By Cliff Montgomery – Jan. 24th, 2011
The lack of a second economic stimulus for the U.S.A. and other developed countries will “provide a drag on the global recovery and pose risks for world economic stability in the coming years,” according to a new study released by the United Nations (UN).
The UN’s World Economic Situation and Prospects 2011 “is a joint product of the United Nations Department of Economic and Social Affairs (UN/DESA), the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions,” states the report.
Below, The American Spark provides readers with quotes from this study’s executive summary:
The global economic outlook
Weaker global growth is expected in 2011 and 2012…
After a year of fragile and uneven recovery, global economic growth started to decelerate on a broad front in mid-2010. The slowdown is expected to continue into 2011 and 2012 as weaknesses in major developed economies continue to provide a drag on the global recovery and pose risks for world economic stability in the coming years.
The unprecedented scale of the policy measures taken by Governments during the early stage of the crisis no doubt helped stabilize financial markets and jump-start a recovery. The policy response weakened during 2010, however, and is expected to be much less supportive in the near term also, especially as widening fiscal deficits and rising public debt have undermined support for further fiscal stimuli.
Many Governments, particularly those in developed countries, are already shifting towards fiscal austerity. This will adversely affect global economic growth during 2011 and 2012.
…as multiple risks to the recovery remain
Despite the notable progress made by the banking sector in disposing of its troubled assets, multiple risks remain.
Real estate markets may deteriorate further, credit growth remains feeble, and levels of unemployment are persistently high.
Most countries have kept in place, or even intensified, policies of cheap money (low interest rates and quantitative easing) in efforts to help financial sectors return to normalcy and stimulate economic activity as fiscal stimuli are being phased out. This has, however, added new risks, including greater exchange-rate volatility among major currencies and a surge of volatile capital flows to emerging markets, which have already become a source of economic tension and could harm the recovery in the near term.
Such tensions have weakened the commitment to coordinate policies at the international level, which in turn has made dealing with the global imbalances and other structural problems that led to the crisis–as well as those that were created by it–all the more challenging.
The global recovery has been dragged down by the developed economies
World gross product (WGP) is forecast to expand by 3.1 per cent in 2011 and 3.5 per cent in 2012. The recovery may, however, suffer setbacks and slow to below 2 per cent, while some developed economies may slip back into recession if several of the downside risks take shape.
Among the developed economies, the United States of America has been on the mend from its longest and deepest recession since the Second World War, but has nonetheless been experiencing the weakest recovery pace in history. Although the level of gross domestic product (GDP) will return to its pre-crisis peak by 2011, a full recovery of employment will take at least another four years.
Growth in many European countries will also remain low – drained by drastic fiscal cuts, some may continue to be in recession.
Growth in Japan will also decelerate notably.
Developing country growth will also moderate
Developing countries and the economies in transition continue to drive the global recovery, but their output growth is also expected to moderate during 2011 and 2012.
Developing Asia continues to show the strongest growth performance. Strong growth in major developing economies–especially China–is an important factor in the rebound in global trade and commodity prices, which is benefiting growth in Latin America, the Commonwealth of Independent States and parts of Africa. Yet, the economic recovery remains below potential in all three regions.
The fuel-exporting economies of Western Asia have not leveled oil production after the cutbacks made in response to the global recession. Hence, the recovery in this region is also below pre-crisis levels of output growth.
Formidable challenges remain for the long-run development of many low-income countries. In particular, the recovery in many of the least developed countries (LDCs) will also be below potential.
The outlook for employment, achievement of the Millennium Development Goals and inflation
Between 2007 and the end of 2009, at least 30 million jobs were lost worldwide as a result of the global financial crisis. Despite a rebound in employment in parts of the world, especially in developing countries, the global economy will still need to create at least another 22 million new jobs in order to return to the pre-crisis level of global employment. At the current speed of the recovery, this would take at least five years.
Long-term unemployment is rising
Owing to the below-potential pace of output growth in the recovery, particularly in developed economies, few new jobs have been created to re-hire those workers who have been laid off. As more Governments are embarking on fiscal tightening, the prospects for a quick recovery of employment look even gloomier.
The longer term employment consequences of the present crisis are already becoming visible, as the share of the structurally or long-term unemployed has increased significantly in most developed countries since 2007.
