UN: Austerity measures threaten global economy

UNITED NATIONS—Austerity measures implemented by European countries to contain a roiling debt crisis will likely drag them deeper into recession, unsettling global financial markets and presenting the biggest current threat to the world economy, according to UN report issued yesterday. The UN World Economic Situation and Prospects 2012 midyear update said most developed countries have yet to recover from the 2008-2009 global financial crisis and the fiscal austerity measures deployed in response have been backfiring. “The severe fiscal austerity programmes implemented in many European countries, combined with mildly contractionary policies in others, such as Germany and France, carry the risk of creating a vicious downward spiral with enormous economic and social costs,” the report states.

 

The report calls for a shift in focus from short-term consolidation to medium- to long-term fiscal sustainability. It also says fiscal policies should be internationally coordinated and should support job creation. It warns that Italy and Spain currently pose the biggest danger to Europe, as the size of their debts would likely strain the region's rescue funds. “The main fear is that Spain will slide deeper into recession, driving up its borrowing costs, leading to increased market turmoil and eventually requiring a bailout,” the report states. “This would leave insufficient funds available for Italy and renew speculation on a break-up of the euro area, further unsettling financial markets and triggering a downturn in global economic activity.” The report states that the world gross product increased 2.7 per cent in 2011 and is projected to grow by 2.5 per cent in 2012 and 3.1 per cent in 2013. Those figures represent a downward revision from January's update. (AP)