Global growth to slow in 2012: UN

Global economic growth and trade will slow this year and the euro crisis is a major threat to even maintaining the sluggish performance, the United Nations has warned.

The UN World Economic Situation and Prospects mid-year update said an escalation of the sovereign debt and bank debt crises in Europe will cause "severe turmoil" on markets.

The experts lowered forecasts for the world economy to 2.5 per cent growth this year and 3.1 per cent in 2013 after growth of 2.7 per cent last year.

The report said governments imposing austerity, while many battle the debt crises, are hurting demand, investment and growth prospects.

"Clearly, the efforts at regaining debt sustainability through fiscal austerity are backfiring," it said.

"Developed countries, especially in Europe, are struggling to break this vicious cycle." The report took a "less sombre view" on the US economy.

It said job creation had exceeded expectations and consumer spending had increased markedly.

It predicted growth of 2.1 per cent this year and 2.3 per cent in 2013, up from the last forecast and from the 1.7 per cent recorded in 2011.

World trade growth will slow to 4.1 per cent this year, down from 13.1 per cent in 2010 and 6.6 per cent in 2011, it estimated. It also said the global jobs crisis was worsening, particularly in the eurozone.

"Employment-to-population ratios remain below their 2007 levels in all major economies, except Brazil, China and Germany."

The unemployment rate in the 16-country euro area increased to a historic high of 10.9 per cent in March, up one percentage point from a year ago. By contrast, post-crisis employment rebounded more strongly in developing countries, especially in East Asia and Latin America.

The UN report called for an internationally coordinated change of course "from short-term consolidation to robust economic growth with medium- to long-term fiscal sustainability".