Fiscal austerity policies being implemented by countries are driving the global economy towards a recession, the United Nations trade and development body warned today, stressing that greater attention should be paid to high unemployment, which it called a more pressing problem than budgetary deficits.
“The vicious circle induced by fiscal contraction, weak financial institutions and financially fragile households is fuelling a crisis of confidence and holding back investment and job creation in the private and public sectors simultaneously,” the UN Conference on Trade and Development said in a policy brief published today.
“The countries threatened by recession and deflation should avoid intensified austerity measures because these are unlikely to produce the intended outcomes and could propel the world into a renewed bout of recession, or even into an outright depression,” UNCTAD cautioned.
The economic contraction will affect emerging and developing economies alike, it warned, stressing the need to prepare contingency plans.
“Unless there is a rapid policy turnaround, the world is in danger of repeating the mistakes of the 1930s,” the agency added.
The Group of 20 (G20) major economies initially seemed to recognize the threat of fiscal austerity to the global economy, but recent actions have not been consistent with that recognition, according to UNCTAD.
“In particular, the fiscal restraint in the countries with current account surpluses and very low long-run interest rates in Europe, point precisely in the wrong direction. A fragile global economy has a significant interest in the implementation of expansionary, rather than contractionary, fiscal policies in key economies,” the brief stated.
“Only the former can open a path towards lower fiscal deficits and falling public debt ratios. A ‘lost decade’ for the world economy would risk the development gains achieved during the recent years, and throw into question the ability of democratic governments to tackle the most urgent challenges of our age,” it added.
Meanwhile, UNCTAD released its annual Handbook of Statistics, a wide-ranging survey of numerical information on international trade flows, commodity prices, maritime transport, and the economic performances of developing countries.
Trends revealed by the publication include volatile prices for commodities since the beginning of this century and long-term economic gains by several developing countries between 1981 and 2010.
China’s share of world exports in goods and services, for example, grew by over eight percentage points, and its share of global gross domestic product (GDP) expanded by nearly seven percentage points, according to the Handbook.
Over the same period, the United States’ share of world exports in goods declined by 3.5 percentage points and its portion of global GDP fell by nearly 2.5 percentage points.
Countries in the European Union saw a decline in services export share of eight percentage points for the period.
Those statistics provide evidence of the growing prominence of developing economies in the global economy.
The Handbook also shows that commodity price indices displayed record volatility from 2001 through 2010, climbing at an annual average rate of 12.2 per cent per year, a sharp change from the two preceding decades, when they increased by only 0.5 per cent per year (1981 to 1990) and then fell by 1.3 per cent per year (1991 to 2000).
The price of rice, the most important staple food for a large part of the world’s population, showed the sharpest increases between 2001 and 2010, climbing by an average of 15 per cent per year.