UN: World recovery slows, will be hit by austerity

The world's recovery from the 2008 financial crisis is losing steam, with growth, hit by austerity drives in rich countries, not enough to restore the 30 million lost jobs in the next two years, the United Nations said on Wednesday.

"The road to recovery from the Great Recession is proving to be long, winding and rocky," said an annual U.N. survey, "World Economic Situation and Prospects 2011."

"After a year of fragile and uneven recovery, growth of the world economy is now decelerating on a broad front, presaging weaker global growth in the outlook."

"The core message is that no, we're not out of the woods yet and still major risks are looming," the report's lead author, Rob Vos, told reporters.

Weaknesses in developed economies, including sluggish growth in the United States and debt crises on the periphery of Europe, were dragging down the global recovery and posing risks for world economic stability, it said.

"There will be no quick fix for the problems these economies are still facing in the aftermath of the (2008) financial crisis," it said.

The report implicitly faulted nations that have dropped stimulus packages in favor of slashing budgets. "As governments shift from fiscal stimulus to austerity, the recovery process is being placed in further jeopardy," it said.

"Withdrawal of stimulus is understandable given the large fiscal deficits and the mounting public debt in many of the developed countries, but at the same time we see there's still a lot of fiscal space available for more stimulus," Vos said.

Focusing on debt reduction without stimulus could be a "self-defeating strategy" because failing growth rates could worsen debt problems, he said.

The report also queried the policy of "quantitative easing" -- or pumping money into the economy by buying government debt. The U.S. Federal Reserve announced a program on November 3 to buy $600 billion in government bonds by mid-2011.

"Further quantitative easing and a further depreciation of the dollar could be a way for the United States to try to inflate and export its way out of its large foreign liability position," the report said. "But it could more likely risk disruption of trade and financial markets."

Continue reading - Reuters - UN: World recovery slows, will be hit by austerity