UNITED NATIONS - The world economy is "teetering on the brink'' of a severe downturn and is expected to grow only 1.8 per cent in 2008, the United Nations said in its mid-year economic projections Thursday.
That's down from a global growth rate of 3.8 per cent in 2007, and the downturn is expected to continue with only a slightly higher growth of 2.1 per cent in 2009, the UN report said.
The mid-year update of the UN World Economic Situation and Prospects 2008 blamed the downturn on further deterioration in the U.S. housing and financial sectors in the first quarter, which is expected to "continue to be a major drag for the world economy extending into 2009.''
But the UN said developing countries will suffer as badly: They should grow by five per cent this year and 4.8 per cent next year, compared to a robust 7.3 per cent in 2007, the report said.
The UN economists said the deepening credit crisis in major market economies triggered by the U.S.-led slump in housing prices, the declining value of the U.S. dollar, persistent global imbalances and soaring oil and commodity prices pose considerable risks to economic growth in both developed and developing countries.
"The baseline forecast projects a pace for world economic growth of 1.8 per cent in 2008,'' the UN report said.
However, it said the final figure will largely depend on developments in the United States.
Global growth this year could fall to 0.8 per cent if the U.S. sub-prime mortgage market turmoil has a more serious impact on developing countries and countries in transition, the UN report said.
But if the monetary and fiscal measures the U.S. government has taken to stimulate the economy -- including tax refunds and lower interest rates -- boost consumer spending and restore confidence in the business and banking sector, the world economy could only slow to 2.8 per cent growth this year and 2.9 per cent in 2009, it said.
The report, prepared by the UN Department of Economic and Social Affairs, forecast that U.S. economic growth will decline from 2.2 per cent in 2007 to -0.2 per cent this year, with only slight recovery in 2009 to 0.2 per cent growth.
"At issue is how deep and long this contraction will be,'' the report said. "As the housing slump continues and the credit crisis deepens, a broad array of ... indicators are already hinting at a recession.''
It cited a decline in U.S. employment, consumer confidence at its lowest level in a decade, household spending growth slowing sharply and business equipment spending slowing alongside large inventories of housing and a 30 per cent decline in residential investment.
This strongly suggests "that the implosion of housing activity will not stabilize until 2009,'' the report said.
As for other developed countries, the UN forecast that Japan's economic growth will decline from 2.1 per cent in 2007 to 0.9 per cent in 2008 and that Western Europe's growth rate will drop from 2.6 per cent last year to 1.1 per cent this year.
Despite the slowdown in global economic growth in 2008, the UN said global inflation is expected to accelerate this year to 3.7 per cent.
The report said the recent sharp rise in commodity prices and the continued rise in oil prices are key factors spurring inflation along with higher wages.
The growth of world trade also slowed from 7.2 per cent in 2007 to 4.7 per cent in early 2008, largely due to weak U.S. demand for imported goods, it said.
