GENEVA — The world economy is forecast to grow by 3.2 percent in 2007, compared with 3.8 percent last year, and the weakening of the U.S. housing market is a major factor in the slowdown, a United Nations report said.

“The cooling of the housing boom is expected to depress consumer demand and slow the growth of the U.S. economy to a rate of 2.2 percent in 2007,” according to the study, titled the “World Economic Situation and Prospects 2007.”

Still, the survey concluded that corporate finances in the U.S. “are healthy, and there is room for monetary easing, hence the current moderation need not degenerate into a recession.”

The report cautioned that there is a risk of a more severe downturn in the global economy, “should there be a more dramatic fall in U.S. home prices, of say, by 15 percent.” Such a decline “would not only undercut its own growth to a pace below 1 percent in 2007, but also substantially reduce economic growth in the rest of the world by more than one percentage point.”

U.N. economists said the recovery in Japan and Europe “is not strong enough to replace the U.S. as the engine for growth of the world economy.” However, the report expects growth to remain robust in developing countries, with China and emerging Asian economies posting the best performance.

The U.N. forecasts China’s economy to grow this year by 9 percent, after gains of more than 10 percent last year, because of an anticipated slowdown in exports and the impact of policies intended to cool the economy, including higher interest rates, tighter land-use policies and restrictions on foreign investors in the housing market.

East Asian economies are forecast to average a growth increase of 7 percent, compared with last year’s average of 7.6 percent, and growth in developing countries worldwide is projected to average 5.9 percent, compared with 6.5 percent in 2006.

Similarly, world trade is also forecast to moderate and expand at a pace of 7.7 percent, versus the estimated 10 percent increase in 2006. The U.N. study anticipates a moderate reduction in the global trade imbalances this year because of the slowdown in the U.S. economy and a projected moderation in oil prices that “will generate a reduction in the import bill of the world’s largest economy.”

This story first appeared in the January 23, 2007 issue of WWD. Subscribe Today.

Further depreciation of the dollar “will stimulate exports and curb import demand,” the survey concluded. In 2006 current account imbalances across regions widened, with the U.S. deficit at almost $900 billion, matched by surpluses in Germany and Japan.

load comments
blog comments powered by Disqus