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Interview: Developed countries' containment of debt distress critical to global economy in 2012: UN expert

(Xinhua)

15:45, December 04, 2011

UNITED NATIONS, Dec. 3 (Xinhua) -- As a recent-released UN report warned that the world risks falling back into recession, a UN economist said whether developed countries can effectively contain their sovereign debt distress is critical to the global economic scenario in 2012.

Hong Pingfan, chief for Global Economic Monitoring of the UN Department of Economic and Social Affairs (DESA), told Xinhua in a recent interview that the uncertainties and risks of the global economic situation next year mainly roots in developed economies.

"These countries are facing with the four weaknesses of the sovereign debt distress, fragile banking sectors, weak aggregate demand associated with high unemployment and fiscal austerity measures and policy paralysis caused by political gridlock and institutional deficiencies. All of these weaknesses are mutually reinforce each other," Hong said.

"They can not only throw affluent countries into another recession, but also have severely impact on the economic growth and stability of developing countries through international trade and finance," he said.

According to the UN report, released by the UN Department of Economic and Social Affairs (DESA) Thursday in New York, risks for another global downturn have heightened if developed countries embark prematurely on fiscal austerity measures.

Calling 2012 a "make-or-break" year for the economy, the report forecasts a "muddle-through" scenario, in which the world economy will continue to grow at a slow pace, at about 2.6 percent next year and 3.2 per cent for 2013, down from 4.0 percent in 2010. However, the report says this will only happen if the Euro zone debt crisis is contained, and if further moves toward stringent fiscal austerity in developed countries come to a halt.

Hong said there are mounting concerns over the economic situation in Europe in the next 10 years.

Once the Euro zone sovereign debt crisis went out of control, the commercial banks in the region would suffer great losses, causing credit crunch, which would lead to the collapse of financial market as brought by the bankruptcy of Lehman Brothers in 2008, and hence set off a new round of financial turmoil and an economic downturn in Europe, the economist said.

"Such risks are comparatively high," Hong said.

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