Euro zone’s debt crisis and austerity policies continue to tamp down growth – UN report
“The euro area is in recession and the Gross Domestic Product (GDP) of the region is expected to reach only 0.3 per cent growth in 2013, strengthening marginally to 1.4 per cent in 2014,” according to a press release announcing the World Economic Situation and Prospects 2013, produced by the UN Department of Economic and Social Development (DESA), the UN Conference for Trade and Development (UNCTAD) and UN regional commissions.
The report warns that Western Europe’s current economic policies do not address key short-term issues of restoring growth in the region or how to put the crisis countries on a more probable path to fiscal sustainability.
In fact, it says, the Euro zone is in a technical recession, with successive negative quarterly rates of GDP growth in the second and third quarter. With a further sharp drop estimated for the fourth quarter, GDP probably declined in total by 0.5 per cent in 2012.
At least five economies are now in recession, with very poor prospects going forward. Italy’s GDP is expected to decline by 2.4 per cent in 2012 and 0.3 per cent in 2013 and Spain’s by 1.6 per cent and 1.4 per cent, respectively. The other countries in recession are Cyprus, Greece and Portugal.
To remedy the problem, the report urges an end to what it calls counterproductive austerity programmes in industrialized countries.
“Given the looming uncertainties and downside risks … current policy stances seem to fall well short of what is needed to prevent the global economy from slipping into another recession,
“More forceful and concerted actions should be considered,” the report states in its introductory chapter.
It predicts that the global economy will grow at a rate of only 2.4 per cent in 2013 and 3.2 per cent in 2014 -- a significant downgrade from forecasts of half a year ago, and much less than it says is needed to overcome the jobs crisis that many countries are still facing.
Maintaining that weaknesses in the major developed economies are at the root of the slowdown, it warns that, with existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009.
Europe in particular, it says, is trapped in a vicious cycle of high unemployment, financial sector fragility, heightened sovereign risks, fiscal austerity and low growth.
The United States’ economy as well slowed significantly during 2012 and growth is expected to remain meagre at 1.7 per cent in 2013. Deflationary conditions continue to prevail in Japan.
“The present focus on fiscal consolidation in the short run, especially among developed countries, has proven to be counterproductive and to cause more protracted debt adjustment,” it says.
To turn the situation around, the report recommends a shift of focus from short-term consolidation to robust economic growth with an eye to medium to long-term fiscal sustainability.
It also stresses that the reorientation of fiscal policies should be internationally coordinated and aligned with structural policies that support direct job creation and green growth.
Sufficient development assistance is needed, it says, to help the poorest nations accelerate progress towards poverty reduction goals and invest in sustainable development.
Observing that such aid is declining, the report maintains that fiscal austerity in donor countries is not only detrimental to their own economic recovery, and certainly should not come at the expense of the development efforts of the poorest nations.