The global economy will see only modest growth this year, the UN said on Wednesday, calling for wage hikes to boost the demand and investment needed to move toward true recovery.
“Six years after the onset of the global economic and financial crisis, the world economy has still not found a sustainable growth path,” the Geneva-based UN Conference on Trade and Development (UNCTAD) said.
According to the organization’s flagship Trade and Development Report 2014, the world economy is set to grow this year between 2.5 and 3 percent, up from 2.3 percent in 2012 and last year.
Meanwhile, growth in developing countries was expected to tick in at 4.7 percent this year, up from 4.6 percent last year, the report said.
Developed nations would see 1.8 percent growth, up from 1.3 percent, the report said.
DEJA VU
However, the growth is displaying traits seen before the onset of the 2007 financial crisis, said Alfredo Calgano, who coordinated the 242-page report.
“Share bubbles, easy credit and a financial sector that essentially remains unregulated... The issue of inequality has not been resolved, to the contrary,” he said.
The problem was that “the global recovery remains weak, while the policies supporting it are not only inadequate but often inconsistent,” Calgano and other UNCTAD experts said.
The report was especially critical of austerity measures and wage cuts carried out in many developed countries in the belief they would spur recovery, insisting that they instead were “dampening domestic demand.”
DEMAND CRUCIAL
Countries interested in bringing about a sustainable recovery should on the contrary focus on raising salaries and pushing for more equal income distribution, the report said.
“The recovery engine must be rooted in the demand side,” Calgano said.
The experts warned against overstating the importance of the growth seen, stressing that they saw “no convincing evidence that the world economy is in fact beginning a sustainable recovery.”
“The belief that growth in developed economies has finally picked up is overly optimistic,” the report said.
It said that such claims are being used to falsely claim success for austerity policies and pro-market reforms.
CAUTION NEEDED
This is dangerous since it was leading to calls to withdraw “precautionary measures and stimuli” in developed countries and recommendations that developing countries follow the same austerity path, the report said.
Instead, UNCTAD called for “monetary expansion [to] be accompanied by fiscal expansion to prevent liquidity being hoarded or channeled to speculative uses.”
It also urged that “income distribution policies” be put in place to promote demand and raise household income rather than debt.
Developing countries meanwhile should instead work to “enhance policies aimed at diversifying their economies,” the report said.
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