By Gustavo Capdevila
GENEVA, Sep 4 2008 (IPS)

A new United Nations report on the outlook for the global economy over the next few months indicates that the robust growth seen in developing countries could be checked by the slowdown in the industrialised world.

"This is really a downturn after four blessed years of relatively strong growth," said Supachai Panitchpakdi, secretary general of UNCTAD (UN Conference on Trade and Development), which put out its annual report Thursday.

The global economic growth rate will be roughly three percent this year, one percent lower than in the last two years, said the head of UNCTAD.

But another UNCTAD official, Heiner Flassbeck, the head of the globalisation and development strategies division, warned of an "extremely pessimistic" outlook for 2009.

"The overall situation is extremely fragile and dangerous," said Flassbeck. "We are not only on the brink of recession. In the developing world we have countries with really big problems."

In addition, there is a "spillover" of the crisis from the industrialised countries to the developing nations, where the first effects will be felt in lower commodity prices, although that is not a problem for oil producing countries, because with a 100 dollar barrel "they can live quite well," he said.

Supachai said commodities prices were likely to remain higher than the average of the last 20 years.

Between May 2007 and May 2008, the commodities price index increased 41.9 percent in dollars, 32.7 percent in Special Drawing Right (SDRs – an international reserve asset used by the International Monetary Fund) and 23.3 percent in euros.

Supachai said the current slowdown has come "from the global fallout from the financial crisis in the U.S., second, from the bursting of housing bubbles in the U.S. and in other large economies, third, the soaring commodity prices, fourth, increasingly restrictive monetary policies in a number of countries, and fifth, stock market volatility."

"All these different factors had a hand in holding back the kind of expansion that we have been seeing so positively in the past four years," he added.

"Overall the conditions in developing countries are not too bad," said Supachai. "They still maintain reasonable healthy growth," he added, pointing out that the report forecasts slightly over six percent growth for the developing world in 2008.

One developing region, sub-Saharan Africa, has clearly stood out this year as the only region experiencing a rising rate of economic growth, which could reach seven percent, "probably one of the largest growth rates ever seen in the sub-Saharan economies," said Flassbeck.

"But this is mainly attributed to the effects of the income from commodity exports, mainly oil," he added.

"So again, in spite of this healthy growth in Africa, we might be seeing only a marginal effect on the incomes of the poorest segments of the population because the linkages between…the extractive sectors and the rest of the economy are quite weak," said the UNCTAD official.

"UNCTAD reiterates our recommendations that the best way to combat the fluctuating incomes for those commodity dependent exporter economies is…to keep the policies of diversification and industrialisation on track," said Supachai.

The report also takes a close look at the influence of speculation on the hikes in commodity prices.

Speculation pursues short-term benefits at the cost of long-term stability, it says.

The phenomenon of inflation, like the "potential turmoil that could come from abrupt exchange-rate adjustments and shifts in national current-accounts balances point to the need for rational, calming mechanisms to govern international financial flows and monetary balances," says UNCTAD.

What is needed is "oversight on a multilateral basis…collective oversight, so that some major movements in nominal exchange rates that could be deemed to be providing benefits to some countries could be subject to some supervision," said Supachai.

Another point underscored by the head of UNCTAD was the question of inflation as a real threat to the economy.

"Sometimes people talk about galloping inflation à la 1970s," said Supachai, referring to the up to three-digit hyperinflation experienced in some countries during the first oil shock.

But Supachai also pointed out that the risk of inflation could be overestimated.

Monetary policy measures to curb inflation could exacerbate the global slowdown, UNCTAD warned.

However, the head of UNCTAD noted that in real terms, wages are not currently recovering at the rate seen in the 1970s. "This time it seems there is evidence that trade unions in developed countries are less demanding, more cautious in the way that they demand wage increases," he added.

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