Geneva
09 January 2008
A new U.N. report says the risk of global economic recession is rising. The report, by the U.N. Conference On Trade and Development, says international trade is expected to slow and the world economy to cool off. Lisa Schlein reports for VOA at the launch of the report in Geneva.
World economic growth was robust last year. The report notes more than 100 economies achieved three percent growth or more. And growth in developing countries rose on average nearly seven percent. Africa, it notes, grew by nearly six-percent and is expected to exceed that figure this year.
But, the U.N. Conference On Trade and Development says there is a clear danger of the world economy coming to a near standstill in 2008. The report says this will hit many poor nations hard, slow world trade and put an end to the boom in commodity prices.
Heiner Flassbeck is an official at the U.N. agency. He says the major uncertainties for 2008 arise from the U.S. economy.
"We have seen already a crisis in the third quarter of last year, the so-called sub-prime crisis," he noted. "This has sent some shock waves all around the world and these shock waves have had already a number of repercussions that could lead to a much worse outcome in 2008."
U.N. economists say significant spillover effects from the problems in the U.S. mortgage markets have spread to major European countries and, to a lesser extent, to Japan and other developed economies.
Flassbeck says the world can no longer count on the United States as being the sole locomotive of the world economy. He says Japan and Europe have to do more to take over this role. But, he adds, there is no sign yet that other major developed economies are strong enough to replace the United States as the engine of global growth.
He says the world economy would suffer a severe blow if the United States were to go into recession.
"Recession is a real threat, but nobody can tell whether it materializes or not at this moment of time," he added. "As I said, that is the result of uncertainty still surrounding, what is called, the sub-prime crisis because still nobody knows exactly how much additional value will have to be written off or how much additional losses will occur in the financial system as a whole in the United States and elsewhere."
The U.N. report notes a 15 percent drop in housing prices would be likely to affect consumer demand and take two-percent off U.S. growth, bringing the U.S. economy to a virtual standstill in 2008.
It finds the fall of the U.S. dollar is benefiting the United States by lowering its export prices and making imports higher. But, it says the depreciation of the dollar is hurting other economies.
The report says governments should take joint action to avoid a rout of the dollar. It warns a rapid and disorderly descent could lead to a global recession.