NEW DELHI/LONDON: The world economy is not growing fast enough to generate jobs for millions who have become unemployed due to the financial crisis but it is gaining strength gradually, a top IMF official said Wednesday.
While global growth is seen at 3.3 percent in 2013 and four percent next year, this masks a significant divergence in prospects, said Naoyuki Shinohara, deputy managing director of the International Monetary Fund.
The world is seeing a “three-speed” global recovery without “enough growth to generate jobs for the millions who have fallen into unemployment over the past five years”, Shinohara told a gathering of diplomats and business people.
Creating jobs must be “an overarching issue” as it goes to the heart of the global economic crisis that is “falling disproportionately on young people”, he said in a speech in New Delhi.
The IMF official’s address came amid May Day protests in Europe against punishing government austerity drives and followed official figures Tuesday showing European unemployment hit a record of over 19 million.
Shinohara said the best performing economies were in the emerging and developing countries, with Asia expected to grow by an average 7.1 percent this year and sub-Saharan Africa forecast to expand by 5.6 percent.
Other nations are on the mend such as the United States, seen expanding by two percent in 2013, but he said recovery in the eurozone “remains elusive” with growth expected to contract by a quarter of a percentage point.
While US corporate balance sheets and house prices are improving, expansion is not robust enough to significantly lower unemployment, he said.
He added the US government’s “sequestration” efforts to slash spending involving $85 billion in budget cuts will result in “too much short-term fiscal consolidation” while a longterm cost reduction roadmap is lacking.
“The balance needs to be right as this would help the US break free from the weak growth in recent years,” he said.
Shinohara, a former senior Japanese finance official, welcomed Tokyo’s new aggressive monetary easing aimed at ending a generation of almost zero growth, saying “it’s good to see Japan forging a new strategy”.
He projected Japanese expansion of 1.6 percent this year but warned the nation’s high public debt and fiscal stimulus without a plan for spending consolidation later “raises the spectre of unsustainable debt” down the road.
Sounding downbeat on the eurozone, he said weakness is “now extending to core countries” such as France whose economy is seen shrinking slightly while Germany will grow by just 0.6 percent. Spain and Italy, meanwhile “will experience substantial contractions”.
Structural labour market reforms are taking place as the economies struggle to regain competitiveness, Shinohara said, but “the pain” of austerity measures has the potential to lead to backtracking.