to the report, growth in China is projected to moderate gradually from 6.6 percent in 2018 to 6.3 percent in 2019, and 6.2 percent in 2020.
"Recent monetary and fiscal stimulus measures are expected to bolster domestic demand, partially offsetting the adverse impact of trade tariffs on overall growth," the report said.
The U.S. recently signaled its intention to impose additional tariffs on the European Union, primarily targeted at the aircraft and food industries. It is in addition to the imposition of steel and aluminum tariffs that are already in place.
Amid unresolved trade disputes and higher tariffs, the projected growth of world trade has been revised downwards to 2.7 percent in 2019, slowing markedly from 3.4 percent in 2018.
The report warns that "the impact of a spiral of additional tariffs and retaliations would not only dampen growth of these large economies, but also have severe spillover effects on the developing economies, particularly those with high export exposure to the impacted economies. A more protracted period of weak international trade activity could also harm investment prospects and adversely affect productivity growth in the medium term."
The report indicated that the entire global economy is experiencing a broad-based growth slowdown amid unresolved trade tensions, high international policy uncertainty and softening business confidence.
The forecast for weaker global growth casts a shadow over efforts to implement the UN's 2030 Agenda for Sustainable Development, which has set universal goals for eliminating poverty, promoting prosperity and social well-being while protecting the environment.
Weaker economic growth puts at risk essential investments in areas such as education, health, climate change adaptation and sustainable infrastructure.
The growth outlook in all major developed economies and most developing regions has weakened due to a confluence of both domestic and external factors, the report said.
Following an expansion of 3 percent in 2018, world gross product growth is now projected to moderate to 2.7 percent in 2019 and 2.9 percent in 2020, reflecting a downward revision from the forecasts released in January.
The report identifies several downside risks that could trigger a sharper or more prolonged growth slowdown, potentially inflicting significant damage on development progress. Those risks include a further escalation in trade tensions, a sudden deterioration in financial conditions, and the accelerating effects of climate change.
"More comprehensive and well-targeted policy responses are needed to tackle the current growth slowdown," Elliot Harris, UN chief economist and assistant secretary-general for economic development, said Tuesday at a news conference. "It is increasingly clear that policies to promote sustainable development will need to look beyond GDP growth and identify new and more robust measures of economic performance that appropriately reflect the costs of inequality, insecurity and climate change."
In response to slowing growth and subdued inflation, major central banks have eased their monetary policy stances. The recent monetary policy shifts have helped to stabilize global financial markets and capital flows to emerging economies.
However, the report cautions that a more protracted period of monetary accommodation could exacerbate financial imbalances, including further fueling debt accumulation and raising medium-term risks to financial stability.
Faced with deep-rooted structural weakness, several large developing countries are struggling to recover from recessions or remain trapped on a low growth path.
The report highlights that per capita income growth in several parts of Africa, western Asia, Latin America and the Caribbean is expected to remain very weak in the outlook period. That poses additional challenges for the Sustainable Development Goals, including the goal to universally eradicate poverty by 2030.
The report further notes that while poverty remains predominantly rural, further progress on poverty-reduction also hinges on the effective management of ongoing urbanization. That is particularly relevant for Africa and South Asia, the two regions with the highest number of people in poverty, which are expected to experience the most rapid pace of urbanization in the next two decades.