New York: Warning that the world economy is now “teetering on the brink of a severe global downturn,” the United Nations said it expects growth this year to be sharply lower at 1.8% - nearly half of the 3.4% growth estimated only three months ago.
A new report released on 15 May predicts that slowdown will be in all regions, with South and East Asia facing a major downturn where the growth would decline to about 8.5% in the current year from 11% last year. India, it says, too would face a slowdown.
UN said world economic growth next year would, however, ge better at 2.1%. The global economy expanded by 3.8% in 2007.
In the African region, if the pessimistic scenario were to work out, economic growth would almost come to a standstill, down to 2.2% in 2008 and 1.1% in 2009, creating a major obstacle to the prospects of these countries achieving the Millennium Development Goals (MDGs).
Latin America, which did better than expected in 2007, but had close trade linkages with the United States economy, is expected to suffer strong negative impacts of lowered demands for its exports during 2008 and 2009, leading to lowered growth performance.
A worst-case scenario would see the “world economy come to a virtual standstill” if recent financial measures in the US fail to turn the economy around, and house prices continue to fall, with a severe tightening on credit, it warns.
To boost the global economy, the report calls for an internationally coordinated economic stimulus package to support US efforts, centred on the expansion of domestic demand in countries with savings surpluses especially in Europe, the Arabian Gulf and East Asia.
The unfolding global food crisis, the report warns, is not only a grave humanitarian issue but also a threat to political and social stability in some developing countries and may reverse some of the progress made towards the MDGs, a list of targets set by world leaders to sharply reduce or eliminate several social and economic ills.
The report issued by the UN’s Department of Social and Economic Affairs says that much depends on developments in the US, which remains the prime driver of the global economy.
To counteract inflation in food prices, the economists recommend improving supply and productivity through investment in irrigation techniques, infrastructure, improved seeds and fertiliser, and agricultural research and development. This would also help shore up rural economies where most of the world’s extreme poverty is located.
In addition to removing supply constraints on vital commodities, such as food, and to stimulating global demand, the mid-year report entitled: “World Economic Situation and Prospects 2008” also says that deep reforms are needed in the mechanisms of international financial regulation and supervision if new problems are to be avoided.
For the United States itself, the report forecasts a fall of 0.2% in GDP compared to earlier prediction given as late as January of 2% rise.