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UN Sees World Economy Growing At Modest Rate

A new U.N. report says the world economy will grow by slightly more than three percent this year. The U.N. World Economic Situation and Prospects Report for 2006 predicts the economies of the developing world will put in a better performance than will those of the richer, developed countries.

The Report notes the world has done a fairly good job of absorbing natural disasters and terrorist incidents. Nevertheless, they have taken a toll on the global economy which, it says, has cooled since 2004 when growth rates reached a historic high of four percent.

U.N. economists expect the possibilities of new oil price surges, an outbreak of a bird-flu pandemic in humans or a crash in private home prices in Europe and North America to pose a threat to sustained, if modest, economic growth. But, they say the greatest danger may lie in the huge and still-growing imbalances in global finance.

The report notes the current-account deficit of the United States continues to increase at a rapid pace. It worries this could eventually erode the willingness of foreign investors to buy dollar assets. And, this, it says could lead to a precipitous fall in the value of the U.S. dollar and have an impact on the stability of the global economy.

The Secretary-General of the U.N. Conference on Trade and Development, Supachai Panitchpakdi, says the major economies have to coordinate their macro-economic policies to prevent this from happening.

"The United States should stimulate household savings and reduce public dis-savings," said Supachai Panitchpakdi. "Europe should keep interest rates down to stimulate private demand to stimulate demand as room for fiscal expansion seems limited in most countries in Europe. In Japan, financial sector reform should continue. In Asia, surplus countries should boost public and private investment rates. And, China should boost definitely broad-based consumption demand."

The United Nations projects economic growth rates of 5.5 percent in developing countries this year. And, the poorest countries in the world will grow at 6.6 percent, the fastest average growth they have had for decades.

Supachai says the rise in commodity prices has been a major factor in Africa's recovery. But, he cautions there are signs prices are beginning to level out.

"So, it is a cautionary note that should be taken into consideration," he said. "Apart from this, we also mention in our report that this is a time for countries, which have been reaping the so-called windfall gains from commodity prices, they should be thinking of investing their windfall gains, not to be expanding only the mineral sectors, but to be diversifying their economies, to be making more investments in social areas and in educational areas."

The Report finds all North African countries, with the exception of Morocco, expanded robustly last year, aided by windfall oil earnings. Sub-Saharan exporters such as Angola and Chad also grew in double digits, and even conflict-wracked Sudan's economy grew by seven percent.