GENEVA — World economic growth is to increase this year at the moderate pace of 3.3 percent, with China and India driving the global expansion, according to a United Nations report released Tuesday.
The “World Economic Situation and Prospects 2006” report forecast that China’s output, spurred by exports and investment, would increase by 8.3 percent, compared with last year’s increase of 9.2 percent, and world consumer price inflation would fall to 3.2 percent from last year’s 4 percent.
Supachai Panitchpakdi, secretary-general of the U.N. Conference on Trade & Development, was skeptical, however, about the projected slowing of the vibrant Chinese economy.
“I don’t see China slowing down,” he said.
The report anticipates China’s exports will increase by 12.6 percent in volume in 2006, down from last year’s estimated expansion of 26.8 percent, and imports, which have decelerated in the last couple of years, to increase by 19.2 percent. Overall, the U.N. study estimated world exports in volume terms would increase by 7.2 percent this year. It also projects India’s output to expand at the same robust pace as last year’s 6.8 percent.
India, along with Pakistan, Bangladesh and Sri Lanka, also benefited from the growth in industrial production, particularly in textiles and apparel, the report said. But in the U.S., the deceleration of growth last year is expected to continue in 2006, with output increasing by 3.1 percent, down from 3.3 percent in 2005 and 4.2 percent in 2004, because of structural macroeconomic weaknesses such as low household savings rates and the large trade deficit.
Growth is forecast to increase by 1.9 percent in Europe, 2.1 percent in the European Union bloc and 1.9 percent in Japan. The U.N. warned that downsize risks could seriously affect the global outlook, particularly higher oil prices, disorderly unwinding of the major powers’ macroeconomic imbalances, cooling down of buoyant house prices or the outbreak of a flu pandemic.
The report said global imbalances widened in 2005. The U.S. current account deficit surpassed $800 billion, and this was matched by increased surpluses by Europe, China, Japan and oil-exporting countries. The EU, Japan and China need to do more to stimulate domestic demand and the U.S. needs to take steps to stimulate private savings and decrease public spending, the study concluded.
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The U.N. said international macroeconomic policy coordination is needed to avert a disorderly adjustment, but cautioned that any adjustment moves “should avoid a free fall of the dollar.” Such a move “would imply large wealth losses for those holding dollar assets, undermining confidence in the dollar and triggering a swift retreat of foreign investors from such assets,” the report said.