PRESS BRIEFING ON 2005 WORLD ECONOMY

 

Global economic growth was slowing down from a rate of slightly over 4 per cent to just over 3 per cent a year, according to an updated United Nations analysis of the world economy, José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, said at a Headquarters press briefing this afternoon.

He said that one interesting feature of that trend reported in “World Economic Situation and Prospects 2005” was that the performance of the developing countries had been much stronger and more even than that of the developed countries.  While the differences in growth among developed countries, particularly the huge difference between the United States on the one hand and Western Europe and Japan on the other, was not matched in the developing world, there had been much more uniform growth in all developing regions than at any time since the 1970s.  The report was issued by the Department of Economic and Social Affairs.

One feature of that trend was the very rapid growth in sub-Saharan Africa, as well as in landlocked countries, many of which were in that region, he said.  With the exception of Nigeria and South Africa, those countries had grown by about 5.5 per cent last year.  Their growth this year was slightly over that and they were expected to hit 6 per cent next year.  That was one of the most promising trends in the world economy, because sub-Saharan Africa needed an annual growth rate of 6 to 7 per cent in order to meet the Millennium Development Goals.

He said the reasons for that rapid growth had to do with a very unusual set of circumstances that characterized the world economy.  First, world trade had expanded by 11 per cent last year and 8 per cent this year (with adjustments for inflation).  Secondly, many developing countries were benefiting from commodity prices that continued to be high.  Commodity prices had collapsed in the 1980s and again following the Asian financial crisis of 1997/98.  Behind the high prices was the importance of China as an importer of raw materials.  In addition, developing countries had generally been able to gain greater access to foreign direct investment and financing costs had dropped to historic lows.

Among the risks to the scenario was continuing high oil prices, he said.  The Department had projected that those prices would remain moderately high, but they had been much higher than expected, exceeding $60 per barrel in recent days.  World economic growth could suffer in the short term if they remained very high.  While that depended critically on the fears of central banks that high oil prices would lead to inflation and consequently higher interest rates, those fears had not been realized so far.  The United States Federal Reserve had continued to raise interest rate at a moderate pace, but that did not reflect fears of inflation.  The European Central Bank had maintained its interest rate and may even lower them, according to some expectations, and Japan continued the zero-growth interest rate it had maintained for some time.

He said that a second set of circumstances reflected the fact that global imbalances continued to grow, particularly the large accumulation of current account deficits in the United States, matched by surpluses in other parts of the world, particularly Europe an Asia.  That had led to a medium-term depreciation of the United States dollar against the euro, which had been reversed in the past few weeks.  However, that had not led to any significant reduction of the global economic imbalances.  The report stressed that any significant correction in the imbalances must be at the centre of the dialogue among major countries and in the International Monetary Fund.

Asked whether rapidly rising oil prices would not undermine any recommendations contained in the report, particularly given the great dependence of the United States and China on oil, he said the world economy was less sensitive to oil prices today than it had been in the past.  Also, oil prices were volatile, rising as well as falling, and despite recent increases, they remained below historical highs.

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