Despite continued growth, global economy will face serious challenges – UN
The World Economic Situation and Prospects 2008 study has forecast that global economic growth will slow to 3.4 per cent this year, compared to 3.7 per cent in 2007 and 3.9 per cent in 2006.
“US consumption, which has been driving much of the growth in the recent period, is clearly not going to be sustained in the forthcoming period,” Jomo Kwame Sundaram, Assistant Secretary-General for Economic and Social Affairs, said at the launch of the report in New York.
A downturn in the US economy could lead to a decline in consumption resulting from the bursting of the housing bubble, as well as the sub-prime mortgage crisis, he added.
The report – authored by UN Department for Economic and Social Affairs (DESA) and the UN Conference on Trade and Development (UNCTAD) – noted that major European economies and, to a lesser extent, Japan and other developed countries are feeling the spillover effects from the downturn in the US, and the growth prospects of these countries have been downgraded.
“Developing countries will also be very much affected by this likely slowdown in the US,” Mr. Sundaram pointed out, with poorer nations potentially suffering from reduced demand, slower growth and a weakening of commodity prices.
Last year saw developing countries experience vigorous growth of nearly 7 per cent, while this grew to 8 per cent among transition economies due to buoyant commodity prices and strong domestic demand.
However, the growth of poorer nations and those in transition is highly dependent on the global economic environment, which in turn mostly driven by the major developed countries.
African nations, who experienced strong growth in 2007, are expected to perform well this year and expand by up to 6 per cent, according to the report.
“Overall, 102 countries out of 160 have grown in per capita terms more than 3 per cent in the last year, which was an extraordinary achievement,” said Heiner Flassbeck, Director of UNCTAD’s Division on Globalization and Development Strategies, at the report’s co-launch in Geneva today.
Very few countries on the continent were unable to benefit from these trends due to political instability or other internal problems, he added.
The study – whose regional forecasts will be launched this week in Addis Ababa, Bangkok, Beirut, Moscow and Mexico City – urged the reform of the voting power and governance structure of the International Monetary Fund (IMF) so that developing countries are better represented and to soften a steep and abrupt decline of the dollar.
The governance problems of the IMF have “undermined its legitimacy and its ability to work more effectively,” Mr. Sundaram observed.
Urgent measures must be taken to remedy the situation to maintain political, social and economic stability, he added.