UN REPORT SAYS WORLD ECONOMY WILL KEEP MODERATE GROWTH OF AT LEAST 3 PER CENT

New York, Jan 24 2006 6:00PM

The world economy will grow by slightly more than 3 per cent this year but the
spectre of oil price surges, an outbreak of avian flu or a crash in housing
prices could threaten the smooth slowdown of economic growth that has evolved
over the past year, the United Nations says in a new report released today.

Growth is expected to slow in most of the industrial world in 2006 – registering
3.1 per cent in the United States, 2.1 per cent in Europe and 2 per cent in
Japan – while developing countries expand at a rate of 5.6 per cent, according
to the report, “World Economic Situation and Prospects 2006.”

China and India remain the world’s most dynamic economies and the rest of East
and South Asia is expected to increase by more than 5 per cent. Latin America
lags behind with a growth rate of 3.9 per cent as its largest economies, Brazil
and Mexico, struggle. The African continent’s economic expansion should remain
solidly above 5 per cent, according to the report.

Prepared in part by the UN Department of Economic and Social Affairs (DESA), the
160-page annual study shows that the economies of the least developed countries
– buoyed by higher commodity prices – will grow by 6.6 per cent in the coming
year. On the other hand, any scenario leading to a collapse in commodity prices
would adversely affect these 50 nations.

One of the major phenomenon sapping the prospects for balanced growth in the
world economy is the so-called “investment anaemia,” UN Under-Secretary-General
for Economic and Social Affairs José Antonio Ocampo told a news conference in
New York at the report's launch.

“It’s universal, with the exception of China,” Mr. Ocampo said. “We point out
that a major challenge is to recover investment in many parts of the world.” He
later added that greater investments by corporations and governments in
machinery, new factories and infrastructure could help iron out the global
financial imbalances that might undermine economic stability.

The report states that one of the gravest dangers to the world economy’s
stability may lie in these global financial imbalances as the US’s current
account deficit totals $800 billion while Japan, emerging Asia and major
oil-exporting countries amass saving surpluses of $100 billion to $200 billion
each. Since the United States is a major producer of capital goods, a surge in
investment by other countries in the machinery needed to power factories or
build bridges, for example, would help close the country’s current account
deficit by increasing US exports.

“The U.S has been running a deficit and it has generated the impression that it
is not a serious problem,” Mr. Ocampo said. “But we point out that the
impression is deceiving. The risk, although low, has very high costs.”

Foreign investors help US officials cover the country’s current account deficit
by investing in US dollar-denominated assets. If foreign investors lose
confidence in the US economy, they could pull their money out and contribute to
a financial crisis.

Mr. Ocampo also called for greater coordination of macro-economy policy among
key industrial and developing nations. He said the International Monetary Fund
(IMF), which was created to protect global financial stability, should play a
central role in helping nations coordinate their macro-economic policies.

The report is the UN’s annual analysis of current developments in the world
economy and emerging policy issues. It is a joint effort of DESA, the UN
Conference on Trade and Development (UNCTAD) and the UN’s five regional
commissions.

2006-01-24 00:00:00.000

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