Developing States Set To Post Fastest Economic Growth In 2006

The world economy is expected to grow at 3.3% this year, with developing countries set to post the biggest gains on the back of low interest rates, tame inflation and strong commodity demand, a UN report said Jan. 24.

The UN's annual World Economic Situation and Prospects 2006 report said the global growth rate was similar to the 3.2% of last year, down from the historically high 4% of 2004 and in line with the average of the past decade.

Gross domestic product (GDP) slowed down in most of the developed economies last year, with no recovery expected in 2006.

Forecasts for the U.S., which remains the main engine of global growth, were 3.1% for 2006, down from 3.3% in 2005, 2.1% for the European Union, up from 1.5% in 2005 and 1.9% in Japan, down from 2.1% in 2005.

The report warned that the prospect of possible new oil price hikes, avian flu morphing into a human pandemic or a crash in housing prices in key economies threatened a smooth winding down of growth. It saw the greatest threat as the systemic weakness in huge and still-growing global finance imbalances and deplored that current national policy stances "are not well focused on redressing global imbalances."

"Imbalances widened considerably in 2005, as the U.S. (current account) deficit reached $800 billion (666 billion euros) while Japan, emerging Asia and major oil-exporting countries amassed saving surpluses totaling $100-200 billion" the report said.

It also noted that the net foreign liabilities of the U.S. grew to over three trillion dollars, equaling about 25% of the U.S. gross domestic product, with positions held primarily by Japan, oil exporters and European nations such as Switzerland and Norway.

But the bright spot was the unusually high economic expansion seen among all developing regions, fueled by the rise in world commodity prices, pushed up by the appetite of high-growth China and India for raw materials, tame inflation and low interest rates.

Developing economies were expected to grow at a rate of 5.6% in 2006, marginally down from 5.7% in 2005, while economies in transition were expected to expand at a rate of 5.9% this year, compared with 6% last year. While China (8.3% in 2006 and 9.2% in 2005) and India (6.8% in both 2006 and 2005), are by far the most dynamic economies, the rest of East and South Asia are expected to expand by 6.5% in 2005, down from 6.6% in 2005. Latin America is trailing somewhat, with projected growth of 3.9% in 2006, down from 4.1% in 2005; while African growth was expected to remain solid at 5.5% this year, up from 5.1% last year.

Copyright Agence France-Presse, 2006

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