UNITED NATIONS — “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.”
That’s the sober assessment of a key UN report which warns that “output growth has already slowed considerably during 2011 and anemic growth is expected during 2012.”
“A serious, renewed global downturn is looming because of persistent weakness in the major developed economies related to problems left unresolved in the aftermath of the Great Recession of 2008-2009.”
The latest World Economic Situation and Prospects 2012 offers a somber glimpse into the economic forecasts of “the rapidly cooling economy,” with slower growth amid persistently high unemployment rates especially in the developed countries. The survey stresses, “The United States economy is also facing persistent high unemployment, shaken consumer and business confidence, and financial sector fragility.”
“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 and outlook for 2012-2013,” the report warns, adding, “A renewed global recession is just around the corner.”
The survey says that developed economies are on “the brink of a downward spiral enacted by four weaknesses that mutually reinforce each other: sovereign debt distress, fragile banking sectors, weak demand (associated with high unemployment), and policy paralysis.”
The World Economic Situation estimates that GDP growth in the European Union (EU) is expected to reach an anemic 0.7 percent in 2012, much lower that the 1.6 percent recorded last year. “Growth in the United States slowed notably in 2011. Gross Domestic Product (GDP) growth is expected to weaken in 2012. …growth in the Euro area has slowed considerably since the beginning of 2011…and Japan fell into another recession since the beginning of 2011.” The USA’s growth stood at an anemic 1.7 percent last year.
On the positive side, the report suggests that “developing countries and economies in transition are expected to stoke the engine of the world economy, but their growth in 2012-2013 will be well below the pace achieved in 2010.” Growth prospects in China and India “is expected to remain robust” but growth in China is projected to slow below 9 percent. Significantly Brazil and Mexico are expected to “suffer a more visible economic slowdown.” Russian is expected to maintain robust growth at 4 percent while South Africa, is predicted to have the strongest economic growth in 2012.
“Persistent high unemployment remains the Achilles heel of economic recovery in most developed countries,’ the survey warns. In the USA this remains an acute problem as unemployment rates during the Obama administration have precipitously risen well over eight percent since 2009. The report adds, “Increasing numbers of workers without a job for a prolonged period have stopped looking for one and are no longer counted as part of the labor force.”
The report advises that even if the Obama administration’s American Jobs Act had been enacted in full, “could have provided some stimulus to job creation, it would not have been sufficient to prevent further economic slowdown, as fiscal stimulus has already faded overall.” Moreover the survey warns, “the total public debt of the United States has risen to over 100 percent of the GDP.” This figure compares unfavorably even with many European nations.
Western Europe’s debt crisis continues to serve as a drag both to the EU’s recovery and naturally has a knock on effect globally. As the report states, “Even under the optimistic assumption that the debt crisis can be contained within a few countries, growth can be expected to be only marginally positive in the Euro area in 2012.”
As a counterpoint, East Asia’s economic growth is projected to decline only to 6.9 percent over the next two years. Here too Mainland China plays a leading role not only as the largest regional economy but as a growing player in Latin America too. A slowdown in China would hurt Latin America, as Beijing is a major buyer of commodities.
Indeed international trade has posted tentative gains but lost momentum in 2011. Again the primary culprit rests with weaker economic growth. Indeed as the report cites, “East and South Asia include three of the most dynamic emerging economies — China, India, and the Republic of Korea — accounting for about one third of world exports.”
Thus to the backdrop of darkening economic clouds, the Obama administration is trying to sugarcoat the USA’s still-uncertain economic situation. Indeed the President’s annual State of the Union address serves as a political campaign rally amid still tough economic times for America.
John J. Metzler is a U.N. correspondent covering diplomatic and defense issues. He writes weekly for WorldTribune.com.
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