World on brink of possible new recession: UN

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United Nations—The United Nations sharply cut its economic projections for global growth on Thursday and said that the world is at risk of a new recession.

The U.N.’s report on the World Economic Situation and Prospects 2012 forecasts 2.6 percent growth next year in its main, relatively optimistic scenario — and just 0.5 percent growth in its pessimistic scenario. “Following two years of anemic and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn,” the report said.

At a news conference launching the report, U.N. Assistant Secretary-General for Economic and Social Affairs Jomo Sundaram said that “unfortunately, the likelihood of a pessimistic scenario is increasingly likely.” “We have a situation where we may now be at risk of a double-dip,” he said.

The U.N. said global economic growth has slowed considerably to an estimated 2.8 percent this year from 4 percent in 2010, with Europe, the U.S. and other developed countries hard hit. A serious, renewed global downturn is looming because of persistent weaknesses in the major developed economies related to problems left unresolved in the aftermath of the great recession of 2008-2009,” the report said.

The “anemic growth” forecast next year is too low to deal with the jobs crisis in most industrialized nations, it said Unemployment averaged 8.3 percent in developed countries this year, still well above the pre-crisis level of 5.8 percent in 2007, the report said.

“The U.N. estimates that there was an employment deficit of 64 million jobs worldwide in 2011,” it said. “This is the amount of jobs that would need to be created additionally in order to restore pre-crisis employment levels and absorb the new labor entrants.” According to the U.N. report, the developed economies face four weaknesses that reinforce each other: High government debt, fragile banking sectors, weak demand resulting from high unemployment and fiscal austerity measures, and policy paralysis caused by political gridlock and institutional deficiencies. Failure of policymakers, especially those in Europe and the United States, to address the jobs crisis and prevent sovereign debt distress and financial sector fragility from escalating, poses the most acute risk for the global economy in the outlook for 2012-2013,” the report said.

Sundaram called Thursday’s announcement that China’s manufacturing contracted in November for the first time since early 2009 “ominous.”

He also criticized last month’s summit of the Group of 20 leading economies for failing to take collective action to address global problems, particularly the European debt crisis.

Besides international cooperation, Sundaram said, what is “desperately needed is to reverse the trend to fiscal austerity” which has exacerbated the threat of an economic downturn. To avoid a new recession, U.N. economic expert Rob Vos urged governments to switch to fiscal stimulus which will spur demand. He called for the 17 eurozone nations to “increase the firepower” of their bailout fund, the European Financial Stability Fund, and for the United States to try to prevent more foreclosures on homes through bridge loans.

The U.N. report said developing nations are also suffering as a result of the economic slowdown. While they are expected “to continue to stoke the engine of the world economy,” the U.N. said, their projected economic growth of 5.6 percent in 2012 is well below the 7.5 percent growth that developing nations achieved in 2010.