World Growth to slow in 2007

World Economic Situation and Prospects 2007 from UN is out;

“The expected slowdown in the world economy for 2007 will be mainly driven by the United States of America. Indeed, the United States economy has already decelerated notably during the second half of 2006. The slowdown is closely linked to the cooling down of the decade-long housing boom and is expected to cause an economy-wide slowdown during 2007 which will affect growth in the rest of the world. Growth in Europe and Japan, while close to potential, is not strong enough for these economies to act as new engines for the world economy. A deceleration of growth is also expected to be discernable in the developing countries and the economies in transition, but in varying degrees across countries. The recent boom in developing countries seems to have become increasingly endogenous within the group, propelled in particular by the rapid industrialization and growth of modern services in China, India and a few other emerging economies. Other developing countries, especially in Africa and Latin America, continue to be highly dependent on the production and exports of primary commodities and benefit from high prices in buoyant commodity markets strongly influenced by robust growth in a few major developing countries, especially China. Nevertheless, the lion’s share of the global demand for primary commodities still originates from developed countries, to the extent that a slowdown in the United States, Europe and Japan will also significantly affect growth in developing countries. Furthermore, even the exports of major developing countries such as China and India still largely depend on the demand of the major developed countries; consequently, their economies will also be affected.”

Downside risks highlighted in the report;

- The risk of a further decline in house prices in the United States
- Challenges posed by persistently higher oil prices
- Risk of a disorderly adjustment of the global imbalances remains

What can be done? (in typical UN style)

- Develop a consensus on common goals through international consultations with outside mediation
- Enhance the context for mediation and the perceived legitimacy of the mediator
- Address commitment problems by issuing multi-year schedules for policy adjustments
- Initiate systemic reforms in the field of international monetary and financial affairs

Related;
Is the High Rate of Worldwide Economic Growth Sustainable?