US budget uncertainties pose risk to global growth: UN

Friday, 20 December 2013 00:00 - - {{hitsCtrl.values.hits}}

REUTERS: The outlook for the global economy has improved thanks to the end of the euro zone recession and a slight improvement in US economic growth, though political wrangling over the US budget is a major risk factor, the United Nations said on Wednesday. In its annual “World Economic Situation and Prospects 2014,” the world body said the global economy is expected to expand 3% in 2014 and 3.3% in 2015, compared with estimated growth of 2.1% for 2013.

“The world economy experienced subdued growth for a second year in 2013, but some improvements in the last quarter have led to the UN’s more positive forecast,” the report said. “The euro area has finally ended a protracted recession. Growth in the United States strengthened somewhat.” “A few large emerging economies, including China and India, managed to backstop the deceleration they experienced in the past two years and veered upwards moderately,” the UN report said. “These factors point to increasing global growth.” But the world body cited several risk factors facing the global economy - a possible “bumpy exit” from the US Federal Reserve’s quantitative easing of key interest rates; fragility of the banking system and real economy in the euro zone; and political wrangling over the US budget and debt ceiling. The report specified two different types of risks associated with the US political uncertainties. “First, the recurring uncertainties about the government budget, even if no large-scale crisis erupts, discourages business investment and hiring, thereby leading to lower growth and higher unemployment in the short run and damaging potential growth in the longer run,” the United Nations said. “Second, should a crisis occur if the debt ceiling were not raised, for example, the consequences would be devastating not only for the United States, but also for the world economy,” it added. A two-year US budget deal that eases some automatic spending cuts was expected to clear Congress later on Wednesday but there are signs that a fight could develop early to mid-2014 over the debt ceiling. “I doubt if the House or for that matter the Senate is willing to give the President a clean debt ceiling increase,” top Senate Republican Mitch McConnell told reporters on Tuesday.