Higher salaries will pave road to true recovery: UN

Geneva (AFP) – The global economy will see only modest growth this year, the UN said Wednesday, calling for wage hikes to boost the demand and investment needed to move towards true recovery.

“Six years after the onset of the global economic and financial crisis, the world economy has still not found a sustainable growth path,” the United Nations Conference on Trade and Development (UNCTAD) warned.

According to its flagship Trade and Development Report 2014, the world economy is set to grow this year between 2.5 and 3.0 percent, up from 2.3 percent in 2012 and 2013.

Growth in developing countries was meanwhile expected to tick in at 4.7 percent this year, up from 4.6 percent last year, while developed nations would see 1.8 percent growth, up from 1.3 percent, the report said.

The growth however is displaying traits seen before the onset of the 2007 financial crisis, warned Alfredo Calgano, who coordinated the 242-page report.

“Share bubbles, easy credit and a financial sector that essentially remains unregulated… The issue of inequality has not been resolved, to the contrary,” he told AFP.

The problem, the UNCTAD experts warned, was that “the global recovery remains weak, while the policies supporting it are not only inadequate but often inconsistent.”

The report was especially critical of austerity measures and wage cuts carried out in many developed countries in the belief they would spur recovery, insisting that they instead were “dampening domestic demand.”

Countries interested in bringing about a sustainable recovery should on the contrary focus on raising salaries and pushing for more equal income distribution, the report said.

“The recovery engine must be rooted in the demand side,” Calgano insisted.

The experts warned against overstating the importance of the growth seen, stressing they saw “no convincing evidence that the world economy is in fact beginning a sustainable recovery.”

“The belief that growth in developed economies has finally picked up is overly optimistic,” the report said, warning that such claims were being used to falsely claim success for austerity policies and pro-market reforms.

This is dangerous, the report warned, since it was leading to calls to withdraw “precautionary measures and stimuli” in developed countries and recommendations that developing countries follow the same austerity path.

Instead, UNCTAD called for “monetary expansion (to) be accompanied by fiscal expansion to prevent liquidity being hoarded or channelled to speculative uses” and to put in place “income distribution policies” to promote demand and raise household income rather than debt.

Developing countries meanwhile should instead work to “enhance policies aimed at diversifying their economies,” the report recommended.

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