Failure by policymakers and the imposition of fiscal austerity programs across Europe due to the sovereign debt crisis raise the chances of another global slowdown, a United Nations report warned Tuesday.
Because of strict budget measures, growth in the European Union would only hit 0.7% in 2012, substantially lower than the 1.6% growth registered in 2011, the World Economic Situation and Prospects report from the UN said.
"Austerity is not an effective way to counter the debt crisis," said Robert Shelburne, a senior economics adviser to the UN Economic Commission for Europe, especially when interest rates are low.
He said austerity is costing the world economy a trillion dollars a year in lost output.
The WESP report was released along with another report by the United Nations Conference on Trade and Development (UNCTAD) saying the world economy is teetering on the brink of another major downturn.
According to "a set of relatively optimistic conditions", UNCTAD said world growth will slow to 2.6% in 2012 and reach 3.2% in 2013.
For 2010, UN data put global growth at 4% and 2.8% for 2011.
Downside risks stemmed in particular from high unemployment, said Alfredo Calcagno, a senior UNCTAD economist.
"The risk of things getting much worse are high," said Calcagno.
"Output growth has already slowed considerably during 2011," said the UNCTAD report, warning that the global economy's problems "are multiple and interconnected."
The WESP report said a combination of fiscal austerity and sovereign debt have undermined the confidence of both producers and consumers, and weakened an already delicate banking system.
"Behind the austerity measures are the debt crisis that erupted in Greece (in May 2010) and that subsequently spread, first to Ireland and Portugal, then to Spain and Italy," the report said.
UN economists project that 2012 will be crucial in terms of either proceeding with slow economic recovery or falling back into recession, the risk of which has increased dramatically since the onset of the debt crisis.
"In such a downside scenario, the UN estimates the EU economy might contract by 1.6% in 2012, with most countries, including France, Germany, and Britain, entering into recession.
The reports are a joint product of the United Nations Department of Economic and Social Affairs (UN/DESA), UNCTAD and the five UN regional commissions.
Copyright Agence France-Presse, 2011