UNITED NATIONS—The United Nations warned Wednesday of "clear and present dangers" of the world economy coming to a near standstill this year because of U.S. housing and credit problems and the weak dollar.
In an annual report, the world body forecast global economic growth at 3.4 percent for 2008, only slightly lower than last year, but said that under a pessimistic scenario it could be as little as 1.6 percent.
The bursting of a housing bubble in the United States last year and a crisis over "subprime," or risky, mortgages had caused uncertainty across financial markets around the world, said the "World Economic Situation and Prospects 2008".
Together with the decline of the dollar and imbalances between countries running surpluses, such as China, Japan and major oil producers, and those with big deficits, especially the United States, this could drag world output down, it said.
The U.S. problems "could trigger a worldwide recession and a disorderly adjustment of global imbalances," the report said. "The recent global financial turmoil has heightened these risks and shown them to be clear and present dangers."
The last U.N. report issued a year ago proved overly pessimistic. It said 2007 world growth would drop to 3.2 percent but it turned out to be an estimated 3.7 percent, according to the new report.
The 170-page report, compiled by seven U.N. organizations, forecast U.S. gross domestic product, or GDP, growth at 2.0 percent this year compared with an estimated 2.2 percent last year.
But it warned that could be virtually wiped out if U.S. house prices fell by as much as 15 percent. The economies of Japan and Western Europe, already operating near capacity production, could not take up the slack, it said.
Until now, trade has been increasing its share in most countries' GDP, but a U.S. recession would cut back export growth from China, Japan and Europe, reducing their demand for exports from developing countries.
The report found a more positive picture for developing countries' economies, which grew at nearly 7 percent for a third straight year. That could continue this year but further dollar depreciation would hit them hard as their reserves are held in dollar-denominated assets.
The report said that under normal circumstances the U.S. slowdown could be treated with interest rate cuts, but at present that could further weaken the dollar and stronger demand was needed in countries with large surpluses.
China should invest more in health, education and social security while Japan and Europe should end monetary tightening. International action was needed to reach agreement on an exchange rate realignment, the report added.
Feeds