* UNCTAD sees recovery as fragile, still needing stimulus
* Boosting jobs, domestic consumption seen top priority
By Robert Evans
GENEVA, Sept 14 (Reuters) - Major world economies must maintain the fiscal stimulus policies they applied to break out of recession or risk another steep downturn, United Nations economists warned on Tuesday.
In the trade and development agency UNCTAD's annual report, they said the recovery of recent months was fragile and should be underpinned with steady efforts by all governments to boost jobs, domestic demand and infrastructure investment.
"A premature exit from demand-stimulating macroeconomic policies in developed countries might cause a deflationary spiral with attendant slumps in growth and employment around the world," UNCTAD said.
"A continuation of the expansionary fiscal stance is necessary to prevent a deflationary spiral and a further worsening of the employment situation," its Trade and Development Report 2010 said.
Many governments -- especially in Europe -- are cutting spending, seeking to regain the confidence of financial markets after building up big deficits.
IMF ECHO
The comments from the agency, which often voices support for state intervention, echoed views on Monday from the International Monetary Fund, usually identified with stricter fiscal policies.
Speaking at a conference in Oslo, IMF Managing Director Dominique Strauss-Kahn said focusing on growth and job creation to fix a global labour market in dire straits was essential to avoid social turmoil. [ID:nLDE68C1CM]
"Unemployment," said UNCTAD, "is the most pressing social and economic problem of our time, not least because, especially in developing countries, it is closely related to poverty ... Therefore, employment creation needs to be made a priority in economic policy."
UNCTAD Secretary General Supachai Panitchpakdi told a news conference slashing wages or reducing government wage bills was no solution to fiscal deficits and could not bring stable economic recovery.
"We have to look at wage income as a source of demand that can stimulate output and productivity," said the former head of the World Trade Organisation.
Senior UNCTAD economist Heiner Flassbeck, a former German deputy finance minister, said the world could face economic stagnation over the next two years as the effects of the original anti-recession stimulus packages wore off.
Although overall growth was likely to reach 3.7 percent this year, it was likely to be much lower in 2011, dipping to between two and 2.5 percent, with developing countries such as China doing better than richer economies, he said. (Editing by Laura MacInnis/Ruth Pitchford)