UN: World economy to shrink further

“If financial markets do not unclog soon and if the fiscal stimuli do not gain sufficient traction, the recession would prolong in most countries with the global economy stagnating at lower welfare levels well into 2010,” it continued.

Developing world hit

The report said that the world economy is suffering its greatest downturn since the second world war and that developing nations will be worse hit.

It said that lifting nations out of poverty, including the achievement of the Millennium Development Goals, could become a much harder task.

Developing nations have seen the harshest declines in trade, which is expected to drop by 11 per cent worldwide this year.

Many investors have pulled finance out of developing nations and commodity prices and worker remittances dropped when the crisis struck.

These factors have already left many people unemployed or displaced to lower income earning areas, for instance moving back to rural from urban areas, in the developing world.

“Most of this setback will be felt in East and South Asia, with between 56 and 80 million people likely to be affected, of whom about half are in India,” the report said.

“The crisis could keep 12 to 16 million more people in poverty in Africa and another four million in Latin America and the Caribbean.”

Seven countries were projected to achieve at least three per cent gross domestic product (GDP) growth – the minimum income growth level thought necessary to gain significant poverty reduction.

Last year and 2007 saw 51 and 69 nations respectively achieve that rate.

Co-ordinated approach

Unemployment could pass the 50m mark, the UN Department of Economic and Social Affairs (Desa) warned, and may double over the next two years if the situation deteriorates.

It typically takes four to five years for unemployment rates to return to pre-crisis levels, according to the report.

While the UN applauded the co-ordinated global approach to combating the crisis, via monetary, financial and fiscal measures, it said that more needed to be done, particularly as a continuance of the crisis could damage worldwide security and stability.

More liquidity – about $500m – is needed, it said, to allow for a balanced global macroeconomic stimulus that would not leave developing nations behind.

It asserts that 80 per cent of the current stimulus is focused on the developed world.

In April, the G20 group of most prominent economies agreed to provide $1.1tn in aid to counteract the world recession.

From 2004 to 2007 there was an expansion of world economic growth of nearly four per cent per year.