PRESS BRIEFING LAUNCHING REPORT ‘WORLD ECONOMIC SITUATION AND PROSPECTS’

PRESS BRIEFING LAUNCHING REPORT ‘WORLD ECONOMIC SITUATION AND PROSPECTS’

In an otherwise upbeat assessment of the world economy, a joint United Nations report out today cautioned that contrary to previous expectations, global imbalances, and the United States trade deficits in particular, would not be corrected by the rapidly falling United States dollar and would require broad international cooperation to rectify, said José Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs (DESA).

In essence, the global imbalance was between consumption and debt in the United States, and increased surpluses in many United States trading partners, said Mr. Ocampo in launching the annual “World Economic Situation and Prospects” report this morning in New York.  The Department issues the survey every January, and it is produced with the help of experts from the United Nations Conference on Trade and Development (UNCTAD) and the world body’s regional economic commissions.

The global forecast called for the world economy to expand 3.25 per cent this year, a “modest deceleration” from 4 per cent growth in 2004, he continued.  While the United States and China were now the principle growth engines for the global economy, growth in developing countries was the fastest in over two decades, and the output in the remaining economies in transition continued to increase more rapidly than in other major country groups.

The United States economy was expected to grow 3 per cent -- compared with 4.2 per cent last year -- due to the huge projected budget deficit and recent interest rate increases, according to the report.  Several other large countries were among those that had fiscal deficits widely regarded as “excessive”, and efforts to reduce them would have a moderating effect on growth, Mr. Ocampo added.

And while some correction of the United States fiscal deficit and an improvement in its private savings rate seemed indispensable to correct the global imbalances, he warned that the depreciation of the dollar was not enough.  The dollar’s decline was failing to bring about a correction because the United States was in the unique position of holding its debt in its own currency, which was the main currency of global exchange.  The decline, therefore, took a toll on global demand, which softened the benefits to United States exporters of the increased competitiveness by a cheaper dollar.

“This was not a call to jack up the price of the dollar”, Mr. Ocampo told one correspondent.  An orderly correction would occur, but it would have to be aided by a gradual, long-term adjustment of both deficit and surplus countries, such as Japan, as well as in Western Europe and some parts of the Asian developing world.  “Greater global economic cooperation would be needed to avoid a hard landing”, he added, pointing to a “great challenge” ahead for countries, as well as central banks.

But despite those downward pressures, the report stated that underlying global economic conditions remained sound, and global growth was expected to moderate, not to suffer a reversal, he said.  United States consumption was stimulating the world manufacturing sector, while burgeoning Chinese demand for raw materials was improving the market for commodity-exporting developing countries as far away as Africa and Latin America.  The report did, however, predict a small trade deficit for China this year.

An unprecedented phenomenon had been the steady rate of economic growth in the wider developing world, he said.  Growth on the African continent in 2004 had been fuelled by higher agricultural output, improved political stability and incoming donor support, as well as stronger commodity markets, and those same factors were expected to produce a similar outcome.  At the same time, although there had been steady growth in sub-Saharan Africa, Mr. Ocampo warned that that might still not be enough for the region to reach the Millennium Development Goals.

Further, the report stressed that one of the universal weaknesses in the world economy continued to be the slow growth of employment and the persistence of high rates of unemployment and underemployment in most developing countries.  Mr. Ocampo said that, while “jobless growth” in the developing world had not appreciably worsened, it was, nevertheless, a troubling structural problem for many small countries.  Unless improved economic growth was reflected in increased employment, it would prove difficult to reduce poverty.  The need to absorb the millions of surplus workers in the agriculture sector and in State-owned enterprises in China was a special case, but lack of employment was a problem in other countries in the region.

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