UN: Risks to global economy from job losses and currency wars

Jan 18, 2011, 12:15 GMT

Geneva - High unemployment remains a key risk for the global economic recovery, as growth continues to show weakening momentum, according to a United Nations study released Tuesday.

The study, World Economic Situation and Prospects 2011, would not rule out the chance of a dreaded double dip recession in some of the world's most advanced economies.

Global economic growth was predicted by the UN to reach 3.1 per cent this year and 3.5 per cent in 2012, after having expanded by 3.6 per cent in 2010. Growth, however, would be uneven, with advanced economies likely to fair worse than emerging powerhouses like Brazil, China and India.

These figures are short of estimates by other international bodies, like the International Monetary Fund, which says economic expansion would reach 4.2 per cent this year. However, the IMF and UN agreed that the global recovery was slower than had initially been expected.

Some 30 million jobs were lost worldwide between 2007 and 2009 as a result of the global financial crisis. Cost-cutting austerity moves by Western governments would likely further hit employment rates, the UN said.

To return to the pre-crisis level of global employment, 22 million new jobs must still be created, the report said, noting that, at the current pace of labour recovery, this could take five years.

Recoveries in growth and jobs from financial crises are believed by many economists to be slower than the bounce back from other types of recessions.

The report focused also on other 'serious downside risks' to global recovery, including increasingly uncoordinated monetary responses and so-called currency wars. Volatile exchange rates could rattle already fragile markets.

The UN warned that developed economies in Europe, the United States and Japan could see a double dip recession if the risks come to pass, and called for further stimulus measures, enacted with international coordination.

However, with the exception of some troubled Asian economies, the UN believes inflation 'does not pose a present danger,' despite expansionary monetary policies imposed as a measure of a last resort in key countries.

All regions of the globe would likely see some level of a slowdown to growth figures over the next years.

The report deemed high unemployment the 'Achilles heel' of global recovery, as it has an effect on consumer spending and confidence.

Moreover, with employment growth constrained, cyclical joblessness will become structural, meaning those without work might not become part of the labour force again, further dampening growth potential.

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