UN Press Release on World Economic Situation and Prospects 2012 Mid-Year Report

The Euro debt crisis remained the biggest threat to the world economy, according to a United Nations report launched today at a Headquarters press conference by United Nations Assistant-Secretary-General of the Department of Economic and Social Affairs, Jomo Kwame Sundaram, and Rob Vos, lead author of the text and Director of the Department’s Development Policy and Analysis Division.

An escalation of the crisis could result in severe turmoil in financial markets and a sharp rise in global risk aversion, leading to a further weakening of global growth, according to the mid-year report of the World Economic Situation and Prospects 2012.

The two officials said the world economic situation remained challenging.  Following a marked slowdown in 2011, global growth would likely remain tepid in 2012, with most regions expanding at a pace below potential.  Most developing countries were still struggling to overcome the economic woes from the 2008-2009 global financial crisis.

Mr. Sundaram underlined three major points he said were at the heart of the global economic recovery debate.  First, from a policy point of view, the previous consensus, or seeming consensus in favour of fiscal austerity or consolidation, had been severely battered over the last few months.  There was now strong recognition all over the world that the fiscal austerity pursued by many Governments had been the main cause for the protracted economic downturn.  There was now a re-examination of those policies and much more serious reconsideration of the need for fiscal stimulus and other efforts to ensure a strong, sustained and inclusive recovery.

Secondly, he noted, international cooperation was extremely important to all recovery efforts, but, unfortunately, since 2009, there had been very limited international cooperation beyond the mobilization of additional resources for the International Monetary Fund.  International cooperation guaranteed that all countries and all economies benefitted, and not just some economies at the expense of others.  Understanding that was important, especially in light of the fact that many economies in recent years had “turned inward” to their own regions and were less inclined to cooperate than before.  In addition to “output” recovery, job recovery was also vital, he added.

The third point was that the political situation had changed.  The election results last month in Europe for example – France, Greece and in several states in Germany – had changed the debate significantly and fundamentally changed the political atmosphere.  For that reason, he was somewhat more optimistic that a point had been reached where the tide might have turned and might well result in serious reconsideration of the kinds of policies that the United Nations had been advocating consistently over the last few years in favour of a strong, sustained and inclusive recovery.

And Mr. Vos said while many of the key points in the present mid-year report were similar to what was contained in the report — World Economic Situation and Prospects 2012 — launched in January, but some of them had since worsened.  If there was any message in the updated report, it was that the world was already in a global economic slowdown, which had started in 2011, he said, pointing to Europe, much of which was already in a recession that was trickling down to the rest of the world.  Most concerning was the jobs crisis, particularly in developed countries, he stated.

Further continued slowdown was expected in 2012, with only slight upward trends in 2013, he said.  The report estimated that world trade growth would slow further to 4.1 per cent this year, down from 13.1 per cent in 2010 and 6.6 per cent in 2011.  Moreover, the risk of a further downward spiral was also very high; particularly from Europe, but also owing to weaknesses in other developed economies.  There was also a risk that there could be further increases in commodity prices and capital flow volatility.  The report also emphasizes the possibility of sharp rises in global energy prices, mainly caused by supply shocks due to political factors in the Middle East, he explained.

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