Economies should be careful not to withdraw the financial stimulus packages they had implemented during the recession too soon, as this could potentially lead to a double-dip in the world economy in 2011, United Nations Conference on Trade and Development (Unctad) has warned.

In its Trade and Development Report (TDR) 2010, which was released on Tuesday, Unctad highlighted that the global economic recovery remained fragile and uneven.

The report highlights that global real gross domestic product (GDP) was expected to grow by 3,5% this year, with Asian and Latin American countries leading the recovery.

Developing economies were forecast to grow their GDP by 6,9% in 2010, with Asian economies to grow their GDP by about 7,8%. China's GDP was forecast to expand by 10% and India's GDP by 7,9%.

Unctad is forecasting economic growth of 4,8% for African economies, with sub-Saharan Africa, excluding South Africa, expected to grow by 5,9%.

South Africa's GDP was forecast to expand by 3% this year.

However, GDP growth in developed nations was expected to reach only 2,2% in 2010.

Developed countries, as a whole, were not expected to see a return to rapid and sustainable growth rates in the near future, the authors of the TDR stated.

Unctad globalisation and development strategies division representative Mutasim Elagraa told journalists at a briefing in Johannesburg that there were indications that the global economy would see another slowdown in 2011.

Fiscal austerity measures were expected to spread across Europe in 2011, increasing the risk of a double-dip recession, he noted.

Financial stimulus packages should only be exited once private consumption across the world had recovered, advised Elagraa.

The TDR pointed out that US consumer demand, which was by far the largest in the world representing 16% of total global output by 2008, was unlikely to resume the momentum it had before the recession started.

This meant that the US private demand would no longer be the economic growth engine for the world economy.

While other countries, including China, were planning to increase domestic demand rather than boosting exports to ensure future growth, these countries were unlikely to compensate for the decline in consumption demand from the US.

As household or private consumption in China only represented about one-eighth of that of the US, the emerging giant would also be unable to become the sole new driver of global growth.

Unctad, therefore, encouraged economies across the world to rely less on only export-driven growth, noting that a better balance between exports-driven growth and domestic consumption should be strived for.

The UN agency noted that there was a need to strengthen domestic demand in many developing economies for growth and employment creation purposes.

This would require a reorientation of macroeconomic policies, as such a strengthening in domestic demand would be based on higher domestic investment and higher consumption.

Low interest rates and increased domestic demand were the most important preconditions for employment created, Unctad.

Further, to increase domestic demand, economies would also need to ensure that domestic wage growth was consistent with productivity growth.

The agency emphasised that the idea that job creation requires lower wages was wrong, as wages determined production costs, but also mass purchasing power, consumption and aggregate demand.

Unctad advised that economies should combine monetary and fiscal policy targeting employment and investment growth with the introduction of incomes policies, as this would ensure that consumption rose at the same rate as productivity, while also keeping unit labour costs unchanged.

AFRICAN OPPORTUNITIES

Meanwhile, South African Trade and Industry Minister Dr Rob Davies emphasised that the African continent could increase domestic demand through regional cooperation.

While some countries had a small population, making domestic demand-driven growth alone difficult, the combined population of the continent could provide a significant domestic market, agreed Elagraa.

With a growing middle class, and if the living standards of the working class could be improved, this would considerably increase domestic demand on the continent, said Davies.

Meanwhile, he also highlighted the need, in Africa, to ensure growth in high-quality employment opportunities.

The TDR showed that official employment rates in sub-Saharan Africa have remained high, indicating that employment in absolute terms was not the problem, but rather a lack of productive and decent employment.

In this region, excluding South Africa, formal wage jobs account for only about 13% of employment, with 60% of employed people unable to meet their basic needs with the level of income earned, said Unctad.

Economies could improve the employment situation and increase domestic demand by also adding value and beneficiating its mineral products for exporting, as opposed exporting the raw materials, said Davies.