'World economy on thin ice - U.N.' -- Whom do you blame?

World economy on thin ice - U.N.

http://money.cnn.com/2008/05/15/news/international/global_economy.ap/index.htm?section=money_mostpopular

The United Nations blames dire situation on the decline of the U.S. housing and financial sectors.

Last Updated: May 16, 2008: 5:54 AM EDT

UNITED NATIONS (AP) --

The world economy is "teetering on the brink" of a severe downturn and is expected to grow only 1.8% in 2008, the United Nations said in its mid-year economic projections Thursday.

That's down from a global growth rate of 3.8% in 2007, and the downturn is expected to continue with only a slightly higher growth of 2.1% in 2009, the U.N. report said.

The mid-year update of the U.N. World Economic Situation and Prospects 2008 blamed the downturn on further deterioration in the U.S. housing and financial sectors in the first quarter, which is expected to "continue to be a major drag for the world economy extending into 2009."

But the U.N. said developing countries will suffer as badly: They should grow by 5% this year and 4.8% next year, compared to a robust 7.3% in 2007, the report said.

The U.N. economists said the deepening credit crisis in major market economies triggered by the U.S.-led slump in housing prices, the declining value of the U.S. dollar, persistent global imbalances and soaring oil and commodity prices pose considerable risks to economic growth in both developed and developing countries.

"The baseline forecast projects a pace for world economic growth of 1.8% in 2008," the U.N. report said.

However, it said the final figure will largely depend on developments in the United States.

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"At issue is how deep and long this contraction will be," the report said. "As the housing slump continues and the credit crisis deepens, a broad array of ... indicators are already hinting at a recession."

It cited a decline in U.S. employment, consumer confidence at its lowest level in a decade, household spending growth slowing sharply and business equipment spending slowing alongside large inventories of housing and a 30% decline in residential investment.

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Despite the slowdown in global economic growth in 2008, the U.N. said global inflation is expected to accelerate this year to 3.7%.

The report said the recent sharp rise in commodity prices and the continued rise in oil prices are key factors spurring inflation along with higher wages.

The growth of world trade also slowed from 7.2% in 2007 to 4.7% in early 2008, largely due to weak U.S. demand for imported goods, it said.