The global economy will grow by only 0.5 percent in 2012, effectively shrinking on a per capita basis, unless there is rapid action to create jobs, prevent sovereign debt distress and shore up fragile banks, a United Nations study said on Tuesday.
The annual U.N. World Economic Situation and Prospects report forecast average economic growth of 2.6 percent in 2012 and 3.2 percent in 2013, assuming a set of relatively optimistic conditions in a make-or-break year for the economic recovery.
"The developed economies are on the brink of a downward spiral enacted by four weaknesses that mutually reinforce each other: 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 insitutional difficulties.
"All of these weaknesses are already present, but a further worsening of one of them could set off a vicious circle leading to severe financial turmoil and an economic downturn," the report said.
In the downside scenario, the report said the European Union economy would contract by 1.6 percent in 2012, with Germany, France and Britain in recession.
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