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UN agency sees no early recovery from recession

(Agencies)
Updated: 2009-09-08 02:00

GENEVA: United Nations economists said on Monday there would be no early recovery from global recession and warned that any move to ease back quickly on government stimulus programmes could make the crisis worse.

In its annual report, the UN trade and development agency UNCTAD also urged the creation of a new world reserve system using several currencies rather than just the US dollar, and called for tough controls on cross-border financial flows.

"The likelihood of a recovery in the major developed countries that would be strong enough to bring the world economy back to its pre-crisis growth path in the coming years is quite low," the report said.

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At a news conference, UNCTAD Secretary-General Supachai Panitchpakdi and senior aide Heiner Flassbeck were dismissive of suggestions that "green shoots" of recovery had been emerging in wealthy economies this year.

"We don't see any real rebound," said Supachai, former head of the World Trade Organisation and one-time deputy prime minister of Thailand. "There is no sign of a strengthening of underlying economic factors."

UNCTAD's conclusions ran against fresh economic figures and surveys that suggested economies in the United States and Europe may be on the mend, with Chinese manufacturing also picking up speed.

"The synchronised rise in a wide range of markets that do not normally move in the same direction shows that what we have been seeing in the first half of the year is driven by speculation," Flassbeck told reporters in Geneva.

"What is going on is speculation on a recovery, an attempt to anticipate a recovery. But it is a fiction, it is not there yet," he said. "It would be very dangerous if governments start talking about exit strategies from stimulus policies."

TEMPORARY REBOUND

UNCTAD's 181-page Trade and Development Report 2009, its main annual publication, itself said what it called the economic winter was far from over.

"Tumbling profits in the real economy, previous over- investment in real estate and rising unemployment will continue to constrain private consumption and investment for the foreseeable future," it said.

The upturn in financial indicators during the first half of 2009, the report added, "is more likely to signal a temporary rebound from abnormally low levels of prices of financial assets and commodities following a downward overshooting that was as irrational as the previous bullish exuberance."

The report also said that using a mix of currencies -- like the Special Drawing Rights (SDRs) of the International Monetary Fund -- as a reserve asset and means of international payment could reduce risks from dependence on the US dollar.

UNCTAD, often criticised by free-market economists as favouring economic management based on a large degree of state control, rejected suggestions that inflation was a major danger from large fiscal stimulus programmes.

Deflation was the real threat in many countries "because governments will find it much more difficult to stabilise a tumbling economy when there is a large-scale fall in wages and consumption," the report said.

To support growth and combat deflation, UNCTAD argued that governments and central banks should maintain or even strengthen expansionary monetary and fiscal policies.

If this path were followed, it said that global growth could turn positive again during 2010, but cautioned it was still unlikely to exceed 1.6 percent for the year.

Poorer countries, especially in Latin American and Asia, could benefit from capital controls to reduce their exposure to further external financial shocks, UNCTAD said, calling for a rethinking "about the wisdom of global financial integration of developing countries in general".