UN sees slow 2010 global recovery, double-dip risk

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The United Nations on Wednesday predicted a fragile world economic recovery next year from a two-year crisis and said the risk remained of a "double-dip" recession.

Stimulus packages deployed by many rich nations had played a large part in ending the downturn that began in 2007 and that has been widely blamed on the collapse of a global housing bubble, said a report by the U.N. economic division.

But the annual report, "World Economic Situation and Prospects 2010," warned that the recovery was "far from robust" and could come to an abrupt halt if the packages, which it put at USD 2.6 trillion over 2009 and 2010, were withdrawn too soon.

If governments continued supportive policies, the report predicted a "mild" worldwide growth of 2.4% in 2010.

That compares with 3.1% forecast by the IMF on October 1 The UN report also said output would contract this year by 2.2%, compared with the IMF's 1.1%. But U.N. officials said the discrepancies were largely due to different calculating methods and the findings were broadly in line.

U.N. economic estimates in recent years have often been more pessimistic than those of other institutions, but UN officials argue they have been more accurate.

The UN report cautioned that "the recovery is uneven and conditions for sustained growth remain fragile." The rebound had been partly caused by firms restocking inventories rather than responding to stronger demand, it said.

"An early phasing-out of stimulus measures could therefore exacerbate these weaknesses in the global economy and abort the nascent recovery," it said.

"Simulations, suggest that an early withdrawal of the fiscal and monetary stimulus packages in the major economies could cause the world economy to dip into a double recession and sustain increases in public indebtedness."

A "double-dip" recession is one where a recession is followed by a brief period of growth, then another recession. IMF chief Dominique Strauss-Kahn said in Singapore last month he did not believe that would happen.

Stronger US growth

On the US economy, the U.N. report was more bullish than the Washington-based IMF, predicting 2.1% growth in 2010 compared with 1.5%, a figure Strauss-Kahn said may have been pessimistic.

The world body forecast only 0.9% growth for Japan and 0.4% for the euro zone, but 8.8% for China. Developing countries, especially in Asia, were expected to show the strongest growth next year, it said.

The UN report also warned of the impact on the dollar if US foreign debt continued to grow.

"Further rising external indebtedness of the United States, will keep downward pressure on the dollar, and the risk of a hard landing of the world's main reserve currency will remain high," it said.

The report called for a gradual rebalancing of the global economy to avoid a return to what it called "the unsustainable pattern of growth that led to the global crisis in the first place."

Pressure on governments to buoy global demand would need to decline through renewed private demand; greater weight would need to be given to investment; and net exports would need to grow in major deficit countries, such as the United States, while domestic demand grew in major surplus countries, especially in Asia.