The world economy was at a critical juncture with United Nation (UN) economists predicting that 2012 would be a critical year to either maintain slow economic recovery or slip back into a recession.

Persistent high unemployment, the eurozone sovereign debt crisis and premature fiscal austerity had slowed global growth over the past year and had increased the risk of another recession.

The World Economic Situation and Prospects (WESP) 2012 report, released by the UN on Tuesday, said that the baseline world gross product (WGP), based on relatively optimistic conditions, such as the sovereign debt crisis in Europe being contained, was expected to reach 2.6% and 3.2% in 2012 and 2013 respectively.

The report indicated that the failure of developed countries to maintain this growth could lead to a downside scenario of 0.5% in 2012 and 2.2% during 2013. An optimistic WGP growth prospect, which was based on policy approaches, reached 3.9% and 4% in 2012 and 2013 respectively.

The UN proposed a number of policy changes to tackle the downside risks and uncertainties leading to a recession.

Policymakers, particularly in the US and Europe, needed to deal with high unemployment rates, as well as prevent sovereign debt distress and the financial sector fragility escalating, said University of South Africa economics professor Charlotte du Toit at the launch of the report.

The high unemployment rate in most developed countries was seen as the Achilles heel of economic recovery. Currently, unemployment sits at 9% globally and, as an increasing number of workers do not have jobs over a long period, medium-term growth prospects would be affected owing to dissipating skills and experience.

“Further, the harsh fiscal austerity measures implemented in developed countries in response to high levels of fiscal deficit and public debt further weakened growth and employment prospects,” the WESP 2012 report noted.

The sovereign debt crisis in a number of European countries also worsened during the second half of 2011.

The report stated that existing national policies and the Cannes Action Plan of the Group of Twenty did not create stronger employment growth or sufficiently deal with downside risks.

The UN recommended more forceful international coordination of stimulus measures across countries and a refocus of policies to stimulate more direct job creation and investments. These measures would also require stepped-up financial sector regulatory reforms, the report added.

Meanwhile, developing countries have been the backbone of any economic growth since 2009, and were expected to continue this trend with growth rates of 5.6% in 2012 and 5.9% in 2013, said Du Toit.

Africa’s WGP was expected to grow 5% in 2012 and 5.1% in 2013, driven mostly by strong commodity prices, solid external capital inflows and continued expansion and investment from Asia.

Despite this, unemployment and poverty would remain significant challenges, caused by, besides others, a lack of diversification, shortage of skilled workers and low productivity.

South Africa was forecast for stronger economic growth with a gross domestic product of 3.7% in 2012, underpinned by favourable external demand, continued fiscal stimulus and rising consumption driven by higher wages. However, the country’s unemployment rates would only decrease marginally during 2012 and 2013, remaining above 20%.

Developing economies performed well compared with developed countries; however, even as economic ties among the developing countries strengthen, they remain vulnerable to economic conditions in the developed economies, the report said.