Press Conference on World Economic Situation and Prospects 2010

The world economy will rebound and grow by 2.4 per cent next year, officials from the United Nations said today in a report launched at Headquarters, while warning that the recovery was brittle and depended on continued stimulus measures.

Rob Vos, Director of the Development Policy and Analysis Division in the Department of Economic and Social Affairs, presented the report and said the world economy, which had gone into freefall and had been close to entering a great depression, had bounced back in the second quarter with a rebound in trade, production and commodity prices.  “This gives rise to some optimism,” Vos said, describing it as “an insipient global recovery,” but one that was “fragile and uneven.”

According to the annual report, titled the World Economic Situation and Prospects 2010, the world gross product was estimated to fall by 2.2 per cent for 2009, but predicted to reach a positive growth of 2.4 per cent in 2010.  The improved economic situation had come about as global equity markets had rebounded and risk premiums on lending had fallen.  Global production and trade had also recovered markedly, with an increasing number of countries showing positive growth.

This revival was driven by the economic stimulus policies that had been implemented throughout the world, and if these measures were withdrawn too quickly, the world could be pushed back towards the economic abyss, risking a double dip recession, Vos said.

Mr. Vos noted that there had been a lot of talk of dismantling existing stimulus packages, especially in Europe, because of rising concern over mounting fiscal deficits.  But, since most of the global demand was being held up by expansionary fiscal policies, discontinuing such policies could mean a recession back into negative economic territory.

Business as usual was also inadvisable, as it held the danger of a new asset bubble and a repeat of the circumstances that had precipitated the crisis in the first place.  The answer, Mr. Vos said, was systemic reform, coordinated policies and sustainable investment, and he repeated the warning that withdrawing stimulus packages too early could lead to declining growth rates.

“We’re not out of the woods yet,” he said, and noted that unemployment was still rising and that firms were still reluctant to rehire workers.  In 2009, about 60 countries were expected to experience negative per capita growth.  But, there was a lot of disparity in the overall outlook.  While the United States economy was expected to decline by 2.5 per cent this year and rebound to a 2.1 per cent growth rate next year, Japan and Europe, which had both seen steeper economic decline than the United States, were expected to experience weaker recovery and more sluggish growth.  Led by India and China, developing countries for their part showed signs of stronger growth rates. 

In the ensuing question and answer session, Mr. Vos said policymakers would have to walk a fine line.  “If we don’t do enough, we might fall back into a recession; if we do too much for too long, we might get into other risks,” he said.

On a question about the International Monetary Fund (IMF), Mr. Vos said that the IMF had reframed the conditions that previously prevented poorer countries from making use of emergency funds, but that, despite these efforts, it was still problematic for countries without a strong economic record to qualify for some loans. 

On another question from a reporter, Mr. Vos said that the United States dollar was bound to weaken further because of that country’s deficit and its net liability positions.  However, that didn’t necessarily pose a problem.  A more worrying prospect, he said, was the risk of volatile exchange rates, which could upset financial markets, and have a downward effect on the global economy.

Jomo Kwame Sundaram, the Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs who introduced Mr. Vos, said that the world had entered an important period in terms of economic recovery: there were signs of recovery, but also indications that the recovery could be short-lived and unsustainable.

Speaking about inflationary threats, he said that it was the view of the United Nations that the economic recovery efforts should be sustained, particularly in the light of the tentative character of the recovery, thus far. With respect to reform efforts, he said the international community had to undertake systemic economic reforms to rise to the challenge posed by this crisis.

With the Climate Conference in Copenhagen getting close, there was also a need for a “big-push effort,” especially in the area of renewable energy, which would allow the international community to stimulate the economic recovery, while simultaneously addressing the threat of climate change.

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For information media • not an official record