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High Unemployment Slows World Economic Growth

An unemployed man collects cardboard waste to exchange for money along a residential area in Singapore 5 Jan 2011
An unemployed man collects cardboard waste to exchange for money along a residential area in Singapore 5 Jan 2011

A report by the U.N. Conference on Trade and Development says the recovery of the world economy is continuing to lose momentum and this will lead to weaker global economic growth.

The U.N. report forecasts moderate economic growth in 2011 and 2012 of between three and 3.5 percent. It says this is too low to recover from job loss triggered by the economic crisis.

UNCTAD economist in the Division on Globalization and Development Strategies, Alfredo Calcagno, says developed countries are expected to grow about two percent and this will be a drag on the world economy.

“Why developed economies are growing so slowly, well basically because of persistent high unemployment and low real wages compounded with too early withdrawal of fiscal stimulus,” Calcagno states. “The report insists that one of the main problems at present, and especially in developed economies is that of employment. The jobs that have been destroyed during the crisis of 2008 and 2009, will take several years to be recovered.”

The report finds the United States has been on the mend from its longest and deepest recession since World War II. Yet, it says the pace of recovery has been the weakest in the country’s post-recession experience.

It notes the United States will grow by less than three percent, not enough to make much of a dent in unemployment rates. It predicts recovering jobs lost during the crisis would take at least another four years.

As bad as this is, UNCTAD Division of globalization and Development Strategies Director Heiner Flassbeck says the growth prospects for Europe and Japan are even dimmer.

He says the economic outlook is uncertain and risks of falling back into stagnation are great.

“The three big regions-Japan, Europe and the United States have not yet overcome the difficulties fully. And, given the fact that they are withdrawing their policy stimulus, there is indeed an enormous danger that the recovery will stall in the course of this year,” Flassbeck said. “And, then the question has to be asked, 'What are then the measures that we have at hand to restart the economy again if this is going to happen because the recovery is not sustainable, not self-sustaining?"

Flassbeck says a few bright spots are to be found in Asia, mainly in China and India. But, even there, he says the bright spots are dimming. He warns these countries will not be able to push the world economy out of a renewed slump.

The report says growth in Latin America is projected to remain relatively strong at around four percent. It finds economic recovery has been solid in most of Africa, noting the rebound is expected to push through at about five percent in 2011 and 2012.