UNITED NATIONS — The global economy risks sliding back into recession. That’s the sober assessment from the UN’s World Economic Situation and Prospects 2013, which cites weak economic growth in 2012, and an anemic expected expansion over the next two years. And while economic woes in the United States, Europe and Japan have slowed global growth, once-seemingly supercharged economies such as China, India and Brazil are shifting into lower gear too.
“Weakness in the major developed economies are at the root of the global economic slowdown,” the report asserts, economies in “Europe are trapped in a vicious cycle of high unemployment, financial sector fragility, heightened sovereign risks, fiscal austerity and low growth.” The report warns, “The U.S. economy slowed significantly during 2012.”
With several European countries in recession, slower growth in Germany, and with France’s economy “stagnating,” GDP growth in the Euro area is expected to reach a feeble 0.3 percent in 2013.
“The United States economy weakened notably during 2012, and growth prospects for 2013 and 2014 remain sluggish,” the report concedes. Growth is expected to “decelerate to 1.7 percent in 2013 from an already anemic pace of 2.1 percent in 2012.”
In Japan the situation has been equally dismal with 2013 growth projected at 0.6 percent in 2013, down from 1.5 percent in 2012, that figure largely due to the reconstruction efforts in the wake of the devastating 2011 earthquake.
Given these sobering realities, there no wonder that the export dependent high growth economies would suffer. “China and India have shifted into lower gear” the report assets Over the past two years China growth slipped from 10.4 percent in 2010 to an estimated 7.7 percent in 2012. India fell from 9.6 to 5.5 percent in the same period. A “hard landing” is predicted for these developing economies.
East Asia overall however still remains a bright point with overall GDP growth expected to rise in 2013 to 6.2 percent over 5.8 per cent last year. Equally Russia saw robust growth given high gas and petroleum prices.
Surprisingly Latin America which has been rising on an export boom has seen a rapid deceleration. Brazil registered an impressive 7.5 percent growth in 2010, but fell to 2.7 per cent in 2011 and slipped to 1.3 per cent in 2012, reflecting a drop in exports as much as dysfunctional government and endemic corruption.
The World Economic Situation and Prospects report warns bluntly that the pace of growth “will be far from sufficient to overcome the continued jobs crisis that many countries are still facing. With existing policies and growth trends, 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 2008-2009.”
In the U.S., the document adds that while high unemployment rates have eased slightly, “the labor participation rate is at a record low.” In other words given that so many millions have dropped out of the job market, the overall numbers appear better.
Despite the near theatrical ending of the American “fiscal cliff” crisis, there’s little short to medium term confidence in business circles. Government debt resulting from a plethora of entitlement programs and mandates grows exponentially while incentives for economic expansion flounder in a maze of uncertainty regarding future fiscal and regulatory policies.
Though many Americans will flippantly smirk at the cost West European social welfare programs, the reality emerges that the USA has entered precisely the same path of massive entitlements without the capacity to sustain them, except for deeper unsustainable debt.
Congressional spending cuts have become a predictable joke; in the “fiscal cliff deal” for every $46 in new taxes, one dollar of spending is trimmed!
The Administration seeks ever more creative ways to cut slices from the national wealth as to fund government programs. Yet the size of the economic pie has shrunk and there is simply less to go round. It seems to me that encouraging business to bake a bigger pie; creating more incentives, more investment, thus more jobs, and a larger economy, would result in a bigger pie which would serve the needs of the nation.
Britain’s Margaret Thatcher knew the recipe, so did Ronald Reagan.
John J. Metzler is a U.N. correspondent covering diplomatic and defense issues. He writes weekly for WorldTribune.com.