NEW YORK – The United Nations’ recently released World Economic Situation and Prospects mid-year report warns that the global economy is at risk of a severe downturn, unless world leaders’ short-term mindset gives way to a focus on medium- and long-term policies. Furthermore, greater international cooperation and coordination are crucial to achieving a strong, sustained, and inclusive recovery.
Such a recovery requires efforts to create jobs and enhance countries’ productive capacity – for example, through infrastructure development – thereby encouraging complementary private investments and generating the conditions necessary to sustain long-term growth. This, in turn, implies the need to balance coherent macroeconomic policies with structural transformation goals.
At the onset of the Great Recession, rapid and coordinated responses by leaders of the major economies, including bold stimulus packages, gave the impression that the crisis would be short-lived. Indeed, in 2009-2010, stimulus packages created or saved an estimated 21 million jobs in the G-20 countries alone.
But global leaders’ collective resolve has since waned, as they have found themselves increasingly captive to – and battered by – financial markets. As a result, stimulus was rapidly withdrawn in an effort to consolidate weakened fiscal positions, bringing the nascent recovery to an abrupt end. Economic stagnation in many European countries accompanies the prospect of double-dip recessions in others (leaving aside the unfolding disaster on the periphery).