|Department of Public Information • News and Media Division • New York|
PRESS CONFERENCE BY DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS
TO LAUNCH ‘WORLD ECONOMIC SITUATION AND PROSPECTS 2008’
Warning that the world economy could come to a near standstill, United Nations officials predicted today that global economic growth would slip from 3.7 per cent last year to a moderate 3.4 per cent in 2008.
Economic woes in the United States during the second half of 2007 -– the bursting of the housing-market bubble, the unfolding credit crisis and the falling dollar -– were largely to blame, they said at a press conference to launch the World Economic Situation and Prospects 2008, an annual report published jointly by the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development (UNCTAD) and the Organization’s six regional commissions.
A continued economic downturn and slowdown in consumption in the United States, coupled with a further strong currency depreciation, could create more uncertainty across global financial markets and push down growth projections to just 1.6 per cent next year, said Rob Vos, Director of the Department’s Development Policy and Analysis Division.
“Recent developments have increased the further risk of the US economy moving into recession and bringing down the rest of the world economy with it,” he said, adding: “To counteract it, we do plead, as we’ve done in previous years, for multilateral policy action. We don’t believe that the United States economy and Government by itself can take sufficient measures to avoid the risk of the country falling into recession.”
Predicting that the United States dollar would depreciate 5 per cent in 2008 and continue its downward slide in 2009, he warned that there was also a 50-50 chance for a United States recession next year. Unilateral preventive measures, such as lowering interest rates, could be self-defeating and a realignment of currency exchange rates, while helpful, would not in itself be sufficient. Japan and Western Europe, which were already operating near production potential, were not in a position to pick up the slack. In fact, export growth from those nations and from China would fall, as would their demand for developing-world imports. “We should be very concerned and we should plead for concerted action among all Member States to avoid recession of the United States economy and avoid jeopardizing the possibility of meeting the Millennium Development Goals.”
Countries with large savings and current account surpluses, such as China, Japan, major oil exporters and several European nations, should take steps to stimulate global demand and avoid a hard landing of the United States dollar and a United States recession, he said. For example, China could step up public investment and spending on health, education and social security, while Europe and Japan, where inflationary pressures remained low, could end monetary tightening and adopt moderate stimulus measures.
While dismissing claims that developing countries were the new engine of global economic growth, he noted, nevertheless, that their economies had continued to expand robustly last year, by an average of almost 7 per cent; African economies had grown by a remarkable 6 per cent and would likely enjoy the same rate of expansion in 2008. The share of developing countries and economies in transition in world trade had risen to 40 per cent in 2007, up from 35 per cent in 2000. Also last year, terms of trade for most exporters of primary commodities had improved for the fifth consecutive year and equity investments continued pouring in. Still, economic prosperity in the developing world was largely dependent on growth and trade in rich nations.
Jomo Kwame Sundaram, Assistant Secretary-General for Economic and Social Affairs, stressed the urgent need for international financial regulation and international macroeconomic coordination at the present time. “The IMF (International Monetary Fund), which should play a leading role in this regard, has not stepped up to the mark,” he said, adding: “This has partly been compromised by IMF governance, which has undermined its legitimacy and its ability to work more effectively.”
He criticized the Group of Eight and the related “Group of 20” as illegitimate and ineffectual, and for largely excluding developing countries. “There is an urgent need to recognize this, not only because of its effect on the economy, but also because of its likely implications on political and social stability.”
Asked why Governments and the Bretton Woods institutions had not heeded United Nations warnings in recent years about global imbalances and the sub-prime mortgage meltdown in the United States, Mr. Jomo said the Organization had a much more sanguine, pragmatic and independent view on issues while “perhaps the [International Monetary] Fund has been much more of a cheerleader for financial liberalization and financial deepening”. Traditionally, IMF governance and voting were skewed to give greater weight to Europe and to a lesser extent the United States, which had caused many developing countries to demand governance reform in recent years.
A journalist asked whether, in a pessimistic 2008 scenario, oil prices would stay high due to strong energy demand while the prices of other energy and non-energy commodity prices dropped.
Mr. Vos replied that, while it was difficult to predict what would happen, oil prices would eventually have to drop in the event of a serious global recession.
Asked whether the United Nations had studied the consumer impact of the sub-prime housing meltdown and if it had prescriptions for consumer protection, he said that, while the report focused mainly on better regulation of financial markets, improved behaviour by financial institutions would, in itself, benefit consumers. Consumer protection issues could perhaps be discussed in future reports.
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