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The United Nations Security Council in New York -
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Countries around the world must boost demand with massive co-ordinated packages to tackle an economic outlook of unrelieved gloom, the United Nations said on Thursday.
Launching its 2009 World Economic Situation and Prospects, the UN said the global economy was deteriorating so fast that the report's baseline assumptions were already out of date, and the pessimistic scenario was now more realistic.
"There is nothing unfortunately at the moment where we can say 'This is positive' or 'This is giving a positive stimulus'," said Heiner Flassbeck, director of globalisation and development strategies at the United Nations Conference on Trade and Development (UNCTAD).
"I do not say that this will go on for ever, but the coming months will get extremely tough," he told a news briefing.
The UN report forecasts 1.0% global economic growth this year, with small recessions in developed nations offset by strong growth in developing countries including China and India.
But a pessimistic scenario projects steeper contractions in rich countries and smaller growth in emerging and developing nations, giving an overall 0.4% decline in world output.
Flassbeck said this scenario was now more likely. "For the world as a whole the outcome could be zero or even slightly below zero. This is not an overly pessimistic view," he said.
The uncertainty generated by the rapid unwinding of speculative bubbles and the biggest changes in prices in 50 years means all forecasts are unreliable - including those predicting recovery as soon as 2010, he said.
Massive and coordinated
Instead, with interest rates in many countries now close to zero, all countries that can - including those with low public debt and big current account surpluses - must undertake massive and coordinated public spending to stimulate demand.
The incoming US administration of Barack Obama is mulling an $US700 billion stimulus package, and Flassbeck said other countries needed to think along similar lines.
China has launched a 4 trillion yuan ($585 billion) stimulus package, and Germany announced a 50 billion euro ($NZ122 billion) package this week, which Flassbeck said was a step in the right direction, though too small.
He urged Japan to do more, despite its already high government debt, arguing that one lesson of Japan's crisis in the 1990s was that small packages were ineffective.
Such packages must not be tempered by protectionist devaluation as individual countries try to keep the benefits of stimulus at home by warding off imports, he said.
However, the UN report says the recent strength of the US dollar may prove temporary.
"The disorderly adjustment of the global imbalances and a hard landing of the dollar remain major downside risks to the global economy, as an accelerated fall of the dollar could cause renewed turmoil in financial markets," it said.
Boosting demand would revive investment and consumption, and in turn pick up flagging trade, forecast in the report to fall 3% this year in the pessimistic scenario, he said.
Flassbeck noted the current downturn was not only the result of the US subprime crisis, but reflected the unwinding of speculative bubbles in housing in several countries, as well as equities, commodities and currencies. At the root of all these excesses was exaggerated deregulation, he said.
"It was the dogma of the last 20 years that financial liberalisation is the best thing in the world and you have to move savings around back and forth all the time and then the world will be a better place... It was not true," he said.
