THE UNCTAD has warned that early roll-back of macroeconomic stimulus measures in developed countries in the face of budget deficits may trigger a deflationary spiral in the global economy, with attendant slumps in growth and employment.

“Ending stimulus measures too soon in an effort to restore the confidence of financial markets could be counterproductive,” the UN Conference on Trade and Development (UNCTAD) said in its 2010 report, noting that spreading fiscal austerity in Europe and lack of consensus in the G-20 group of developed and major developing economies risked a double-dip recession.

It also called on developing countries with export-oriented economies to expand domestic demand growth through increasing mass purchasing power to combat unemployment in the face of declining export demand.

With the end of the debt-financed consumption boom in the United States, which the report expects will no longer serve as an engine of growth for the global economy, and neither China, the Euro area nor Japan likely to assume this role in the foreseeable future, policies for sustainable economic growth, job creation, and poverty reduction should be based on establishing a balanced mix of domestic and overseas demand, it stressed.

Overall, the Trade and Development Report 2010 concluded that global real gross domestic product (GDP) is expected to grow by 3.5 per cent in 2010, following a contraction of almost 2 per cent last year.