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Last Updated: Friday, 2 September 2005, 19:06 GMT 20:06 UK
'Serious risks' to global economy
China steel plant
Emerging economies such as China are hungry for raw materials
The global economy faces serious risks of a slowdown and nations must move to narrow trade gaps and stabilise commodity prices, a report has warned.

In the annual report by the United Nations' Unctad agency, economists said yawning trade gaps were the greatest short-term risk to world growth.

Meanwhile, China and India's emergence as a "new growth pool" would push up demand for energy and raw materials.

Price stability was vital for "global prosperity in general", Unctad said.

Global economic growth is set to drop to 3.0% this year, from 3.8% in 2004, the organisation warned.

"The world economy is still expanding, but there are serious risks of a setback, and the moderation of growth over the first half of 2005 should serve as a warning," Unctad said.


The report pointed to the eurozone and Japan's stagnant economies and said this was a constant source of instability. Reviving these economies was the key to restoring global economic stability, it said.

The oil bill is becoming a heavy burden for many developing countries
Supachai Panitchpakdi, Unctad secretary-general

Unctad also expressed concerns about the international impact of a slowdown in US growth and called for a reduction in the US trade deficit, which last year reached a record $666bn (361bn).

But it warned that any attempt to correct the US deficit through a revaluation of China's yuan currency "will almost inevitably have a deflationary impact on the world economy".

China only accounts for 8% of the combined $890bn world trade surpluses, while the eurozone and Japan make up over 30%, the report noted.

Instead it said a better policy would be one in which major economies tried harder to stimulate domestic demand.

Unctad - the United Nations Conference on Trade and Development - also appealed for closer dialogue between oil exports and importers to stem the surge in oil prices.

Though the world economy would weather a rise in fuel prices to $70 a barrel, developing countries would suffer.

"The oil bill is becoming a heavy burden for many developing countries.... because it is more than 5% of their GDP," said Unctad's new secretary-general Supachai Panitchpakdi.

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