UN: Double-Dip Recession, 10 Percent Unemployment May Hit US

The U.S. may suffer a double-dip recession and see unemployment rise to 10 percent next year unless the Obama administration and Congress agree on more stimulus for the economy, the United Nations said.

“If the sense of great uncertainty stays and spills over into the financial markets, and there is no clear sense that policy makers are getting their act together, we might well end up in a double-dip recession,” UN chief economist Rob Vos said in an interview. “There is a big risk that things may go for the worst. It’s still very fragile.”

The UN recently released its analysis of the global economy, including downward revisions of growth forecasts made in May. Lack of international agreement on coordinated stimulus caused the UN to lower projections for 2011 global and U.S. economic expansion, the report said.

The world economy will expand by 3.6 percent this year and slow to 3.1 percent growth in 2011, according to the UN. It had predicted 3.2 percent growth next year.

U.S. projections for 2010 and 2011 were revised downward by 0.3 percentage points, to 2.6 percent this year and 2.2 percent for 2011. U.S. unemployment in October was 9.6 percent.

“The cooperative spirit among major economies is waning, which has debilitated the effectiveness of responses to the crisis,” the UN report said Wednesday. “Uncoordinated monetary responses, in particular, have become a source of turbulence and uncertainty in financial markets.”

More Stimulus Needed

The report said “more fiscal stimulus will be needed to reinvigorate the recovery, but it will need to be better coordinated with monetary policies and reoriented to provide stronger support to employment generation and facilitate a sustainable rebalancing of the global economy.”

Projected growth in the U.S. economy will “not make much of a dent in unemployment rates,” the UN said. “The unemployment rate may increase to 10 percent in early 2011, up from 9.6 percent in the third quarter of 2010.”

Europe and Japan also may fall back into recession next year, the report said. Their growth prospects are “even dimmer,” the UN said, with 1.6 percent expansion this year and 1.3 percent forecast in 2011 for the Euro zone. Japan will finish 2010 with 2.6 percent growth and fall to 1.1 percent next year, the report said.

“What we really need is some additional fiscal stimulus,” Vos said. “Calculations in the report suggest developed countries have quite a bit of fiscal space there because borrowing is so cheap.

There is “some scope” for added stimulus in the U.S., and even more room in “surplus countries” such as Germany, Japan, Netherlands, Norway and Switzerland, Vos said.

Infrastructure Spending

He also called for stimulus spending geared to job creation, such as infrastructure repairs and expansion.

Estimates for 2012 also were released, showing only slight gains to 3.5 percent for the global economy, 2.8 percent for the U.S., 1.9 percent for the Euro zone and 1.4 percent for Japan. Latin America’s economies are forecast to grow by 5.6 percent this year, 4.1 percent in 2011 and 4.3 percent in 2012.

Developing countries of Africa, Asia and Latin America will “drive” the world’s economic recovery, the UN said, forecasting 6.0 percent growth in 2011 and 2012. China’s economy will expand by 10.1 percent this year, 8.9 percent in 2011 and 9.0 percent in 2012, according to this forecast. Figures for India are 8.4 percent, 8.2 percent and 8.4 percent, respectively.