Press Conference on Preview of World Economic Situation and Prospects 2011 Report

The recovery of the world economy had started to lose momentum since the middle of 2010, and all indicators pointed to weaker global economic growth, according to a new United Nations report, “World Economic Situation and Prospects 2011”, part of which was released today at a Headquarters press conference.

During the pre-launch of the first chapter of the report, produced yearly by the United Nations Department of Economic and Social Affairs, the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions, supervising author, Robert Vos, told correspondents that the current global financial situation was characterized by a weakening dollar, increasingly volatile exchange rates and much “finger-pointing” over those rates.

Moreover, despite those continued threats to the global economy, the “spirit of coordination” with which countries had once faced those challenges was weakening, he said.  “We’re not out of the woods yet, and major risks are still looming.”  The speed of recovery had “started to decelerate in the middle of this year, particularly owing to weaknesses in the major developed economies”.

Plus, he explained further, a lack of lending due to the banking crisis, as well as the withdrawal by many countries of their economic stimulus packages, was exacerbating economic hardships worldwide.

But the lack of employment growth was the weakest link of the economic recovery, according to the report.  Between 2007 and the end of 2009, at least 30 million jobs had been lost worldwide as a result of the global financial crisis.  The unemployment rate in Europe had reached 10 per cent in 2010, and it was nearing that number in the United States.  Employment had begun to rebound from the second half of 2009, but by the end of the first quarter of 2010, unemployment rates had already fallen back to “pre-crisis” levels in several developing countries.  The global economy still needed to create at least 22 million more new jobs in order to return to pre-crisis levels of global employment.

Developing countries — in particular Brazil, the Russian Federation, India and China — continued to drive the global recovery, but their output growth was expected to moderate.  The anticipated drop was due to the slowdown in the developed countries and the phasing out of stimulus measures, said Mr. Vos.  Additionally, the “excess liquidity” now in the global economy was moving to developing countries and creating problems there, including the risk of volatile capital flows and of less competitive currencies.

Volatility in currency markets was generating additional global uncertainty and could further jeopardize the recovery process, he said.  Regions, including in Europe, could, in the worst-case scenario, witness a “double-dip” recession — or another economic decline after an initial period of growth.

Additionally, tensions had emerged in part as a result of uncoordinated expansionary monetary policies, essentially consisting of more money printing.  The World Economic Situation and Prospects 2011 report said that recent “quantitative easing” in the United States had put downward pressure on the dollar, causing ripples in the currency markets worldwide.  In addition, heightened tensions over currency and trade could trigger renewed economic turmoil in financial markets.

Mr. Vos said that addressing five key policy challenges could contribute to a more balanced and sustainable global economic recovery.  Those included the following:  increased and better-coordinated fiscal stimuli; a redesigned fiscal stimulus focusing on measures that directly supported job growth, reduced income inequalities and strengthened sustainable production capacity; better and more coordinated monetary stimulus policies; the provision of sufficient financing for developing countries, in particular for the achievement of the Millennium Development Goals by 2015; and a strengthened framework for international policy coordination.

Responding to a question about commodity prices in the coming year, and in particular, about expected food price volatility in least developed countries, Mr. Vos said that unstable global exchange rates were a driving factor in food price fluctuations, as producers did not know what to expect.

“There are a lot of spillover effects from the financial uncertainty and instability in financial markets onto commodity markets,” he said.

In his response to a question about recent “quantitative easing” practices - in particular, the purchasing of some $60 billion in treasuries by the United States Federal Reserve — Mr. Vos said that one of the dangers of the practice was that it might not sufficiently stimulate the economy.  Additionally, it had put further downward pressure on the dollar and had created an excess of capital in the world market, which could inflate dangerous “bubbles” in developing economies.

Responding to another question on the appropriate venue for global financial negotiations, Mr. Vos stated his opinion that the International Monetary Fund — as a wide and inclusive venue — would be ideal.  A more comprehensive, coordinated policy was needed across world economies, he said.  And while that goal remained elusive given countries’ many differing points of view, “just going on your own won’t be much good”.

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For information media • not an official record