Government spending cuts by the U.S. and other Western nations might threaten the global economic recovery, the United Nations said as it forecast 2.8 percent growth in the U.S. economy next year.
“If austerity measure are too drastic and come too soon given the stage of the recovery, economic growth and employment could suffer and the still fragile banking sector could weaken further,” the UN’s midyear economic analysis said. “A fall out in one part of the developed country financial system may still have ripple effects worldwide.”
The cautionary comments come as the Obama administration and the Congress debate proposals to cut U.S. spending in an effort to reduce the budget deficit and slow the growth of the national debt. European nations, such as the U.K., are imposing government spending cutbacks.
In a different situation, Japan’s economy, hurt by the earthquake and tsunami, will pick up with major reconstruction spending in 2012, the report said.
The U.S. recovery from the recession will continue to be “mild,” and risks to the U.S. expansion are growing, UN chief economist Rob Vos said in an interview.
Aside from fiscal austerity, risks to U.S. economic recovery include “sustained elevated commodity and oil prices, a further worsening of its public finances and continued weakness in the housing market and financial sector,” the report said.
U.S. Outlook
The U.S. economy expanded by 2.9 percent in 2010, the UN said, and unemployment stands at 9.0 percent. Vos said the 2011 forecast was raised to 2.6 percent, from 2.2 percent, following 3.1 percent fourth quarter growth that was greater than UN economists expected.
U.S. unemployment will average 8.2 percent in 2012, the UN said. It will take up to five more years to reach pre-recession unemployment levels of about 5 percent, he said.
The strength of the economies of Brazil, China, India and other Asian and Latin America nations caused the UN to upgrade its forecast of global economic growth for 2010 and 2011. The world economy will expand 3.3 percent this year, up from the January forecast of 3.1 percent, while the 2012 forecast has been raised to 3.6 percent from 3.5 percent.
China’s economy will grow by 9.1 percent this year and 8.9 percent in 2012, the UN said, with India expanding by 8.1 and 8.2 percent and Brazil by 5.1 and 5.3 percent.
Japan, North Africa
Forecasts were downgraded for Japan following the March 11 earthquake and tsunami and for North Africa in the midst of political unrest in Egypt, Libya and Tunisia.
Japan’s economy will expand by 0.7 percent this year, before reconstruction spurs a recovery to 2.8 percent growth in 2012, the UN said.
The forecast for North Africa was revised down by 4.3 percentage points to 0.7 percent expansion this year and by 0.7 percentage points to 5.0 percent growth in 2012.
“The global recovery is still fragile and could suffer setbacks if public debt problems and continued financial sector fragility in developed economies are not adequately addressed, global commodity process continues to surge and trigger belt- tightening policy responses,” the UN said.
The price of oil will average $99 per barrel this year and $90 in 2012, according to the report.
Source: www.bloomberg.com
“If austerity measure are too drastic and come too soon given the stage of the recovery, economic growth and employment could suffer and the still fragile banking sector could weaken further,” the UN’s midyear economic analysis said. “A fall out in one part of the developed country financial system may still have ripple effects worldwide.”
The cautionary comments come as the Obama administration and the Congress debate proposals to cut U.S. spending in an effort to reduce the budget deficit and slow the growth of the national debt. European nations, such as the U.K., are imposing government spending cutbacks.
In a different situation, Japan’s economy, hurt by the earthquake and tsunami, will pick up with major reconstruction spending in 2012, the report said.
The U.S. recovery from the recession will continue to be “mild,” and risks to the U.S. expansion are growing, UN chief economist Rob Vos said in an interview.
Aside from fiscal austerity, risks to U.S. economic recovery include “sustained elevated commodity and oil prices, a further worsening of its public finances and continued weakness in the housing market and financial sector,” the report said.
U.S. Outlook
The U.S. economy expanded by 2.9 percent in 2010, the UN said, and unemployment stands at 9.0 percent. Vos said the 2011 forecast was raised to 2.6 percent, from 2.2 percent, following 3.1 percent fourth quarter growth that was greater than UN economists expected.
U.S. unemployment will average 8.2 percent in 2012, the UN said. It will take up to five more years to reach pre-recession unemployment levels of about 5 percent, he said.
The strength of the economies of Brazil, China, India and other Asian and Latin America nations caused the UN to upgrade its forecast of global economic growth for 2010 and 2011. The world economy will expand 3.3 percent this year, up from the January forecast of 3.1 percent, while the 2012 forecast has been raised to 3.6 percent from 3.5 percent.
China’s economy will grow by 9.1 percent this year and 8.9 percent in 2012, the UN said, with India expanding by 8.1 and 8.2 percent and Brazil by 5.1 and 5.3 percent.
Japan, North Africa
Forecasts were downgraded for Japan following the March 11 earthquake and tsunami and for North Africa in the midst of political unrest in Egypt, Libya and Tunisia.
Japan’s economy will expand by 0.7 percent this year, before reconstruction spurs a recovery to 2.8 percent growth in 2012, the UN said.
The forecast for North Africa was revised down by 4.3 percentage points to 0.7 percent expansion this year and by 0.7 percentage points to 5.0 percent growth in 2012.
“The global recovery is still fragile and could suffer setbacks if public debt problems and continued financial sector fragility in developed economies are not adequately addressed, global commodity process continues to surge and trigger belt- tightening policy responses,” the UN said.
The price of oil will average $99 per barrel this year and $90 in 2012, according to the report.
Source: www.bloomberg.com
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