UN warns against new worldwide recession

The United Nations has warned that the global economy is at great risk of falling into renewed recession if worldwide unemployment is not fought.

According to the report “World Economic and Social Prospects 2013”, the growth of the world economy has weakened considerably during 2012 and is expected to remain subdued over the next two years.

The prediction is a growth of 2.4% in 2013 and 3.2% in 2014 which is significantly lower than the UN’s previous forecasts.

UN’s team leader for the report, Rob Vos (pictured), said the high riskof a downward spiral into new recession might be caused by the possible escalation of the European crisis, the fiscal uncertainties in the United States and the possibility of difficulties in China and other emerging economies, leading to losses ofbetween 1% and 3%.

In Portugal, the President of the Republic Cavaco Silva has already hinted at the fear of a “recessive spiral” during the declaration of the 2013 State Budget (see story in Algarve Resident edition of January 4).

The UN report claims that weaknesses in the major developed economies are at the root of the global economic slowdown and the current pace of growth will be “far from sufficient to overcome the continued jobs crisis that many countries are still facing”.

The report adds that 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”.

While Portugal faces one of the most difficult economic periods in its history, the report stresses that Europe is “trapped in a vicious cycle of high unemployment, financial sector fragility, heightened sovereign risks, fiscal austerity and low growth”.

“Several European economies and the euro zone as a whole are already in recession as unemployment in the Euro Zone increased to a record high of almost 12%.”

The UN considers that “it is essential to change course in fiscal policy and shift the focus from short-term consolidation to robust economic growth with medium to long-term fiscal sustainability”.

Vos suggested some measures to break out of the “vicious cycle”, including a shift away from self-defeating fiscal austerity, redesigning fiscal policies to support job creation and green growth, coordinate monetary policy and accelerate financial sector reforms, as well as enhancing development financing.

The report mentions that a coordinated strategy for growth and jobs could lead to a recovery in employment in Europe and the US by 2014.