UNITED NATIONS - The United Nations on Thursday sharply curtailed its forecast for world economic growth this year because of worsening US housing and credit markets
In a midyear update of its annual economic survey, the world body predicted a rise in global gross domestic product of just 1.8 per cent in 2008, below its forecast of 3.4 per cent just four months ago and the 3.8 per cent achieved in 2007.
A housing bubble burst last year in the United States, where a crisis over 'subprime' - or risky - mortgages spread financial turmoil around the globeThe revision was due to 'further deterioration in the housing and financial sectors of the United States in the first quarter of 2008; this is expected to be a further drag for the world economy, extending into 2009,' the 15-page report said.
A housing bubble burst last year in the United States, where a crisis over 'subprime' - or risky - mortgages spread financial turmoil around the globe.
That turbulence, the weakening US dollar, global imbalances and soaring oil and food prices meant that 'the world economy is teetering on the brink of a severe global economic downturn,' the report said.
In the United States itself, the report issued by the UN Department of Economic and Social Affairs projected a GDP fall of 0.2 per cent this year, compared with its prediction in January of a 2 per cent rise.
The report stressed that all its figures could turn out to be higher or lower depending on how effective US monetary and fiscal stimulus measures were in combating the crisis.
'Our basic analysis is that the problems have not bottomed out yet,' said Rob Vos, a divisional director at the UN agency.
Asia slowdown
The UN update also saw slowdowns not just in western Europe and Japan but also in the dynamic economies of East and South Asia, where growth would fall to 5.9 per cent from 8.5 per cent last year.
China would be hit by slowing exports, tightening monetary policy, appreciation of its currency and rising labour costs, the report said.
For the first time in five years the strongest growth - 6.4 per cent - was expected in the 'transition' economies of former Soviet and southeastern European states. Oil prices rising over US$120 a barrel have fuelled a major boom in Russia.
The report blamed continued economic decline in Myanmar - likely to be worsened by this month's devastating cyclone - and slowdowns in Sudan and Ethiopia for a drop in the poorest countries' growth to 5.2 per cent from 6.5 per cent last year.
The UN said world food commodity prices, after increasing by one quarter last year, had reached an annual inflation rate of 57 per cent in March and were expected to go on rising this year and stay high next year before dropping.
World food supply rose by 5 per cent last year but still fell short of rising demand, due to natural disasters and to rising incomes leading to extra demand for meat.
The report predicted the global economic slowdown would cause oil prices to fall to US$95 a barrel this year and US$90 next year.
The report followed previous ones in calling for concerted international action to tackle financial problems, including requirements that banks and other institutions build up capital during upswings to cushion against possible future losses.
It also said the international reserve system should be switched from the dollar alone to a basket of currencies.
On food prices, it said the crisis had highlighted neglect of agriculture in many parts of the world and called on countries to invest in water supply, infrastructure, better seeds and fertilisers, education and research. -- REUTERS
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