PRESS CONFERENCE ON 2007 WORLD ECONOMIC PROSPECTS

 

A slowdown of the world economy was expected in 2007, with the weakening of the United States housing market a major factor in the global slowdown, José Antonio Ocampo, the Under-Secretary-General for Economic and Social Affairs, said at a Headquarters press conference to launch a joint United Nations report.

Outlining the main findings of the World Economic Situation and Prospects 2007, Mr. Ocampo noted that, barring a further weakening of the United States housing market, the world economy was expected to moderate from 3.8 per cent growth in 2006 to 3.2 per cent in 2007.  While the slowdown would be generalized and affect all regions, developing countries as a whole expected relatively rapid economic growth.  The least developed countries would continue to lead world economic growth at 7 per cent.

Among the industrial economies, the United States economy had experienced the strongest slowdown with a 2.2 per cent rate of growth, he said.  Other economies were also expected to slow, however, and would not replace the United States as the engine of growth for the global economy.

Transitional economies, however, would continue to grow at a very fast pace, he added, noting that the Russian Federation was the basic engine for growth in its region.  Growth in the developing countries was expected to remain strong at 5.9 per cent for developing countries and 6.5 per cent for economies in transition.  Africa had experienced the fastest growth rate in history.  In general, all regions of the developing world were expected to grow at a faster pace than the industrial economies.

While most analyses identified the price of oil as a critical constraint on economic growth, high oil prices had not proven a major constraint, he said.  Oil prices would continue to moderate in 2007 at around $55 per barrel, which was lower than the peak achieved last year.

Financial conditions for the developing world had been positive, he said.  Despite significant disturbances in emerging markets in May and June 2006, those markets had since normalized.  One problematic feature of the world economy was the continued transfer of resources from developing to developed countries, which had continued to increase for almost a decade, reaching a level of more than $650 billion.

The housing market, he stressed, could be the most important factor in the world economy, especially if the United States housing market continued to experience a recession, and if that recession started to affect housing prices.  An alternative scenario was a strong recession generating a much stronger slowdown of the United States economy.  In that scenario, the United States economy would only grow 0.5 per cent this year, compared to 2.2 per cent in 2006.  If that materialized, the world economy would experience a much more significant slowdown -– 1.9 per cent growth rather than 3.2 per cent.  The possibility of a strong recession in the housing market, particularly in the United States, and its contagion to other industrial countries, was the major risk factor to the world economy today.

Another underlying risk -- which was of low probability but high influence if it happened -- was the eruption of global imbalances in the world economy resulting in a major crisis for the United States dollar, he said.  The United States deficit had been increasing in recent years, reaching over $800 billion last year.  On the contrary, however, surpluses existed in all major regions, including in Asia, Europe and, of course, the oil-producing Arab States, which were the major sources of finance for the United States deficit.  The real question was whether it would affect the United States dollar, which had been under a weakening pattern in recent months.  That pattern had not, however, shown any significant disturbance, so far.  To address that issue, the report suggested the need for microeconomic policy coordination among the major industrial and developing countries, proposing several alternatives, including the possibility of moving towards a multicurrency system that was less dependent on the United States dollar and more on other major currencies.

Noting that, of the 50 least developed countries, 34 were in Africa, a correspondent asked if the strong economic growth of the least developing countries had been generated by oil-producing countries.

Responding, Mr. Ocampo said the oil-producing African countries had, of course, been doing particularly well.  Many non-oil-producing countries had also been doing well, however.  While Africa was a continent of many success stories, it also had some of the world’s saddest stories.

The reason for the transfer of assets from developed to developing countries was to finance the United States deficit, he said in response to a question.  Whether that transfer generated a positive growth was a debatable question.  It was clear, however, that a disturbance in the current situation would be difficult to manage.

On the question of housing, he said the housing market had already fallen by about 20 per cent.  The major issue was whether that fall would start to affect prices.  The situation seemed to be relatively stable.  That was why the report’s basic scenario was for the status quo in terms of the housing market.

Asked to comment on European news reports about expected losses due to climate change, he noted that, while climate change had many long-term implications, its short-term implications were not clear.  The effects of climate change on the world economy had not been included in the report.

Responding to a question on official development assistance (ODA) and the case of Nigeria, he noted that ODA included debt relief.  The debt relief operation with Nigeria had been one of the largest in history and was included as part of ODA.  ODA in general had been increasing, particularly for sub-Saharan Africa.  Many of the additional flows took the form of debt relief, technical cooperation and emergency operations, and not of “normal” flows to finance the achievement of the Millennium Development Goals.  That had been a source of concern for some time.

Were there any other countries in Africa that had the near term potential to drop off the list of “international economic basket cases”? a correspondent asked.  Listing several countries, Mr. Ocampo said that Equatorial Guinea, Chad, Sierra Leone and Liberia had done well, while Zimbabwe and Seychelles had not.  There was a diversity of experience in Africa.

Responding to a series of questions on the Department of Economic and Social Affairs, including duplication of its activities with those of the United Nations Development Programme (UNDP), he referred to a report presented a few years ago that had found that the different United Nations organizations were, in practice, highly complementary in their functions.  The Department’s work, which was basically analytical and normative, was carried out for the major United Nations organs, namely the General Assembly and the Economic and Social Council.  UNDP, on the other hand, was an operational agency.  The report on system-wide coherence emphasized, among other things, the need to increase common work among the different United Nations agencies.

Asked if he had already presented his resignation to the new Secretary-General, he said that he had.

Responding to a question on allegations into the possible misuse of funds by the Department of Economic and Social Affairs, he noted that the United Nations had an internal control system.  He was letting the Office of Internal Oversight Services (OIOS) finish its investigation.  If the investigation indicated any improprieties, measures would be taken.  Prior to that, however, the justice system was based on the principle of the presumption of innocence.

Asked if he accepted personal responsibility for things that happened in his Department, he said there was always a political responsibility for the person in charge.

Answering questions on the funding of the Department’s activities by different countries, he said the financing of the Department’s programmes was a normal practice.  Much of the money went to the young professionals programme.  The Department also carried out many technical assistance programmes and regional workshops.

A correspondent asked if the OIOS report would be out before the 15 January deadline for the United Nations senior management to officially hand in their letters of resignation.  Responding, he said he had, in fact, asked OIOS to speed up the report.

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For information media • not an official record