World economic growth rate projected to drop to 3 per cent in 2007 – UN estimate

2 October 2006

The world can expect a robust economic growth rate of 3.6 per cent this year but a deceleration to 3 per cent is projected for 2007, according to the latest United Nations assessment.

A number of downside risks could reduce that projection even further, Under-Secretary-General for Economic and Social Affairs José Antonio Ocampo told the General Assembly Second Committee on economic and financial matters today.

A decline in the housing market, for example, is a real threat in the United States and could have strong ripple effects. Since that country was suffering from large external deficits, a sharp fall in housing prices could trigger a disorderly adjustment of global imbalances, Mr. Ocampo said.

The impact of oil prices on global growth remains uncertain, with recent increases due to stronger-than-expected growth in world demand, a tight capacity for oil production and refining, natural disasters and geopolitical concerns, he added. Though worries about supply shocks were likely to dominate market movements, higher oil prices had not resulted in major recessionary effects, unlike those of the 1970s and 1980s.

But if supply disruptions were to happen, implications for the world economy would be greater and it is therefore crucial to increase investments to safeguard the world economy against such a disruption, Mr. Ocampo told the committee.

Heightened volatility in oil prices and other primary commodities is also a vivid reminder for commodity-exporting developing countries that their economic growth was vulnerable to the vicissitudes of commodity prices.

The longer widening global imbalances are allowed to develop, the higher the risk of a sudden and sharp disorderly adjustment, he noted. For instance, a US recession and devaluation of the dollar could in turn depress the world economy as a whole, with a particularly large impact on developing countries.

As for the outlook for developing countries, Mr. Ocampo said an increasing income gap between them and the developed world – a “dual divergence” – could be seen alongside a “growth divergence” among the developing countries.

He called the suspension of the UN World Trade Organization (WTO) Doha Round of talks a major setback. The least developed countries are the most adversely affected by trends in global disparities, and as such, development partners, including other developing countries, should continue to increase their support through the contribution of official development assistance (ODA), debt reduction and the provision of market access.

The Doha Round has been in limbo for months, partly over subsidies from wealthy nations to their agricultural industries, tariffs and quotas, which all shut poorer agricultural countries out of the market.


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