PERSISTENT high unemployment, the euro area debt crisis and premature fiscal austerity have already slowed global growth and factor into the possibility of a new recession, a report by the UN warns. The UN has significantly downgraded its forecast from six months ago and predicts that, at best, the global economy will ‘muddle through' with the growth of world gross product (WGP) reaching 2.6 per cent in the baseline outlook for 2012 and 3.2 per cent for 2013, down from 4.0 per cent in2010. This forecast is conditioned, however, on containment of the eurozone debt crisis and a halt to further moves toward stringent fiscal austerity in the developed countries. UN economists project that 2012 will be a make-or-break year in terms of proceeding with slow economicecovery or falling back into recession.

The report, released by the UN Department of Economic and Social Affairs (DESA), points to the European sovereign debt crisis that erupted in Greece last May as a major shock to the global economy, whose multiple negative effects will continue to reverberate around the world.The report estimates that growth in the European Union (EU) is expected to be only 0.7 per cent in 2012, substantially lower than the 1.6 per cent growth registered last year. In addition, unemployment throughout the continent will remain near 10 per cent in the euro area, having changed very little since September 2009. Developing countries and economies in transition are expected to grow on average by 5.4 per cent in 2012 and 5.8 per cent in 2013 in the baseline outlook. This is well below the pace of 7.1 per cent achieved in 2010, when output growth among the larger emerging economies in Asia and Latin America, such as Brazil, China and India, had been particularly robust. And even as economic ties among developing countries strengthen, they remain vulnerable to economic conditions in the developed economies.Among the major developing countries, growth in China and India is expected to remain robust, however.the report states that growth will vary greatly among countries in the continent due to military conflicts, corruption, lack of infrastructure and severe drought in certain areas. The report also warns that unemployment and poverty remain major problems and sources of instability.