MercoPress. South Atlantic News Agency

UN forecasts 3,25% world economy expansion for 2005

The world economy is forecasted to expand 3,25% this year compared to 4,1% in 2004 which in itself is “benign”, although it entails certain risks said Jose Antonio Ocampo Deputy Director of the United Nations Economic and Social Affairs Department on presenting a report on the world economy.

"The acceleration of demand and the limited capacity in some sectors and regions makes a soft landing of the international economy desirable".

However Mr. Ocampo cautioned that macroeconomic policies in most countries must be continued to impede the de-acceleration from picking speed, and warned that "major misbalances at world level must be closely monitored".

Among the risks Mr. Ocampo identifies the growing current account deficit of the United States; the coming exhaustion of monetary and fiscal policies to prop economies plus the soaring price of oil and commodities.

Regarding the US the report indicates that the simple depreciation of the US dollar won't be enough to balance the country's foreign accounts and as to oil prices, "they still have not reflected inflation because of the intense international competition and weak labour markets".

However there's a serious risk that high oil prices that have benefited developing countries will end having an impact in world growth. For the second half of 2005 the report forecasts oil prices moderation, but still at high levels and with continuing historical volatility.

Another risk is the "real estate bubble" because of the high prices of homes that, if it bursts could have a negative impact for the world economy.

The report estimates that developed economies will expand 2,5% in 2005 and 2006; transition economies, 6% and 5,25%; and developing economies 5,75% both years.

More specifically for Latinamerica and the Caribbean the report forecasts 4,25% growth in 2005 and 2006, following the strong 5,6% of 2004.

Slower world demand, domestic policies adjustments and back to normal growth in economies that leaped forward in 2004 compared to previous years, are seen as the reasons behind the slower pace.

In Mercosur and associates, strong domestic demand should help compensate some of the slackening of international demand, states the report.