UN World Economic Situation and Prospects report identifies debt crisis as biggest threat to the global economy

The mid-2102 update of the "UN World Economic Situation and Prospects" report, released last Friday, identifies the euro area debt crisis as the biggest threat to the global economy. The update revises downwards the report's earlier economic growth forecasts for 2012. It states that globally "unemployment remains high, a condition that is both cause and effect in preventing economic recovery" and that "efforts at regaining debt sustainability through fiscal austerity are backfiring".Among the report's policy recommendations:

  • A shift in focus from short-term fiscal consolidation to robust economic growth with medium to long-term fiscal sustainability
  • A reorientation of fiscal policies aligned with structural policies that support direct job creation and green growth
  • Policies must be better coordinated internationally and regulatory reforms of financial sectors should be accelerated
  • From the press release:Even if further deepening and spreading of the euro area crisis can be avoided, economic activity in the European Union is expected to stagnate in 2012. The report estimates that world trade growth will slow further to 4.1 per cent in 2012, down from 13.1 per cent in 2010 and 6.6 per cent in 2011.In the face of subdued growth, the jobs crisis continues. Global unemployment remains above its pre-crisis level and is rising rapidly in the euro area. Employment-to-population ratios remain below their 2007 levels in all major economies, except Brazil, China and Germany. By the end of 2011, an estimated 48 million additional jobs were required for employment ratios to return to pre-crisis levels.In the United States, despite recent improvements, the unemployment rate remains high at over 8 per cent, well above pre-crisis levels. The unemployment rate in the euro area as a whole increased to a historic high of 10.9 per cent in March 2012, up by one percentage point from a year ago. In the crisis-struck economies of the euro area, unemployment has reached alarming levels. In Greece, Ireland and Spain, the unemployment rate is more than 10 percentage points higher than it was in 2007. Furthermore, long-term unemployment continues to rise in developed economies, accounting for about 40 per cent of the unemployed in many countries.By contrast, employment rebounded in developing countries more strongly than elsewhere, especially in East Asia and Latin America. Large job deficits remained, however, at the end of 2011 in many countries in South Asia (including in India), Western Asia (particularly in countries affected by political instability), Africa (including in South Africa), and Latin America (including in Mexico and Venezuela).The first half of a press release on the report is below. The entire four-page communiqué, including regional synopses, is available in English: http://www.un.org/ en/development/ desa/policy/wesp/wesp_archive/2012wespupdate_pr_en.pdf and French: http://www.un.org/en /development/desa/policy/wesp/ wesp_archive/2012wespupdate_pr_fr.pdf The full report (28 pages) is available in English only at: http://www.un.org/en/ development/desa/policy/wesp/wesp_archive /2012wespupdate.pdf

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