UN Predicts Grim Economic Outlook for 2012

The world economy is on the brink of another recession and prospects for recovery will worsen unless the international community can strengthen cooperation, says the UN’s 2012 Report on World Economic Situation and Prospects.

“We have a situation where we may well be at risk of a double dip. In any case it is very likely there will be a further slow down.” says Jomo Kwame Sundaram, UN Assistant Secretary General for the Department Economic and Social Affairs (DESA).  

Sundaram and DESA director for policy and analysis Rob Vos where at the UN to preset an overview of the report, which will be released in the new year.

Sundaram says today’s announcement by China that its manufacturing sector had shrunk over the recent period is an ominous sign, especially for developing countries that for the most part had continued to do reasonably well during most of the crisis.

“We do not have the basis for a strong recovery in the developed world and what is likely to happen in the near future is the further deterioration of conditions in the developing world.” he said. “This current situation, in the view of the Chinese, is worst than the last quarter of 2008.”

Sundaram says the international community has so far failed to take collective action and adopt preventive measures to ensure possible future European debt problems can be contained. 

He says the complex political relationship between European national governments and the European Union framework, along with ideological differences between the White House and Congress have seriously limited any international consensus to addressing the crisis.

Rob Vos, Director of Policy and Analysis at DESA, says even in a best case scenario global economic growth will drop. 

“We project that the world economy could grow to 2.6% next year, that’s slightly down from 2.8% but that is already a pretty strong deceleration from what happened in 2010 when the world economy was growing at 4 percent.” 

Vos says projections are based on the assumption the European debt crisis will not reach the EU’s larger economies. But with both Italy and Spain coming under increased financial pressure, he says the worse case scenario is quite likely.

The report’s forecast also depends on Congress and the White House agreeing on the extension of payroll tax cuts and emergency borrowing benefits.

“If those two actions don’t happen, we estimate that the US economy could further slow by another one percentage point of growth next year, which would be further down from already slow growth of 1.7%.”

Vos says the US should also start thinking about short term stimulus measures to avoid an increase in home foreclosures, which he says continues to undermine the health of the banking sector and negatively impact the economy.

“There is weaknesses and some dangers in the mortgage market that because of the high unemployment, a lot of the home’s are underwater so to speak, that their debts are higher than the value of their homes, that there may be a need to give people more bridge loans to overcome those problems and to avoid more foreclosures.”