PRESS CONFERENCE ON 'WORLD ECONOMIC SITUATION AND PROSPECTS 2006' BY UNDER-SECRETARY-GENERAL FOR ECONOMIC AND SOCIAL AFFAIRS

PRESS CONFERENCE ON ‘WORLD ECONOMIC SITUATION AND PROSPECTS 2006’

BY UNDER-SECRETARY-GENERAL FOR ECONOMIC AND SOCIAL AFFAIRS

The United Nations today launched its annual global growth report, in which the world body’s top economists predict that the global economy will continue to cool in 2006 -- growing just slightly more than 3 per cent, following a similar pace in 2005 -- even with the “dynamic growth” of China, India and a few other large developing economies.

Briefing the press at United Nations Headquarters in New York, Under-Secretary-General for Economic and Social Affairs, José Antonio Ocampo, highlighted above average economic growth in most parts of the developing world (5.6 per cent) and in transition economies (5.9 per cent). Growing at some 6.6 per cent, the least developed countries appear to be faring even better, reaching the fastest average growth rate they have had in decades, he added. 

The flagship report, World Economic Situation and Prospects 2006, was launched simultaneously today in New York and Geneva, and was compiled by the Department of Economic and Social Affairs (DESA), the United Nations Conference on Trade and Development (UNCTAD) and the world body’s regional commissions.  It notes that the slowdown largely reflects a maturing of recent global economic recovery. Natural disasters and terrorist incidents since the end of 2004, although fairly well-absorbed, have nevertheless taken a toll, the report adds.

Mr. Ocampo told reporters that the slowdown was somewhat unsurprising, following several years of relatively high global economic growth. Rising deficits in the United States -- still the world’s main engine for economic growth -- sluggish growth throughout the European Union, and a modest rebound in the Japanese economy contrast with solid growth throughout the developing world, where much of the economic buoyancy resulted from high export commodities.

Pointing to some trouble spots, Mr. Ocampo first noted lacklustre employment growth worldwide. The report adds that, despite strong performance, many developing countries continue to face high levels of structural unemployment and underemployment, which limit the impact of growth on poverty reduction. Mr. Ocampo said that there was also a risk of rising inflation, largely brought on by the sharp increase in oil prices.

He said that, following the initial rise in oil prices, many countries adopted measures to protect domestic consumers by introducing or strengthening energy price controls and subsidies, and warned that these measures were becoming less and less viable, as high oil prices persist and more of the price increases would be passed on to consumers. Other risks include the possibility of an outbreak of avian flu into a human pandemic and a crash in housing prices, particularly if that occurred in the United States.

Mr. Ocampo also expressed concern that Latin America appeared to be the one developing country region that was lagging on the economic front. And although that region has rebounded somewhat from recent years, when compared with Asia, Latin America’s 4 per cent growth rate was “significantly slower”. When asked about this, Mr. Ocampo said that one striking feature was that Brazil and Mexico, the region’s two largest economies, had been underperforming, even though many other countries, like Argentina and Venezuela, were recovering. He added that another clue to the pullback was the incapacity of Latin America to better integrate its economies into the global manufacturing trade.

Robert Voss, Director of Development Policy and Analysis at DESA and the report’s main author, who joined Mr. Ocampo at the briefing, noted that growth in Central America and the Caribbean was notably slower because they did not have the benefit of oil products and relied more heavily on manufactured exports. 

He said that the report called attention to global financial imbalances, driven largely by the United States $800 billion deficit and rising surpluses in other parts of the world, particularly the oil economies of Western Asia. To spur a correction in this imbalance, he echoed the report’s call for a synchronized, global approach to overcome “investment anaemia”.

When asked to explain the theory further, he stressed the need for all regions to come up with effective measures to encourage savings in the deficit countries and investment in the surplus countries. Indeed, with the notable exception of China, investment rates worldwide have reached an historic low. Correcting this required much better coordination of macroeconomic policies among industrial countries, as well as large developing countries.

For the United States, he added that this would mean stimulating both household and public savings. For Europe, it implied maintaining relatively low interest rates, in order to encourage more private investment. Japan must also encourage more investment. He also called for more involvement of the International Monetary Fund (IMF).

Mr. Voss stressed that the report focused on low business investment, which has been seen even in countries where corporate profits were relatively high. Oil exporting countries appeared to be investing much of their surpluses in real estate, which could lead to other problems, such as inflated real estate markets further appreciating exchange rates.

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