The world economy may be teetering on the brink of another major downturn, according to a new report released by the UN. Faltering growth with a heightened risk for a double-dip recession is possible unless certain conditions are met.
The sovereign debt crisis in Europe must be confined to a few small economies and countries with debt problems can be worked out in an orderly fashion.
The world gross product (WGP) is forecast to reach 2.6pct in 2012 and 3.2pct in 2013.
The report says output growth has already slowed considerably during 2011 and anemic growth is expected during 2012 and 2013.
The report was conducted jointly by the UN Department of Economic and Social Affairs (UN/DESA), the UN Conference on Trade and Development (UNCTAD) and five UN regional commissions.
These are the Economic Commission of Africa (ECA), Economic Commission of Europe (ECE), Economic Commission of Latin American Countries (ECLAC), Economic and Social Commission for Asia and the Pacific (ESCAP) and Economic and Social Commission for Western Asia (ESCWA).
The report says the problems stalking the global economy are multiple and interconnected, with the most pressing challenges lying in the failure to address the continued jobs crisis and declining prospects for economic growth in developed nations.
The report further says as unemployment remains high, at nearly 9 per cent, and incomes stagnate, the recovery in the global economy is stalling in the short run, owing to the lack of aggregate demand.
As an increasing number of workers are out of work for longer periods of time, medium-term growth prospects willsuffer because of the detrimental effect on workers’ skills and experience.
The European Union (EU) and the United States of America which form the two largest economies in the world, are expected to be the ones with the most problems, meaning they could easily feed into each other and lead to another global recession.
However developing countries are not immune according to the report, although they had rebounded strongly from the global recession of 2009, the report says they will be hit through trade and financial roadblocks.
One such concern for developing countries as well as those of the developed world is the pace of employment recovery for the 64 million unemployed worldwide, especially younger people.
It predicts that the recovery of world trade is expected to continue to decelerate even though commodity prices have increased, but remain highly volatile while fragilities in the international financial markets are affecting financing in developing economies.
One notable concern is the possibility that more severe fiscal austerity would push the United States economy into recession.
It cited the political wrangling over the budget in the United States which is the main factor that could
harm economic growth immediately, if it leads to severe fiscal austerity.
In terms of Africa growth has been forecasted to see an increase in its overall growth from 2.7 per cent in 2011 to 5.0 per cent in 2012, marking a pronounced recovery from the disruptions caused by
political unrest, as well as a return to the solid growth trends that had emerged after the peak of the global economic crisis.
Important driving forces for this trend in Africa, which are forecasted to lead to growth of 5.1 per cent in 2013, will be relatively strong commodity prices, solid external capital inflows and a continued expansion of demand and investment from Asia.
However, the UN report states, countries across the continent will continue to have widely divergent growth outcomes owing to a number of circumstances, such as military conflicts, a lack of infrastructure, corruption and severe drought conditions.
It also warns that in some countries, these factors will severely depress growth and, much more importantly, will likely have a grave humanitarian toll.
Ethiopia which is one of the countries with humanitarian concerns such as the negative impact of drought conditions on agricultural output in some areas is expected be overshadowed by having strong growth, reflected by continued infrastructure improvements, especially in the energy sector.