8 February 2006

World Economic Growth Has Slowed Considerably since 2004, Economic and Social Council Told

Hearing Statement Launching Report on Economic Prospects for 2006, ECOSOC also Considers Preparations for July Substantive Session

NEW YORK, 7 February (UN Headquarters) -- The Economic and Social Council (ECOSOC) met in a resumed organizational session to establish arrangements for its substantive meeting in July, but preparations stalled, pending a decision about whether to include in the Council's organizational session an agenda item on reforming its working methods now or await the adoption of such a decision by the General Assembly.

Before turning to preparations for its substantive session, which traditionally sets the year's international development agenda -- the meeting heard the launch of the report, "World Economic Situation and Prospects 2006".  Under-Secretary-General for Economic and Social Affairs Jose Antonio Ocampo said that world economic growth had slowed considerably from the strong expansion of 2004.  According to the Department's projections, the world economy was expected to continue to grow at a more moderate pace of about three per cent in 2006.  That rate was about average, considering world economic expansion over the past decade.

When the Council took up draft decisions concerning the provisional agenda for the substantive session in July, the working arrangements for the 2006 substantive session, and the basic work programme for 2007, the United States representative requested more time to study the texts, saying her delegation wished to work on the Council's reform in conjunction with those items.

Following a suggestion by the Council President, Ali Hachani (Tunisia), that, pending the Assembly's negotiation of such a text, ECOSOC might wish to adopt a presidential statement, it was decided that a facilitator could be appointed to draft a possible statement.  The delegation of Lithuania assumed the responsibility of convening informal consultations in that regard.

The Council took the following decisions:  the high-level meeting of ECOSOC with the Bretton Woods institutions, the World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD) would tale place at Headquarters on 24 April; the dates for the fifth session of the Committee of Experts on Public Administration would be 27 to 31 March; and observer status was granted to the Inter-American Institute for Cooperation on Agriculture.

A decision on the operational activities of the 2006 substantive session was also deferred when delegations requested more time to study a proposed amendment tabled orally today by the United States concerning a further review of General Assembly resolution 59/250, in order to ensure its full implementation.  A "simple amendment" proposed by that delegation resulted in the postponement of acceptance of another draft, concerning the theme for the regional cooperation item.

Members' attention was also drawn to several other items on which more time was still needed:  a draft decision on the Peacebuilding Commission; a draft decision on adaptation of the Council's organization and methods of work; a request to reactivate consideration of the inclusion of an item entitled, "Observance by the Government of Myanmar of the Forced Labour Convention, 1930 (no.29)" in the agenda of the 2006 substantive session; promoting an integrated approach to rural development; an ECOSOC event to consider the transition from relief to development; the theme for the humanitarian affairs segment of the 2006 substantive session; the themes for the coordination segment of the 2007-2008 substantive session and multi-year work programme for the coordination segment; and international cooperation in tax matters:  report of the first session of the Committee of Experts on Cooperation in Tax Matters (document E/2005/45).

The report of the Committee for Development Policy on its seventh session (document E/2005/L.52) was adopted today, as well as the decision to convene, from 10 to 14 May, the thirty-ninth session of the Economic Commission for Africa (ECA) Conference of Ministers of Finance, Planning and Development.  It would be hosted by the Government of Burkina Faso in Ouagadougou, back to back with the annual meeting of the African Development Bank.  The host country would bear all additional expenses for holding the session away from Addis Ababa.

In other business, Switzerland was elected by acclamation to the Commission on Science and Technology for Development, from today until 31 December 2008.  Israel was nominated to the Committee for Programme and Coordination from the date of election until 31 December 2008.  The Council further postponed the nomination of one member from the Western European and other States for election by the General Assembly to the Committee for Programme and Coordination.

Thailand was elected by acclamation to the Programme Coordination Board of the Joint United Nations Programme on HIV/AIDS (UNAIDS) for a term beginning today and expiring on 31 December 2008.  The Netherlands had resigned its seat on the Programme Coordination Board, and Belgium had put forth its candidature.  The ECOSOC today elected Belgium to that seat to replace the Netherlands, beginning today until 31 December 2006.

Statement by Under-Secretary-General

José Maria Ocampo, Under-Secretary-General for Economic and Social Affairs, presented the World Economic Situation Prospects 2006 prepared by the Department of Economic and Social Affairs, UNCTAD and the Organization's five regional commissions.  He said world economic growth in 2005 had slowed considerably from the strong expansion of 2004 and, according to projections the world economy was expected to continue growing at a more moderate pace of about 3 per cent in 2006.

