UNITED NATIONS, June 29: World economic growth will slow substantially this year, mainly in industrialized countries, blunted by high energy prices and rising interest rates, UN forecasters say.
The growth of economies around the world is expected to ease to 3 per cent this year from 4.1 per cent in 2004, according to the latest report on world economic prospects from the UN Department of Economic and Social Affairs.
Developing countries, including those in long-lagging Africa, will by and large stage stronger growth than developed countries, helped by a buoyant market for their minerals and farm goods, according to the report released on Wednesday.
“While the higher prices have had some adverse effect on both developed and developing economies, the majority of developing countries have benefited from the increased demand and the higher prices,” the report said.
The mid-year forecast was prepared to coincide with the annual ministerial session of the U.N. Economic and Social Council, beginning on Wednesday, which analyzes trends in the world economy and their impact on global development goals.
The UN forecast developed nations’ economic growth to moderate. Growth in western Europe is expected to slow to about 2 per cent from 2.2 per cent in 2004. US growth is forecast to ease to 3 per cent in 2005 from 4.4 per cent the previous year.
Developing nation economies are set to grow by 5 percent in 2005 and 2006. “All developing regions are performing well by their respective standards of the past few decades,” the report said.
China’s economy is expected to grow at an annual rate of about 9 per cent, driven by strong exports and high levels of investment. In Africa as a whole, the United Nations forecast growth at more than 5 percent in 2005 as a result of oil exports and strong demand for other commodities.
The new report said the US current account gap, which ran at a record $195.1 billion, or 6.4 per cent of gross domestic product, in the first quarter, could lead to shocks to economies around the world if it grows to the point where investors lose their appetite for dollar-denominated debt.
The weakening of the US dollar is not enough to correct the current account gap, the report said.
The report warned that rising fuel costs could ultimately curb growth and lead to lower demand in oil importing countries. Oil exporters should use a flood of revenues to protect their economies against swings in energy prices, the report recommended.
Oil prices — which climbed to a record high above $60 a barrel on Monday — rose by almost a third in 2004 on strong demand in spite of rising costs.—Reuters