UNITED NATIONS, Jan 9: The United Nations warned on Wednesday of “clear and present dangers” of the world economy coming to a near standstill this year because of US housing and credit problems and the weak dollar.

In an annual report, the world body forecast global economic growth at 3.4 per cent for 2008, only slightly lower than last year, but said under a pessimistic scenario it could be as little as 1.6 per cent.

The bursting of a housing bubble in the United States last year and a crisis over “subprime,” or risky, mortgages had caused uncertainty across financial markets around the world, said the “World Economic Situation and Prospects 2008”.

Together with the decline of the dollar and imbalances between countries running surpluses, such as China, Japan and major oil producers, and those with big deficits, especially the United States, this could drag world output down, it said.

The US problems “could trigger a worldwide recession and a disorderly adjustment of global imbalances,” the report said.

“The recent global financial turmoil has heightened these risks and shown them to be clear and present dangers.”

The last UN report issued a year ago proved overly pessimistic. It said 2007 world growth would drop to 3.2 per cent but it turned out to be an estimated 3.7 per cent, according to the new report.The 170-page report, compiled by seven UN organizations, forecast US gross domestic product, or GDP, growth at 2.0 per cent this year compared with an estimated 2.2 per cent last year.

But it warned that could be virtually wiped out if US house prices fell by as much as 15pc. The economies of Japan and Western Europe, already operating near capacity production, could not take up the slack, it said.

Until now, trade has been increasing its share in most countries’ GDP, but a US recession would cut back export growth from China, Japan and Europe, reducing their demand for exports from developing countries.

The report found a more positive picture for developing countries’ economies, which grew at nearly 7 per cent for a third straight year. That could continue this year but further dollar depreciation would hit them hard as their reserves are held in dollar-denominated assets.

The report said that under normal circumstances the US slowdown could be treated with interest rate cuts, but at present that could further weaken the dollar and stronger demand was needed in countries with large surpluses.

China should invest more in health, education and social security while Japan and Europe should end monetary tightening. —Reuters