|Department of Public Information • News and Media Division • New York|
Press Conference on ‘World Economic Situation and Prospects 2010’
Despite predictions of a modest global recovery in 2010 and 2011 — resulting from rising production and world trade, and a tentative rebound in private consumption and business investment — United Nations economic experts warned that widespread joblessness and large public debt in some States, if not well managed, could mean mediocre economic growth in coming years.
Speaking at a Headquarters press conference this morning to present an update of the report, World Economic Situation and Prospects 2010, Rob Vos, Director of Development Policy and Analysis at the Department of Economic and Social Affairs, said growth was projected at 3 per cent in 2010 and 3.1 per cent in 2011, if countries continued their fiscal and monetary stimulus activities.
Because of stimulus packages already in place, he said, most developed economies, including the United States, Japan and some European Union countries, had emerged from recession. Meanwhile, growth in developing Asia was also helping recovery elsewhere.
Transition economies in South-Eastern Europe and the Commonwealth of Independent States were also recovering from steep declines, he added, but theirs was a fragile recovery, hinged, in part, on stronger commodity prices. As for developing countries, economic growth was highest in East and South Asia, reaching 7 per cent in some countries, although the number was still below that predicted before the downturn.
In contrast, growth was below potential in Latin America, Africa and West Asia, he said, underscoring the unevenness of the projected recovery. In Mexico, for example, unemployment in the regular economy had led to a surge in the informal sector, which presented its own problems. Countries with increasing numbers of people in vulnerable employment should push harder for measures to prop up regular employment levels, or face a long climb to sustained recovery, he stressed.
Aside from high unemployment, the world economy was fraught with other risks, said Mr. Vos. Debt in parts of Europe, notably Greece and Spain, might spread to other parts of the developed world. If uncontrolled, it could hold back recovery. High unemployment, a precursor of weakened domestic demand, was also a factor holding back growth, not just in Europe, but also in the United States, where the unemployment rate was around 10 per cent.
While countries might be tempted to draw back on their stimulus and engage in “fiscal consolidation” — including spending cutbacks — Mr. Vos warned that premature withdrawal of stimulus measures and poorly timed fiscal consolidation, especially by stronger States, could have negative repercussions around the world. In the United States for example, 2011 would mark the tail-end of its stimulus, and that was likely to result in lacklustre performance going forward, especially if other domestic economic factors did not improve.
He stressed the importance of coordinated action among States when adjusting their economic policies. Stimulus packages, where possible, should focus strongly on averting a jobs crisis. In the United States, for example, the emphasis had been largely on income support — for example, through tax breaks — rather than job creation. In contrast, several European countries had adopted policies that stimulated investment in infrastructure projects and provided subsidies to firms to keep workers in the workplace, create new jobs and to retrain people for new jobs. The loss of jobs in those countries had been less drastic.
Attempts at recovery were taking place against the backdrop of an older concern — the spectre of global imbalances, he said. Emerging economies in East Asia, mainly China, as well as the world’s major oil producers, were creating surpluses that were being recycled to fund deficits in developed countries. Capital flows to developing Asia, spurred by declining risk premiums, were also being funnelled to uncertain markets in developed countries, in a pattern similar to the one that had prevailed before the crisis, creating nervousness about the dollar.
The euro was also experiencing downward pressure, he said. For example, in Greece, high levels of public indebtedness might lead to downward revisions of their sovereign debt-rating. With large amounts of Greek public debt held by German, and other, banks, such downgrades could pose grave problems in the wider international community, through a devaluation of the euro.
States needed to push for greater balance in global demand to tamp down exchange volatility, he said. That meant shifting demand from the public to private sector and from deficit to surplus countries. Investments in renewable energy, as part of a green new deal, could be one way to trigger that shift in demand.
Moreover, he said, speculation on Greek debt posed risks of a sovereign debt spillover to the rest of the financial market, implicating yet more countries and even the private sector. The return of short-term private capital flow to Asia might be partly speculative, as well. As such, better financial regulation was needed to avert short-term capital movements that could upset whatever recovery seen to date.
Mr. Vos also stressed the importance of good political management, saying that Greece, for instance, must adjust 10 per cent of its economy, which had enormous implications to its people’s well-being and would require deft handling.
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