US housing market may slow world economy

US housing market may slow world economy

	Published : Wed, 10 Jan 2007 23:10 By : Agencies Print this Story

UNITED NATIONS (AFX) - An expected dampening of the world economy in 2007 after three years of healthy growth has the weakening U.S. housing market primarily to blame, a U.N. flagship economic report released Wednesday said.

The World Economic Situation and Prospects 2007 predicts a reduction of world economic growth to 3.2 percent this year, from the all-time high of 4 percent in 2005 and an estimated 3.8 percent in 2006.

The waning U.S. housing market is a 'major factor' in the slackening economic prospects, the report said. The end of the housing boom is expected to depress U.S. consumer demand, slowing the growth of the country's economy to 2.2 percent this year, it said.

'The economic recovery in Japan and Europe is not strong enough to replace the U.S. as the engine for growth of the world economy,' the report said.

Nonetheless, the report said U.S. finances remain 'healthy' and there is room for 'monetary easing,' said the report produced by the U.N. Department of Economic and Social Affairs, the U.N. Conference on Trade and Development and the regional U.N. economic commissions.

The U.S. deficit, which increased to almost $900 billion in 2006, was counterbalanced by surpluses in major oil exporting countries and significant savings surpluses in Asian and other developing countries, it said.

But a continued widening of the U.S. deficit could erode 'confidence in the dollar as the world's main reserve currency,' the report warned.

The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, 'enhancing the risk of a major upheaval in financial markets.'

The report noted strong growth in developing countries, led by east Asian economies which posted an average growth of 7.6 percent in 2006. China led the region with a growth rate of 10 percent last year. South Asia, led by India, also had a strong showing at 6.7 percent.

Prospects for continued growth remain strong, with east Asian economies expected to expand at an average of 7 percent in 2007 and south Asian economies likely to slow somewhat, the report said.

In general, developing countries reached an average growth rate of 6.5 percent in 2006, and the rate is expected to remain strong in 2007 at 5.9 percent, the report said.

Despite the strong worldwide economic growth last year, unemployment rates have not dropped accordingly, it said.

In the way of solutions, the report called for new policies to create more confidence in financial and foreign exchange markets, saying current policies do not adequately deal with global imbalances.

The report also urged increased dialogue among nations to reach agreement on targets aimed at reducing the imbalances while avoiding a global recession.

Such an agreement would seek to 'increase savings and exports and lower U.S. debt, and strengthen domestic demand in main creditor countries,' particularly in Japan, developing countries in Asia and major oil-producing countries, the report said.