Longer global recession is possible, UN says

May 27, 2009, 21:24 GMT

New York - A prolonged global recession remains possible beyond 2010 in spite of massive government stimulus packages and banking rescue plans designed to end the economic and financial crisis, the United Nations said Wednesday.

The World Economic Situation and Prospects 2009 study issued by the UN said it expects the world economy to shrink by 2.6 per cent in 2009 after positive growth of 2.1 per cent in 2008 and an annual average growth of 4 per cent during 2004-2007.

The study was skeptical about a projected mild recovery in 2010, saying risks remain on the downside.

'A more prolonged global recession is possible if the vicious circle between financial destabilization and retrenchment in the real economy cannot be sufficiently contained and farther-reaching, concerted actions are not taken,' the study said.

It said market capitalization of banks in Europe and the United States between September 2008 and May 2009 declined by 60 per cent, or 2 trillion dollars. The stimulus packages launched by wealthy governments to save the banking system have failed to stop the overall ongoing decline, it said.

It said the financial crisis originated in rich countries, but the impacts on poor countries have been disproportionate. The impacts included rising borrowing costs, a collapse in world trade and commodity prices and declined remittance flows to poor countries.

The study projected a decline in per capita income by 3.7 per cent in 2009 in scores of countries and said global unemployment, projected at 50 million in 2009-2010, would double if the economic and financial crisis were to worsen.

'Lessons from past financial crises indicate that it typically takes four to five years for unemployment rates to return to pre- crisis levels after economic recovery has set in,' the study said.