Global growth could fall to 0.8 percent if the US sub-prime mortgage market turmoil has a more serious impact on developing countries and countries in transition.

The world economy is “teetering on the brink“ of a severe downturn and is expected to grow only 1.8 percent in 2008, the United Nations said in its mid-year economic projections on Thursday.
That’s down from a global growth rate of 3.8 percent in 2007, and the downturn is expected to continue with only a slightly higher growth of 2.1 percent in 2009, the UN report said.
According to AP, the mid-year update of the UN World Economic Situation and Prospects 2008 blamed the downturn on further deterioration in the US housing and financial sectors in the first quarter, which is expected to “continue to be a major drag for the world economy extending into 2009.“
But the UN said developing countries will suffer as badly: They should grow by 5 percent this year and 4.8 percent next year, compared to a robust 7.3 percent in 2007, the report said.
The UN economists said the deepening credit crisis in major market economies triggered by the US-led slump in housing prices, the declining value of the US dollar, persistent global imbalances and soaring oil and commodity prices pose considerable risks to economic growth in both developed and developing countries.
“The baseline forecast projects a pace for world economic growth of 1.8 percent in 2008,“ the UN report said. However, it said the final figure will largely depend on developments in the United States.
Global growth this year could fall to 0.8 percent if the US sub-prime mortgage market turmoil has a more serious impact on developing countries and countries in transition, the UN report said.
But if the monetary and fiscal measures the US government has taken to stimulate the economy--including tax refunds and lower interest rates--boost consumer spending and restore confidence in the business and banking sector, the world economy could only slow to 2.8 percent growth this year and 2.9 percent in 2009, it said.
The report, prepared by the UN Department of Economic and Social Affairs, forecast that US economic growth will decline from 2.2 percent in 2007 to -0.2 percent this year, with only slight recovery in 2009 to 0.2 percent growth.
“At issue is how deep and long this contraction will be,“ the report said. “As the housing slump continues and the credit crisis deepens, a broad array of indicators are already hinting at a recession.“
It cited a decline in US employment, consumer confidence at its lowest level in a decade, household spending growth slowing sharply and business equipment spending slowing alongside large inventories of housing and a 30 percent decline in residential investment.
This strongly suggests “that the implosion of housing activity will not stabilize until 2009,“ the report said.
As for other developed countries, the UN forecast that Japan’s economic growth will decline from 2.1 percent in 2007 to 0.9 percent in 2008 and that Western Europe’s growth rate will drop from 2.6 percent last year to 1.1 percent this year.
Despite the slowdown in global economic growth in 2008, the UN said global inflation is expected to accelerate this year to 3.7 percent. The report said the recent sharp rise in commodity prices and the continued rise in oil prices are key factors spurring inflation along with higher wages.
The growth of world trade also slowed from 7.2 percent in 2007 to 4.7 percent in early 2008, largely due to weak US demand for imported goods, it said.

With the ascendance of China as a robust force on Africa’s economic and political scene, plans are afoot in the European Union (EU) to pre-empt the Asian nation’s dominance on the continent by forming a trilateral partnership that places Europe squarely in the center.
According to Ipsnews.net, the idea of a multilateral triumvirate was conceived by Louis Michel, the EU’s commissioner for development and humanitarian aid, and seeks to lay out common ground in what has occasionally been a contentious relationship between these three actors.
“There are three fields where the partners can work together: peace and security, infrastructure and natural resources,“ says Veronika Tywuschik, a research assistant at the European Centre for Development Policy Management (ECDPM) in Brussels. The ECDPM is a non-governmental organisation that assists African, Caribbean and Pacific countries with policy processes.
With Michel set to step down as commissioner in 2009, pressure is building for him to come up with a workable platform in the next few months.

World oil prices rose in Asian trade on Friday amid tight global supplies and as investors continued to buy into the commodity which has given better returns than bonds and equities, dealers told AFP.
In morning trade, New York’s main oil futures contract, light sweet crude for June delivery, was up 64 cents to $124.76 per barrel, off its record high of $126.98 a barrel on Tuesday.
London’s Brent crude contract for July rose 73 cents to $123.36. The contract for June expired at the close on Thursday, settling at $122.77.
“The bullish enthusiasm in the market remains. The global oil market remains indeed structurally tight,“ said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.
“Even though demand growth is showing some weakness, supply growth is also not there. OPEC continues to restrain supply and production in non-OPEC states are not expected to be strong,“ he said, referring to the Organisation of Petroleum Exporting Countries.

The head of the International Monetary Fund says the worst of the global financial turmoil is over.
But Dominique Strauss-Kahn, the IMF’s managing director, warned the effects of the turmoil on the broader economy would be felt for some time.
He added that a recovery in the US depended on house prices picking up.
Last month, the IMF said the world economy would grow much more slowly in the next two years as a result of the credit crunch.
Strauss-Kahn told a European Parliament committee in Brussels:
“There are good reasons to believe the worst news is behind us.“ But he indicated that much depended on a recovery in the US property market.
“In the US, the housing crisis is still there. When you look at prices in the US, they’re still going down, there’s not a single sign of stabilisation.“

Since last summer, cereals--in particular wheat and corn--have become synonymous with rising prices as the cost of both crops escalated to record highs. But the bond between both cereals has broken in recent weeks, the Financial Times said.
“Wheat is divorcing from corn,“ says Greg Grow, a broker at Archer Financial Services in Chicago.
While corn prices are up nearly 53 percent in the last six months, wheat prices have fallen almost 19 percent in the same period.
The diverging trend could influence agricultural commodities--and global food inflation--in the following months. The question, says Abdolreza Abbassian, a grains expert at the UN’s Food and Agriculture Organisation in Rome, is whether a bearish outlook for wheat would override the bullish picture for corn or vice versa.
The link between them is the feeding industry: lower prices for wheat would encourage ranchers to purchase the grain for animal feeding, easing the tightness of the corn market. But that extra demand for wheat could, in turn, support its price.