A renewed global recession is just around the corner and the developed economies are on the brink of a downward spiral.
The UN warned yesterday that the world economy “is teetering on the brink of another major downturn”. In its World Economic Situation and Prospects 2012 report, released yesterday, it said: “A renewed global recession is just around the corner and the developed economies are on the brink of a downward spiral.”
And it blamed policy responses in the US and Europe, where governments were “fixated on reducing large fiscal deficits and public debt”.
The target of its criticism was the shift from fiscal stimulus to austerity measures, which it said were “pulling the plug on the recovery”.
The report, presented in Johannesburg yesterday by Charlotte du Toit, the chief executive of think tank Plus Economics, said countries that made the biggest spending cuts to reduce fiscal deficits “have seen their debt-to-gross domestic product ratios rise even further”, as their economies weakened. “Available evidence suggests that fiscal austerity is not helping restore economic growth or debt sustainability.”
The organisation urged a different policy approach in the developed world. “In most developed countries, high public indebtedness should be the medium term rather than the immediate concern. Governments still have plenty of fiscal space left for additional stimulus measures as most can still borrow at very low cost.”
The report cited Germany, Japan and the US as countries with low borrowing costs.
However, the UN’s expectations for global growth remained positive, although it revised down its forecast for this year from the 3.6 percent estimate made last June to 2.6 percent. The estimate for growth in developed economies was cut by 1.1 percentage points to 1.3 percent and for developing economies by 0.6 percentage points to 5.6 percent.
South Africa’s growth forecast for the year was revised down by 1.1 percentage points to 3.7 percent. This is higher than last year’s estimated 3.1 percent and would be “underpinned by favourable external demand, continued fiscal stimulus and rising consumption driven by higher wages”.
Africa’s forecast was lowered by 0.4 percentage points to 5 percent – a “pronounced recovery” from 2.7 percent last year. “The important driving forces will be relatively strong commodity prices, solid external capital inflows and a continued expansion of demand and investment from Asia.”
The UN said there would be “widely divergent growth outcomes” on the continent “owing to military conflicts, lack of infrastructure, corruption and severe droughts. In some countries, these factors will severely depress growth and take a grave humanitarian toll.”
It highlighted infrastructure shortages in Nigeria’s energy sector and political instability in the Niger Delta. These “will prevent Nigeria from exploiting its full growth potential”.
Growth in emerging and developing economies has been boosted by inflows of net private capital, which rose by about $90 billion (R732bn) last year to $575bn. But the report noted “the level of inflows remains well below the pre-crisis peak in 2007”.
Source: Business Report and United Nations
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