US needs stimulus to keep recession away

The recession may reassert itself if government stimulus programmes in major economies are phased out too quickly without sufficient private-sector domestic demand to replace them, a United Nations report has warned.

The UN Trade and Development Report 2010, released this week, has said the fundamental causes of the economic crisis have not been addressed and 'remain a toxic threat to stable and inclusive growth and the sustainability of the recovery'.

The problems include large debts and surpluses between countries and continuing stagnation in real wages, said Supachai Panitchpakdi, head of the UN Conference on Trade and Development.

And the report warned that 'the recession may reassert itself if government stimulus programmes in major economies are phased out too quickly and there is insufficient private-sector domestic demand to replace them'.

"Almost everywhere one looks, one can see the pernicious effects of imbalance between the widening incomes of rich and poor; between surplus and deficit countries; between agricultural subsidisers and food-insecure nations; between investor-exporter economies and consumer-debtor countries," Panitchpakdi told the governing body of UNCTAD.

Domestic demand should be boosted in several countries to replace US consumption role, suggested Panitchpakdi who noted that China has done this to some extent, but other nations, such as Germany and Japan, 'may have to rebalance their economies towards domestic consumption.'

"Wage increases and the provision of decent employment opportunities for the developing world's burgeoning labour force are essential for maintaining prosperity and avoiding a deflationary spiral," he added.

The UNCTAD chief also noted that food prices remain a concern.

"Some countries are facing an obesity epidemic even while they massively subsidise their agricultural sectors; others, meanwhile, are suffering famine and food insecurity," he said, asking greater investment in the agricultural sectors of developing countries.

Panitchpakdi also called for the reduction of financial speculation in food and other basic commodities, which increased instability and volatility in food prices.