The United Nations Conference on Trade and Development (UNCTAD) has sharply criticised austerity measures aimed at controlling inflation, and reducing fiscal deficits and public debt. 

The policy shift from fiscal expansion to fiscal tightening could stall recovery among the developed economies, as the private sector has not completely recovered, warned UNCTAD secretary general Supachai Panitchpakdi in an interview with fDi.

“We are concerned that the outlook for advanced economies is bleaker than we first expected. Rapid implementation of fiscal retrenchment could decelerate demand from the private sector, and this could cause a larger fiscal deficit, which would be detrimental to global recovery,” he said.

While the overall pace of global economic recovery is slower in 2011 at 3.1% than in it was 2010 at 3.9%, UNCTAD notes a “two-speed recovery” is currently underway. Developed economies have recorded a lacklustre 1.8% growth rate, with developing economies continuing to lead the way at 3.3%. “Austerity measures could cause this to reduce to 1.5% in the West in contrast to a 6.5% growth rate in the south by 2012,” said Mr Panitchpakdi.

Developing economies are achieving consistent growth because of recovering commodity prices and increased real wages, which have sustained the expansion of domestic markets through higher domestic demand.

“Emerging economies are competitive and for the first time outbound investment from emerging economies will represent a third of all global flows of FDI,” said Mr Panitchpakdi.