Economic recovery is losing steam in developed economies – Report

Developing countries, having recovered pre-crisis growth trends, could now be affected by recession in developed economies, a report by the United Nations Conference on Trade and Development (UNCTAD) has said.

According to the report released September 6, 2011 after a rapid post-crisis recovery, the world economy is slowing down from about 4% GDP growth in 2010 to around 3% in 2011.

It noted that growth performance is strong in developing economies, which have resumed their pre-crisis growth trend and are expanding at above 6% this year but developed economies will only grow between 1.5% and 2% in 2011.

“Economic recovery may come to an end in developed economies because private domestic demand remains weak and supportive macroeconomic policies are being replaced by austerity measures as governments try to regain the confidence of the financial markets,” said the report titled Trade and Development Report 2011.

The report indicates that initial impulses from the inventory cycle and fiscal stimulus programmes have gradually disappeared since mid-2010 and the fundamental weakness of the recovery in developed economies comes to the fore.

The report however says “private demand alone is not sufficiently strong to maintain the momentum of recovery, as unemployment remains high and wages are stagnating…household indebtedness continues to be high and banks are reluctant to provide new financing.”

The shift towards fiscal and monetary policy tightening represents a major risk of a prolonged period of mediocre growth in developed economies – if not of an outright contraction, according to the report.

By Ekow Quandzie