Political deadlocks add to downward risk to world economy: UN economist

English.news.cn   2011-12-21 13:10:35             

by Niu Hairong
NEW YORK, Dec. 20 (Xinhua) -- While the world economy is teetering on the brink of another major downturn, political deadlocks in some developed countries add to the risk of a double-dip recession, according to a senior UN economist.
Hong Pingfan, chief of Global Economic Monitoring in the Department of Economic and Social Affairs (DESA) at the United Nations, has said in an recent exclusive interview with Xinhua that failure of policymakers, especially those in Europe and the United States, to address the job crisis and prevent sovereign debt distress and financial sector fragility from escalating, posed the most acute risk for the global economy in 2012.
"The upcoming 2012 is a make-a-break year for the world economy," said Hong. "The economy will be either 'muddling through' or falling back to a renewed recession. There is simply no way in between and the key is how policymakers will act in the face of current crisis."
According to Hong, recession in some European nations seems almost inevitable, while the divides between some core countries on how to save those weak players from the incredible debt burden only make things even worse.
"If they can't come up with some radical measures to regain the market confidence and contain the debt problem from spreading to bigger nations, Europe may drop back into a major recession," he warned.
While Europe is sinking in endless negotiations and heated debates, the United States is also suffering a horrible gridlock in its fiscal policy.
In Hong's view, an effective policy right now for the United States should couple modest fiscal stimulus in the near term, with credible deficit reduction in the long run. However, neither seems likely.
"Failure by the congressional Joint Select Committee on Deficit Reduction to reach any agreements in November has added to further uncertainty," said Hong. "With the presidential election at the corner, it's hard to expect that the bipartisan congress can make any significant breakthrough in the fiscal policy."
Policy divides not only have already eroded business and consumer confidence on both sides of the Atlantic Ocean, but also made international policy coordination much more difficult, according to Hong.
If the European debt woes escalated and the political wrangling over the budget in the United States worsened, the world may fall into a recession, probably with the intensity of the downturn seen in late 2008 and early 2009, Hong said.
A recession in either Europe or the United States alone may not be enough to induce a global recession, but a collapse of both most likely would, he said.

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