UN forecasts slowdown in world economy

UNITED NATIONS, DEC. 29. The United Nations expects the growth rate of the world economy to slightly slow down next year from surprising strong four per cent this year to 3.5 per cent in 2001.

One of the reasons is the expected slowdown in the U.S. growth rate from five per cent to 3.5 per cent, according to a report released yesterday. But the developing nations, which showed an average growth of 5.6 per cent this year, are projected to show little change with growth coming down slightly to 5.5 per cent of GDP.

The World Economic Survey-2001 found that developing countries and economies in transition are in a better shape now to absorb the financial shocks than they were two or three years ago. The report says price of oil is still a worrying factor.

A high oil bill could upset the economies of developing countries. The fuel bill for the poor nations this year was $60 billion higher than last year.

``If the fuel prices continue to rise, they could adversely affect these economies," the report says. The shortfall in the U.S. growth could to some extent offset by Japan whose GDP is forecast to grow from 1.4 per cent to 2 per cent.

The report says accelerating recovery from the financial shocks which rocked the world in 1997 and 1998 is easing off but economic expansion should continue at a moderate pace in 2001.

The report says present evidence points towards a 3.5 per cent growth in world GDP next year, following a surprisingly strong 4 per cent in 2000. It blames the possible slowdown on a number of trends this year, including higher oil prices and tightening labour markets which caused inflation, prompting policymakers to respond with increasingly restrictive measures.

Other factors include higher interest rates, rapid appreciation of dollar against almost all other currencies, falling corporate profits and rising debt.

The report cautions that a return of surging petroleum prices in the context of decelerating economic growth in 2001 might cause monetary authorities to keep interest rates higher than desirable. It predicts that investment spending on computer equipment and software, Internet and telecommunications will continue to stimulate the global economy over the next few years, but not on the same scale as the recent past.

The U.S., which led developed countries with 5 per cent growth in GDP in 2000, is projected to settle to still-strong rate of 3.5 per cent rate in 2001.

Japanese GDP growth is forecast to increase from 1.4 per cent in 2000 to 2 per cent in 2001. The EU's total GDP rise of 3.4 per cent this year is likely to decrease only slightly to 3 per cent in 2001.

GDP growth in all developing countries, which was 5.6 per cent in 2000, is projected to hold nearly steady at 5.5 per cent in 2001. Economies in transition are predicted to grow by 4 per cent in 2001 compared with growth of 5.3 per cent last year.

- PTI

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