UN slashes world growth forecasts

The United Nations on Tuesday slashed its global growth predictions to 2.4 per cent for 2013 and 3.2 per cent for the following year and warned of a lasting employment crisis for western countries. Debt crises in Europe and the United States and a slowdown in China could all plunge the world economy into recession, warned the UN's World Economic Situation and Prospects 2013 report. The growth predictions are a major cut from the UN forecast of six months ago when it predicted 2.7 per cent for 2013 and 3.9 per cent for the year after. "With existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009," said the report. Europe is trapped in a "vicious cycle" of debt, austerity, low growth and high unemployment, said the UN. Growth remains "meagre" in the United States -- 1.7 per cent predicted for 2013 -- while Japan is caught in "deflationary conditions" and its 2013 growth is predicted at 0.6 per cent. The prospects for the next two years look bleak, said Robert Vos, the lead writer for the UN report. "A worsening of the euro area crisis, the 'fiscal cliff' in the United States and a hard landing in China could cause a new global recession," he said. Each of the risks could cause a loss of between one and three per cent of of global output, Vos warned. A US fiscal budget crisis, if no accord is reached between the Democratic government and Republican controlled House of Representatives, could cause a four per cent drop in American gross domestic product during 2013 and 2014, the report warned. Under the "bleaker scenario" outlined, the United States would also suffer from "the spillover effects" of an intensification of the euro crisis, a possible hard landing for the Chinese economy and a weakening of other major developing economies. The UN called for European governments to move from austerity to growth policies. Growth in Southeast Asia helped sustain world trade through the recent crisis but fell to 5.5 per cent in 2012 and will only recover slightly to six per cent in 2013 and 6.3% in 2014, said the UN. China's economy will grow by 7.9 per cent in 2013 and eight per cent in 2014 after spurts of 9.2 per cent in 2010 and 7.7 per cent in 2011. "Given persistent inflationary pressures and large fiscal deficits, the scope for policy stimulus in India and other South Asian countries is limited," said the report. "China and many East Asian economies, in contrast, possess much greater space for counter-cyclical policy," the UN said. The report predicted growth in South Asia averaging five per cent in 2013, up from 4.4 per cent in 2012, led by a "moderate recovery" in India.