Senior United Nations officials today warned that the world’s economy continues to teeter on the brink of another downturn, with growth in output having slowed considerably last year and expected to remain weak in 2013.
“Clouds are particularly dark over developed economies,” Robert Vos, Director of the Development Policy and Analysis Division of the UN Department of Economic and Social Affairs (DESA).
“Developing countries are expected to see some sunshine… and stoke the engine of the world economy, but also these economies will see considerable slowdown this year compared with the pace of the recovery they showed in 2010 and 2011,” he said during an interactive dialogue session on the current global economic and financial situation organized by the UN Economic and Social Council (ECOSOC).
ECOSOC President Miloš Koterec cautioned that what started as a financial crisis now threatens to throw the world into a double-dip recession, with output growth slowing from 4 per cent in 2010 to 2.8 per cent last year. He called for “inclusive and balanced growth strategy” to address the challenges.
“Studies estimate that the global crisis has caused between 47 million and 84 million persons to fall into or remain trapped in poverty,” said Mr. Koterec. “Prolonged unemployment affects medium-term growth prospects due to its impact on workers’ income and skills.”
Peter Diamond, Professor of Economics at the Massachusetts Institute of Technology and winner of the 2010 Nobel Prize for Economics, told the ECOSOC session that the “tensions” bedevilling the global economy were connected to fiscal austerity measures and the debt crisis, the need for more bank capital and lending, as well as low consumer spending.
“In each of these, there is, on the one hand, the need to keep up effective aggregate demand and keep up production in the world economy,” said Mr. Diamond. “On the other hand, there is the need to get the fundamentals in place… [to avoid] another crisis that really freezes up the capital markets and so much of the economy.”
He also called for addressing unemployment problem “as quickly as possible,” especially joblessness among young people, which he said could affect economic growth in the future if the younger generation do not acquire necessary working experience early in their lives.
Carmen Reinhart, Senior Fellow at the Peterson Institute for International Economics, called for the restructuring of both public and private debts in developed countries, including the United States and much of Europe, where they remain very high.
She said that in an environment in which the advanced economies are saddled with high debt, low growth, high unemployment, “monetary policy, as it should, is going to remain quite expensive, meaning very low nominal and negative low interest rates.” Such a situation causes capital to continue flowing to emerging markets.
She warned the emerging economies of the risk of bubbles from the capital inflows, saying that “the seeds of a crisis are often sown during the boom years.”