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Only 1.8% growth expected this year, UN report said

(UNITED NATIONS) The world economy is ‘teetering on the brink’ of a severe downturn and will grow by only 1.8 per cent this year, the United Nations has said.

That forecast in its midyear economic projections is 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 mid-year 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 that 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 that 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 percent 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 taken to stimulate the economy 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.

The report, prepared by the UN Department of Economic and Social Affairs, forecast that the 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.

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.

Separately, a top official at Britain’s financial watchdog said on Thursday that the credit crunch is moving into a ‘third phase’, affecting the real economy, but concerns about banks’ capital and solvency have been largely resolved.

‘I think we need to see the credit crunch as coming in three phases. I would say the first two are behind us,’ Hector Sants, chief executive of the Financial Services Authority (FSA), said in an interview with Channel 4 news. — AP, Reuters, NYT

Source : Business Times - 17 May 2008