ISLAMABAD: The mid-year United Nations survey on the world economic situation forecast that the inflation rate in Pakistan is expected to remain in double digits in the coming months owing to weakening local currency and supply-side constraints.

Domestic food inflation remains elevated due to country-specific factors, challenging food security across the South Asian region, particularly in Afghanistan, Bangladesh and Pakistan, according to the ‘World Economic Situation and Prospects as of mid-2023’, released on Tuesday by the UN Department of Social Affairs.

High inflation, tighter financial conditions, weaker private consumption, and external imbalances will continue to impact growth in 2023. As the region is highly vulnerable to extreme climate conditions, potential droughts and floods also pose a significant risk to the economic outlook, the UN survey reveals.

South Asia’s economy is projected to grow by 4.7 per cent in 2023 and 5.8pc in 2024, a slight downward revision of 0.1 percentage points for both years from the forecasts in January. Regional consumer price inflation is projected to average 11pc in 2023 and 9.4pc in 2024, slightly lower than the 12.9pc recorded in 2022.

Central banks in the region continued their interest rate hikes in early 2023 to tackle inflation and stabilise exchange rates.

Prospects for a robust global economic recovery remain dim amid stubborn inflation, rising interest rates and heightened uncertainties. Instead, the world economy faces the risk of a prolonged period of low growth as the lingering effects of the Covid-19 pandemic, the ever-worsening impact of climate change and macroeconomic structural challenges remain unaddressed, according to the survey.

The world economy is now projected to grow by 2.3pc in 2023 and 2.5pc in 2024, a slight uptick in the global growth forecast for 2023. In the United States, resilient household spending has prompted an upward revision of the growth forecast to 1.1pc in 2023.

The European Union’s economy — driven by lower gas prices and robust consumer spending — is now projected to grow by 0.9pc. China’s growth this year is now forecast at 5.3pc as a result of Covid-19-related restrictions being lifted.

But a sombre picture remains. Despite this uptick, the growth rate is still well below the average growth rate in the two decades before the pandemic of 3.1pc. For many developing countries, growth prospects have deteriorated amid tightening credit conditions and rising costs of external financing, the report says.

Global trade remains under pressure due to geopolitical tensions, weakening global demand and tighter monetary and fiscal policies. The volume of global trade in goods and services is forecast to grow by 2.3pc in 2023, well below the pre-pandemic trend.

Inflation has remained stubbornly high in many countries even as international food and energy prices fell substantially in the past year. Average global inflation is projected at 5.2pc in 2023, down from a two-decade high of 7.5pc in 2022. While upward price pressures are expected to slowly ease, inflation in many countries will remain well above central banks’ targets.

Published in Dawn, May 18th, 2023