UN Report Suggests Severe Global Economic Downturn Ahead

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World Economic Situation and Prospects 2008 was released today by the UN’s Department of Social and Economic Affairs. The report states that the deepening credit crisis in affluent countries triggered by the continuing housing slump, the declining value of the United States dollar, persisting global imbalances and soaring oil and commodity prices pose major threats to economic growth around the world.

The global food crisis is not only a grave humanitarian issue but also presents a threat to political and social stability in some developing countries and may reverse some of the progress towards the Millennium Development Goals (MDGs).

The report predicts that world economic growth will fall steeply to 1.8 per cent this year and 2.1 per cent next year, down from 3.8 per cent in 2007.

The United States is the prime driver of the global economy, and where a crashing housing market and finance and credit weaknesses set off the global downturn, so much will depend upon what happens there.

A worst-case scenario would see the “world economy come to a virtual standstill” if recent financial measures in the US fail to turn the economy around, and house prices continue to fall, blending with a severe tightening on credit.

In order to improve the world’s economy, an internationally coordinated economic stimulus package to support US efforts, centred on the expansion of domestic demand in countries with savings surpluses, especially in Europe, the Arabian Gulf and East Asia, is required.

The economists recommend improving food supply and productivity through investment in irrigation techniques, infrastructure, improved seeds and fertilizer, and agricultural research and development.

full report available here as pdf.