In 2006, world economic growth improved slightly to 3.8 per cent from 3.5 per cent in 2005 (figures 1.1 and 1.2). Globally, growth rates were highest in South-east Europe and Commonwealth of Independent States (CIS) countries as well as in East and South Asia. Growth in the least developed countries remained above 6 per cent since 2001 (United Nations 2007 and UNCTAD 2006a). High prices for oil and other inputs and a tendency towards more restrictive monetary policies in industrial countries combined with some turbulence in financial markets are likely to contribute to a slowdown in 2007 (UNCTAD 2006a; UN-DESA 2006).
Growth in the USA slowed slightly during the second half of 2006 and might slacken further in 2007 but is not likely to go into recession. The decline in house prices is expected to weaken consumer spending as well as import demand (UN-DESA 2006; United Nations 2007). Rising oil prices and increasing imbalances also constitute important downside risks for growth.
The Euro area grew by a modest 2.5 per cent in 2006, though it was the highest growth rate since 2000. This was driven by higher domestic demand, particularly investment expenditure, as well as strong export performance. In 2007, it is expected that external demand will decline, and that stronger currencies will hamper exporters.
Monetary and fiscal policies are also expected to tighten, which will reduce growth. Growth in Japan is attributable to buoyant domestic demand and employment growth, but it is expected to slow down in 2007 (UN-DESA 2006; United Nations 2007).
China and India are engines of trade in developing Asia Growth in developing Asia was high in 2006, driven by China (10.2 per cent) and India (7.7 per cent), which are the engines of trade in manufacturing within the region. In addition, domestic demand has also recovered in most Asian countries.
Growth in the region is expected to decline to a more sustainable yet still strong pace due to a slowdown in external demand for Asian products. Additional downside risks include protectionist trade policies in major export destination countries, further increase in the level and volatility of oil prices, the avian influenza, as well as political and geopolitical uncertainties, especially in the Islamic Republic of Iran, Nepal and Sri Lanka (United Nations 2007; UN-DESA 2006; UNCTAD 2006a).
China is not only experiencing rapid growth but also rapid structural change driven by FDI and a rise in competitiveness. Despite strong growth in manufacturing wages (between 12 and 16 per cent in recent years), unit labour costs in manufacturing are falling due to growth of labour productivity by around 20 per cent per annum (UNCTAD 2006a).
Growth in Latin America has remained above 4 per cent for the past three years due to strong external and domestic demand. At the same time, growth in the region has become more broad-based. However, the external sector remains vulnerable and the region might suffer from higher interest rates in global capital markets as many countries have relatively high debts, which will slow down growth in 2007 and in subsequent years (UN-DESA 2006; United Nations 2007).
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