The growth predictions are a major cut from the UN forecast of six months ago when it predicted 2.7 percent for 2013 and 3.9 percent for the year after. "With existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009," said the report.
Europe is trapped in a "vicious cycle" of debt, austerity, low growth and high unemployment, said the UN. Growth remains "meagre" in the United States - 1.7 percent predicted for 2013 - while Japan is caught in "deflationary conditions" and its 2013 growth is predicted at 0.6 percent. The prospects for the next two years look bleak, said Robert Vos, the lead writer for the UN report. "A worsening of the euro area crisis, the 'fiscal cliff' in the United States and a hard landing in China could cause a new global recession," he said.
Each of the risks could cause a loss of between one and three percent of global output, Vos warned. A US fiscal budget crisis, if no accord is reached between the Democratic government and Republican controlled House of Representatives, could cause a 4 percent drop in American gross domestic product during 2013 and 2014, the report warned.
Under the "bleaker scenario" outlined, the United States would also suffer from "the spillover effects" of an intensification of the euro crisis, a possible hard landing for the Chinese economy and a weakening of other major developing economies. The UN called for European governments to move from austerity to growth policies.
Growth in south-east Asia helped sustain world trade through the recent crisis but fell to 5.5 percent in 2012 and will only recover slightly to 6 percent in 2013 and 6.3 percent in 2014, said the UN. China's economy will grow by 7.9 percent in 2013 and 8 percent in 2014 after spurts of 9.2 percent in 2010 and 7.7 percent in 2011. "Given persistent inflationary pressures and large fiscal deficits, the scope for policy stimulus in India and other South Asian countries is limited," said the report.
"China and many East Asian economies, in contrast, possess much greater space for counter-cyclical policy," the UN said. The report predicted growth in South Asia averaging 5 percent in 2013, up from 4.4 percent in 2012, led by a "moderate recovery" in India.