Wednesday, September 5, 2007

U.N. Says U.S. Growth Will Slip

The U.S. economy will slow sharply this year and fall behind growth rates in most of the world, according to forecasts in a U.N. report released this week.

For the first time since 2001, both the European Union, at 2.8 percent, and Japan, 2.3 percent, are predicted to have higher GDP growth than the United States.

Global growth, meanwhile, is pegged at 3.4 percent, down from 4 percent in 2006, largely because of the U.S. slowdown, the report said.

High commodity prices continue to boost growth in developing countries, which accounted for a 37 percent share of global trade last year, the report said. A decade ago their share of trade was 29 percent.

The economic outlook for developing countries is positive for the first time since the early 1970s, driven in large part by the growth in China and India, according to an annual report by the United Nations Conference on Trade and Development (UNCTAD) released today.

Developing countries – including many of the world’s poorest nations – will see ongoing benefits from strong demand for primary commodities, and this positive trend in terms of trade since 2003 has allowed such countries globally to bolster investment in their economies, said the Trade and Development Report 2007.

Per capita gross domestic product has increased nearly 30 per cent between 2003 and 2007, compared to 10 per cent for the Group of Seven (G-7) highly industrialized countries, the Report noted. Overall, the world economy will mark growth for a fifth consecutive year, with a 3.4 per cent expansion this year.

UNCTAD warned that a major recession in the United States could lead to diminished exports for China and India, which are setting the pace for growth of developing countries.

The Report also cautioned that North-South bilateral and regional free trade or preferential trade agreements could prevent poorer nations from developing their industrial sectors and reduce their control over foreign direct investment.

Instead, UNCTAD pointed to the example of today’s industrialized and developing countries which have recorded tremendous economic growth in the past several years through protection of nascent industries, thus allowing them to hone their abilities to meet the challenges of international competition.

Additionally, the Report called for intensified regional cooperation in exchange rate arrangements as a means to reduce the vulnerability of developing countries. The absence of appropriate global exchange rate arrangements could lead to exchange rate instability, especially in developing nations by impeding their overall competitiveness.

Regional collaboration could also benefit developing countries in terms of long-term development, UNCTAD said, as it can help countries build up their economic capabilities to allow them to compete globally. Such cooperation should include joint policy action – focusing on macroeconomic, financial, infrastructure and industrial policies – to boost growth and structural change potential.

U.S. economic developer should be asking what impact this drop-off in growth will have on local and state economies.

Read more here.

Download report here: UNCTAD

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