Growth rates had been higher in the developing world than in the developed world, he said.  That was true also of the least developed countries although growth rates in sub-Saharan Africa had been slightly lower.  The least developed countries needed a per capita growth rate of at least 3 per cent in order to achieve the Millennium Development Goal of halving poverty by 2015.  However, not all least developed countries were doing equally well.  Those that imported oil and those affected by conflict were doing much worse.  The industrialized countries showed a slowdown in the United States economy, which would continue this year.  However, it had still outperformed the European Union, Japan and the rest of the industrialized world.

He said the report emphasized four major risks:  disorderly adjustment of global macroenconomic imbalances; higher oil prices; the crash of house prices; and the outbreak of avian flu.  Regarding the first, there was no precedent in history for a major country running a current account deficit of the magnitude of the United States trade deficit.  However, it had coincided with the stabilization of the dollar, but whether or not that stabilization was sustainable remained unclear.

Noting that the report took issue with one influential view, which considered the financing of the United States fiscal and external deficits not to be a major problem, he said that view argued that the world could be witnessing a so-called "global savings glut", which was keeping world interest rates low and providing sufficient finance.  In fact, the global savings rate, and with it the global investment rate, was at an all-time low, and had been on a downward trend for several decades.  What was being seen was not a global savings glut, but global investment anaemia, which was one of the major challenges facing the world economy.  Policymakers should give priority attention to strengthening investment demand, particularly in the surplus countries, in order to sustain global economic growth and reduce the macroeconomic imbalances.

Turning to oil prices, he said the world economy had adjusted to the relatively high prices of about $60 per barrel, but a significant further increase could prove disruptive.  The crash of house prices in the major industrial economies, particularly the United States, was significant because of its potential effect on consumption and, thus, on global demand.  Finally, the outbreak of the avian flu was potentially a costly risk based on historic cases such as the influenza epidemic that had killed millions of people after the First World War.

He said that one weakness in the state of the world economy -- one common to most countries -- was the unsatisfactory level of unemployment growth.  In a majority of countries, job creation had been sluggish; consequently, unemployment rates were still notably higher than the levels prior to the global downturn of 2000-2001.  Many developing countries continued to face high structural unemployment and underemployment, which both limited the positive impact of growth on poverty reduction.

The report questioned, at the same time, the effectiveness of a major realignment of exchange rates as a means to adjust the global imbalances, he said.  It also examined the policy challenges of many developing countries facing pressure on their currencies, given their large holdings of foreign-exchange reserves.  On the exchange rate front the dollar had rebounded, notably vis-à-vis the euro and the yen.  That appreciation was not the type of adjustment that might be expected, given the large and increasing external deficit of the United States.  Nevertheless, a massive depreciation of the dollar and further realignment of the exchange rates among major countries would not be the best means to achieve an orderly adjustment of the global imbalances.

Regarding global trade and financial conditions, he said the report discussed at some length recent developments in international trade, finance and development assistance relevant to developing countries.  The results of the sixth WTO Ministerial Conference at Hong Kong could be qualified as very modest and marginal, yet still positive.  The Hong Kong agreement advanced the Doha Development Agenda by a few small steps.  Completing the Agenda fully and successfully in 2006 -- and, particularly, materializing the expectations of major enhancement in the development dimensions of the global trade regime -- would require from all the participants considerable political will to take the crucial, but tough decisions that remained.

The recent external financing conditions for developing countries and those with economies in transition had improved notably during 2005, he said.  For emerging economies, the costs of external financing had reached historical lows.  But that news should be met with some caution as exceptionally low-risk premiums for external borrowing by those countries may encompass some degree of exuberance, causing excessive capital inflows to some of them and seeding the risk for a sharp reversal in the future.

He said that official development assistance (ODA) had recently increased in nominal terms.  But -- excluding resource flows for emergency assistance, debt relief and reconstruction -- the amount of aid received by the least developed countries in recent years had been only marginally higher last year than a decade ago.  The commitments by major donors to deliver increased and more effective aid was welcome, but even if those commitments were met fully, the share of ODA in the gross national income of Development Assistance Committee countries would reach only 0.36 per cent, still far short of the 0.7 per cent target reaffirmed in the 2005 World Summit Outcome.

In short, he concluded, while the recent improvement in the economic growth of many poor countries was encouraging, it was still not strong enough for them to achieve the Millennium Development Goals.  The World Economic Situation and Prospect called for galvanizing efforts in trade, aid and finance to support the achievement of the Goals.  At the World Summit, the world's leaders had reiterated their political commitments made at previous high-level international meetings on development issues, particularly the commitments in the Millennium Declaration and the Monterrey Consensus.  The challenge now for all countries was to meet those commitments, on time and in full.

The Economic and Social Council will meet at a date and time to be announced.

* *** *