Growth remains weak in rich countries
Large economies in developing countries – mainly China, Brazil and India – continue to lead the global recovery, amid weaker performances in relatively richer nations, where concerns over huge public debt have led to austerity measures that have dampened growth prospects, according to a new United Nations report.
The mid-year issue of the World Economic Situation and Prospects (WESP), released on Wednesday, points out that the outlook for growth is moderating in even the biggest economies in Asia and Latin America because of several increasingly pressing concerns.
Those concerns include rising inflation, emerging domestic asset price bubbles, and upward pressure on exchange rates, fuelled in part by large capital inflows.
The World Gross Product (WGP) is expected to grow by 3.3 per cent this year and 3.6 per cent in 2012, only a slight upward adjustment from the forecasts released in the WESP 2011 at the beginning of the year.
Unemployment in developed economies fell in some countries, but the number of people out of work for six months or longer continues to rise, according to the report, prepared by the UN Department of Economic and Social Affairs (DESA), UN Conference for Trade and Development (UNCTAD), and the five UN regional social and economic commissions.
Unemployment also fell as a result of many jobless persons stopping their search for work, the report notes.
“The weakness comes from developed countries – in the United States we expect the recovery to continue at 2.6 per cent in 2011 and 2.8 per cent in 2012, which is by far not sufficient to deal with the jobs crisis – and we’ve pretty much downgraded Japan’s forecast as a result of the consequences of the earthquake in March,” said Rob Vos, the Director of the Development Policy and Analysis Division of DESA, at the launch of the report at UN Headquarters.
Among the economies in transition, employment improved in the Commonwealth of Independent States (CIS), but remained weak in South-Eastern Europe. Employment levels generally have returned to above pre-crisis levels in developing countries, especially in East Asia, according to the report.
At current levels of economic growth, it would four to five years before employment rates revert to pre-crisis levels in developed countries, according to the report.
The devastating quake and tsunami and subsequent nuclear crisis in Japan shook world financial markets and disrupted important global supply chains, while the recent political unrest in the Middle East and North Africa has led to a surge in oil prices. Global prices of food and other primary commodities have also soared.
The report warns that global recovery is still fragile and could suffer setbacks if public debt problems and continued financial sector fragility in developed economies are not adequately addressed and global commodity prices continue to surge, triggering further belt-tightening.
In the outlook for the rest of 2011 and for 2012, WESP predicts that more countries are expected to further unwind both monetary and fiscal support measures.
The report suggests a number of global policy interventions to address the risks.
They include developed countries avoiding the temptation to prematurely tighten fiscal policies. Those policies should instead be redesigned to strengthen impact on employment and promote structural change for more sustainable economic growth over the medium- and longer-term.
“Fiscal austerity when your economy is barely growing is really quite premature,” said Jomo Kwame Sundaram, the Assistant Secretary-General for Economic Development.
For both developed and developing countries, a prudent policy would be to target public investments with a view to alleviating infrastructure bottlenecks that hamper growth prospects and tackling environmental challenges, including by accelerating the transformation of the energy sector to drastically reduce greenhouse gas emissions and investing in sustainable food agriculture.
The report urges ensuring that sufficient resources are made available to developing countries, especially those with limited resources and which face huge development needs. The resources will be needed, in particular, to accelerate progress towards the achievement of the Millennium Development Goals (MDGs) and for investment in sustainable growth.
It also calls for ways to achieve effective policy coordination among major economies.
“We have a situation of insufficient international cooperation and coordination to address these problems on the fiscal front, on the monetary front, exchange rates and also financial regulation,” said Sundaram.