UN: Global economy to stumble in 2012 as unemployment and EU’s economic crisis continues
WireUpdate: NEW YORK (BNO NEWS) -- With Europe's sovereign debt crisis continuing to unfold, countries around the world are expected to experience an economic slowdown during the year ahead, according to a United Nations (UN) report on Wednesday.
The UN's World Economic Situation and Prospects 2012 (WESP) report gives a detailed picture on seven geographical regions and forecasts that growth rates for the next two years will slow down in most of them. The only exception is the African continent which will continue to enjoy growth due to stable commodity prices and foreign investment.
The UN report warned that governments must urgently address high unemployment rates, particularly among youth, as risks of further worsening of the situation in Europe and the United States have increased. The European sovereign debt crisis erupted in Greece last May as a major shock to the global economy, whose multiple negative effects will continue to reverberate around the world.
The report also points out that "failure of policymakers, especially those in Europe and the United States, to address the jobs crisis and prevent sovereign debt distress and financial sector fragility from escalating poses the most acute risk for the global economy in the outlook for 2012-2013."
The report, which was released by the UN Department of Economic and Social Affairs (DESA), estimates that growth in the European Union (EU) is expected to be only 0.7 percent in 2012, substantially lower than the 1.6 percent growth registered last year. In addition, unemployment throughout the continent will remain near 10 percent in the euro area, having changed very little since September 2009.
Defying the global trend, however, Africa is expected to continue to grow as economists forecast to see an increase in the continent's overall growth from 2.7 percent in 2011 to 5 percent in 2012 and 5.1 percent in 2013. This growth will mainly be driven by relatively strong commodity prices, solid external capital inflows and continued demand and investment from Asia.
Nonetheless, the report also noted that growth will vary greatly among countries on the continent due to military conflicts, corruption, lack of infrastructure and severe drought in certain areas. It also warns that unemployment and poverty remain major problems and sources of instability, which have already led to political unrest in North Africa.
South Africa, one of the strongest countries on the continent, is expected to have the largest economic growth this year with growing demand from Asia, continued fiscal stimulus measures and an increase in consumption driven by rising wages.
Meanwhile, uncertainty looms in the Arab region which has experienced significant political transition and a constant series of civil protests since last year, known as the Arab Spring. Regional growth is forecast to decline from 6.6 percent to 3.7 percent as violent clashes hampered economic activity in several Arab countries. Social unrest also affected trade and tourism revenues, particularly in Lebanon.
However, the report states that generous social spending measures which were implemented in 2011 by several Arab governments, such as Saudi Arabia as a way to alleviate popular protests, helped boost economic growth and the impact of those measures will continue to be felt throughout 2012.
As with Europe and Africa, unemployment remains a key problem in the region. Despite extremely low female participation rates, unemployment rates in the region are among the highest in the world, especially among the educated youth, and the report warns that leaving unemployment unaddressed represents a major risk to stability in the Arab region.
According to the report, growth in East Asia is projected to decline to 6.9 percent in both 2012 and 2013 with its biggest economy, China, also expected to slow down from 9.3 percent to 8.7 percent growth this year. A major deceleration from China would represent a more pronounced slowdown for the rest of the region.
Economic tendencies in the South Asian, Latin American and Caribbean regions continue to be particularly susceptible to the future of developed economies as both the EU and the US are key export markets as well as sources of tourism revenue.
For Latin America, a slowdown in China would also adversely affect the region as it is a major buyer of its commodities and a key investor in South America.
UN economist Rob Vos, during his presentation of the report in Mexico City, said Latin American and Caribbean economies would be hard hit and growth could drop below 1 percent in the region, with Brazil stagnating and Mexico falling into recession along with the United States economy.