Imbalances pose risk for global economy – UNCTAD

The world economy is still expanding in 2005, but there are serious risks of a setback should the United States economy – the main engine of growth – run out of steam before other countries or regions are able to take over that role, the United Nations Conference on Trade and Development (UNCTAD), said in a new report.

The world economy is still expanding in 2005, but there are serious risks of a setback should the United States economy – the main engine of growth – run out of steam before other countries or regions are able to take over that role, the United Nations Conference on Trade and Development (UNCTAD), says in a new report.

Global expansion has continued into 2005 but, according to its forecast, the growth rate slowed to around 3 per cent for the year as a whole as compared to almost 4 per cent in 2004, which was the best performance since 2000, UNCTAD says in its Trade and Development Report 2005.

Most of the year-on-year deceleration is attributable to a slowdown in developed-country economic performance, although some developing countries are also showing signs of losing momentum. Developing countries as a whole are expected to grow between 5 per cent and 5.5 per cent in 2005, down from 6.5 per cent last year, the report says.

UNCTAD economists also contend that global current-account imbalances – with the US deficit being the counterpart to two-thirds of the global surplus – “have to be tackled in a coordinated, multilateral way if recent progress towards achieving the Millennium Development Goals (MDGs) is not to be squandered.”

The UN’s ambitious MDGs seek to halve extreme poverty and hunger, slash maternal and infant mortality, and increase access to health care, education, water and sanitation, all by 2015.

Commenting on countries and regions, UNCTAD said the nations of the European Monetary Union have been unable to pull out of a long economic stagnation and Japan, despite some improvement, is still struggling with deflation.

Asian countries, in particular China and India, have emerged as new engines of economic growth. Thanks to their vigorous expansion and their appetite for natural resources, many of their developing-country trade partners have – for the first time in 20 years – reaped windfall profits from rising commodity prices and from surging demand for intermediate products.

Even Africa – for many years excluded from the benefits of globalization – posted a 4.5 per cent growth rate for 2004 and is expected to approach 5 per cent this year, the report also said.

However, UNCTAD warned that historically high oil prices are placing a huge burden on many developing countries. And there has been no multilateral action that might gently defuse global current-account imbalances.