16 January 2009

UN predicts no growth this year

The following is excerpted from the 15 January 2009 edition of “Toronto Star”.

The world economy is heading for zero growth in 2009 as a deepening recession in rich countries slows the sale of consumer goods and raw materials from developing nations, the United Nations said Tuesday.

The global body's trade and development office, UNCTAD, said it has downgraded its forecast for this year after a worse-than-expected economic performance during the fourth quarter of 2008…

The U.S. economy could shrink by as much as 1.9 per cent, while euro-zone economies will contract by up to 1.5 per cent, according to a 160-page report prepared by UNCTAD.

Japan is expected to see negative growth of between 0.3 and 0.6 per cent, while Mexico appears likely to tip into the red zone as well, with a contraction of 1.2 per cent being the worst-case scenario.

Major developing countries also will suffer, with China's growth predicted to slow to 7 per cent and India's to around 6 per cent. The world's poorest economies will grow by less than 5 per cent…

Mr. Flassbeck said countries should follow the lead of the United States by putting together massive economic stimulus packages.

Governments in Japan, Germany and China in particular have room to manoeuvre and should do so sooner rather than later, he said.

“The reduction of debt in the private sector has to be compensated by a huge amount of public debt, at least temporarily, if we want to stabilize the global economy.”

Mr. Flassbeck warned that the biggest threat came from a 1930s-style deflation, when wage cuts of 10 to 15 per cent caused a dramatic fall in consumer spending and brought the world economy to a virtual standstill.