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UN Issues Dire Warning About World Economy

  • Lisa Schlein

Economist Heiner Flassbeck speaks during a Swiss Social Democrats party meeting in Aarau, Switzerland, October 2008. (file photo)

Economist Heiner Flassbeck speaks during a Swiss Social Democrats party meeting in Aarau, Switzerland, October 2008. (file photo)

The U.N. Conference on Trade and Development says the outlook for the world economy is very bleak. UNCTAD warns Europe is facing a full-fledged recession next year, and the best the United States and Japan can look forward to is a period of stagnation.

The U.N. Conference on Trade and Development is urging nations to move away from austerity measures toward policies aimed at stimulating growth. UNCTAD Director on Globalization and Development Strategies Heiner Flassbeck said that unfortunately, all governments in the world have decided to do just the opposite.

He said political leaders are choosing restrictive fiscal policies over economic stimulus measures. He warned this decision is creating a situation in which everyone is in danger of falling into recession.

“You see that there is everywhere a slowdown, at least, if not an outright fall of industrial production and things like that. So, there is no escape," said Flassbeck. "If the three big developed regions are not able to stimulate the economies, than we will fall all into a deep recession or at least a permanent stagnation… and deflation where you never get back on growth, on a growth path.”

Flassbeck notes Japan’s economy has been in a deflationary situation for 20 years. He said it has resulted in two lost decades.

The UN economist said private consumption is the most important overall component of growth in Japan, the euro zone and the United States. He added there will be no revival if consumption cannot be revived in these areas.

He said there appears to be a political consensus that fiscal policy should stay on an austerity path. Some politicians, he said, erroneously argue that the only way to regain confidence is by cutting deficits.

“But, the fact of life is that we will not cut public deficits. It is only an attempt to cut public deficits. Governments are too big. They are just too big just to cut their expenditure and expect that their revenues will remain as they were before. They will not. They will fall. Revenues will fall and with falling revenues you will see that you cannot reduce a deficit. And, if you cannot reduce a deficit, you cannot regain confidence. So, the whole idea is flawed from the very beginning,” said Flassbeck.

UNCTAD economist Flassbeck said it will take a bit longer for the recession to hit developing countries. But, when it does, he said there will be severe consequences for the developing and least developed countries.

He said nations apparently have not learned the lessons of the 1930s when recession was in full bloom. He said it is frightening to see that nations cannot agree upon a coordinated plan of action for stimulating world growth.