UNITED NATIONS - THE world economy is 'teetering on the brink' of a severe downturn and will grow by only 1.8 per cent in 2008, the United Nations said in its midyear economic projections.
That's down from a global growth rate of 3.8 per cent in 2007 - and the downturn is expected to continue in 2009 with only slightly higher economic growth of 2.1 per cent, the UN report said on Thursday.
The midyear update of the UN World Economic Situation and Prospects 2008 blamed the downturn on further deterioration in the US housing and financial sectors in the first quarter which 'is expected to continue to be a major drag for the world economy extending into 2009.' But the UN said developing countries won't suffer as badly.
They should grow by 5 per cent this year and 4.8 per cent next year, compared to a robust 7.3 per cent in 2007.
The UN economists said the deepening credit crisis in major market economies triggered by the US-led slump in house prices, the declining value of the US dollar, persistent global imbalances, and soaring oil and commodity prices 'all pose considerable risks to economic growth' in both developed and developing countries.
'The baseline forecast projects a pace for world economic growth of 1.8 per cent in 2008,' the UN report said.
But it said the final figure will largely depend on developments in the United States.
Global growth this year could fall to 0.8 per cent if the US sub-prime mortgage market turmoil has a more serious impact on developing countries and countries in transition, the UN report said.
But if the monetary and fiscal measures the US government has take to stimulate the economy - including tax refunds and lower interest rates - boost consumer spending and restore confidence in the business and banking sector, the world economy would only slow to 2.8 per cent growth this year and 2.9 per cent in 2009, it said.
US economic growth to decline, slight recovery in 2009
The report, prepared by the UN Department of Economic and Social Affairs, forecast that US economic growth will decline from 2.2 per cent in 2007 to -0.2 per cent this year, with only slight recovery in 2009 to 0.2 per cent growth.
'At issue is how deep and long this contraction will be,' the report said. 'As the housing slump continues and the credit crisis deepens, a broad array of ... indicators are already hinting at a recession.'
It cited a decline in US employment, consumer confidence at its lowest level in a decade, household spending growth slowing sharply, and business equipment spending slowing alongside large inventories of housing and a 30 per cent decline in residential investment.
This strongly suggests 'that the implosion of housing activity will not stabilise until 2009,' the UN report said.
As for other developed countries, the UN forecast that Japan's economic growth will decline from 2.1 per cent in 2007 to 0.9 per cent in 2008, and that Western Europe's growth rate will drop from 2.6 per cent last year to 1.1 per cent this year.
Despite the slowdown in global economic growth in 2008, the UN said global inflation is expected to accelerate this year to 3.7 per cent.
The report said the recent sharp rise in commodity prices, and the continued rise in oil prices are key factors spurring inflation along with higher wages.
The growth of world trade also slowed from 7.2 per cent in 2007 to 4.7 per cent in early 2008, largely due to weak US demand for imported goods, it said.
The UN report said 'a number of developed countries with some weight in the world economy like Japan, Germany, Switzerland, the Netherlands, Norway and Canada, as well as the emerging-market economies in East Asia and the main oil exporters have a decisive role in engineering a more balanced and sustainable path of economic growth.'
These countries 'have much to gain' from deploying some of their vast accumulated monetary reserves to improve infrastructure, social services, and further diversify their domestic economies, it said. -- AP