New York, NY (BBN) - While developing countries' economies are forecasted to expand by 6 per cent this year, that growth could potentially be checked by the slowdown in wealthier nations, according to a United Nations new report.
Financial turmoil, soaring oil prices and likely tighter monetary policy in several nations augur poorly for the global economy both in 2008 and 2009, with the reach of the sub-prime mortgage crisis extending well beyond the United States which has contracted liquidity and credit worldwide, the United Nations Conference on Trade and Development (UNCTAD) said.
The UNCTAD's Trade and Development report for 2008 noted that output around the world is expected to grow by 3 per cent this year, down nearly one percentage point from last year. In developed countries, gross domestic product growth could shrink to half this rate.
"By contrast, growth in developing countries as a group can be expected to remain quite robust, at more than 6 per cent, as a result of the relatively stable dynamics of domestic demand in a number of large developing economies," the report said.
To allow poorer nations to sustain their economic expansion, greater investment in "productive capacity" - the ability to diversify manufacturing - is needed to augment their reliance on primary commodities, the UNCTAD noted.
Challenging theories that call for investment in developing countries to be drawn from mainly household savings and foreign capital, the report urges changes in domestic monetary policy and local financial systems to allow private companies to access cheaper financing.
It also criticized the current system of global financial governance, noting that market discipline alone cannot curtail periodic episodes of "irrational exuberance," where firms try to reap double-digit gains out of economies growing at a much slower pace, leading to situations requiring government bailouts.
BBN/SI/SI/AD-05September08-12:41 PM