A report released Thursday by several United Nations agencies cautioned that the eurozone debt crisis coupled with slow external demand and rising oil prices are continuing to slow down the global economy.
The report noted that the austerity measures put in place by several European nations have adversely affected economic growth in the eurozone as well as the European Union, and warned that the cost cutting measures being implemented across the industrialized world will not keep the world economy from slipping back into recession.
The report titled 'World Economic Situations and Prospects' (WESP) was released by the UN Department of Economic and Social Affairs (DESA), the UN Conference for Trade and Development (UNCTAD), and five United Nations regional commissions.
"The euro area is in recession and the Gross Domestic Product (GDP) of the region is expected to reach only 0.3 per cent growth in 2013, strengthening marginally to 1.4 per cent in 2014," according to a press release accompanying the report.
The UN agencies warned in the report that Western Europe's current economic policies have failed to address key short-term issues related to restoring growth in the region and to identify ways of putting crisis countries on the track to a more probable path to fiscal sustainability.
According to the report, the eurozone is in a technical recession, with successive negative quarterly rates of GDP growth in the second and third quarter. It also predicted a further sharp drop estimated for the fourth quarter, noting that the overall GDP probably declined by 0.5 percent in 2012.
It said at least five eurozone economies are now in recession, with very poor prospects going forward. Identifying the five eurozone countries in recession as Italy, Spain, Cyprus, Greece and Portugal, the report urged an end to what it described as counterproductive austerity programs in industrialized countries for resolving the crisis.
"Given the looming uncertainties and downside risks … current policy stances seem to fall well short of what is needed to prevent the global economy from slipping into another recession. More forceful and concerted actions should be considered," the report stated.
It predicted that the global economy will grow at a rate of only 2.4 percent in 2013 and 3.2 percent in 2014, which incidentally is a significant downgrade from forecasts of half a year ago. The report noted that the global growth expected for 2013 and 2014 is much lower than what is needed to overcome the jobs crisis that many countries are still facing.
Identifying weaknesses in the major developed economies as the root cause of the global slowdown, the report warned 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 if their stick to their existing policies.
The report stated that Europe is currently trapped in a vicious cycle of high unemployment, financial sector fragility, heightened sovereign risks, fiscal austerity and low growth, while deflationary conditions continue to prevail in Japan. It also noted that the US economy slowed significantly during 2012 and said growth is expected to remain meagre at 1.7 percent in 2013.
"The present focus on fiscal consolidation in the short run, especially among developed countries, has proven to be counterproductive and to cause more protracted debt adjustment," it warned.
To turn the situation around, the report recommended a shift of focus from short-term consolidation to robust economic growth with an eye to medium to long-term fiscal sustainability. It also stressed that the reorientation of fiscal policies should be internationally coordinated and aligned with structural policies that support direct job creation and green growth.
by RTT Staff Writer
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