Projecting a slowdown in global economic growth in 2011 to around 3 per cent, compared to almost 4 per cent last year, a UN agency said developing economies could be affected by recession in developed nations.
"The pace of global economic recovery has been slowing down in 2011... This year, world Gross Domestic Product (GDP) is expected to grow by 3.1 per cent, compared to 3.9 per cent in 2010," the United Nations Conference on Trade and Development said in a report released on Tuesday.
It said the developing economies have sustained their strong growth path, despite the recent global downturn, mainly due to domestic demand.
"However, they must face financial instability and speculative capital flows generated in developed economies and would not be spared by a new recession in the North," UNCTAD's Trade and Development Report 2011 (TDR 2011) said.
Projecting a slowdown in global economic growth in 2011, UNCTAD said private demand alone is not sufficient to maintain momentum of recovery due to high unemployment and stagnant wages in many countries.
While developing economies are expected to regain the pre-crisis growth rate of 6 per cent this year, growth in developed economies is expected to be between only 1.5-2 per cent, it said.
Regarding South Asia, of which India is a part, UNCTAD said the region is likely to be among the best performers with a growth of 7 per cent in 2011.
"Although growth in developing countries has become more and more dependent on the expansion of domestic markets, these countries face significant external risks because of economic weakness in the developed economies and a lack of significant reforms in international financial markets," UNCTAD said.
It said that emerging economies remain vulnerable to trade and financial shocks that could strongly affect volume of their exports and the prices of primary commodities, as happened in 2008.
The report said that growth in US is likely to remain low on account of low domestic demand, stagnating wages and employment and low interest rates.
The debt crisis, along with spreading fiscal austerity, is also expected to act as a drag on the global growth.
According to the TDR 2011, trade remains an area of concern, especially for the richer nations.
"In 2011, the volume of international trade is expected to return to single-digit from 14 per cent in 2010, particularly in developed economies. Recovery of trade has been faster in developing than in developed economies," it said.
Policymakers should not trust rating agencies: UNCTAD
A UN body has cautioned against blindly trusting the "irresponsible" private financial institutions, including rating agencies, in economic policies and public finance management.
"In light of the irresponsible behaviour of many private financial market actors, which has required costly government intervention to prevent the collapse of the financial system, public opinion and policymakers should not trust again those institutions, including rating agencies, to judge what constitutes sound macroeconomic policies and sound management of public finances," UNCTAD said.
The observations of the United Nations Conference on Trade and Development (UNCTAD), made in its Trade and Development Report 2011 released on Tuesday, come on the heels of Standard & Poor's downgrading the 'AAA' rating of the US that triggered mayhem in global financial markets last month.
Many rating agencies had faced sharp criticism as they had given high rating to many firms trading in American mortgage securities and which collapsed causing global financial meltdown in 2008.
The report also said that fiscal tightening policies adopted by governments worldwide in recent times to plug their debt burdens solves only part of the problem, and does not address the basic issues.
It said that a premature tightening endangers global recovery and added that the best strategy for dealing with public debt was by promoting economic growth.
"... a shift from fiscal stimulus towards fiscal tightening is self-defeating, especially in the most developed economies, which were severely hit by the financial crisis (of 2008)," it said.
It said that fiscal tightening measures followed by governments to tide over the economic downturn are not sufficient and may, in fact, hurt growth.
"Higher public debt ratios are a consequence of the crisis, not its cause... a restrictive fiscal policy may reduce GDP growth and fiscal revenues, and is, therefore, counterproductive in terms of fiscal consolidation," the TDR 2011 said.
According to UNCTAD, fiscal imbalances was not the driving factor in the economic crisis, but rather a result of the slowdown which compelled the governments to resort to stimulus measures for revising national economies.
"Economic growth in developing countries, as a group, suffered less impact from the financial crisis, partly thanks to active counter-cyclical measures; as a result, fiscal balances improved in 2011 and debt-to-GDP ratios remained in check," it said.
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