GENEVA - Countries need to work together to redress destabilising economic imbalances that could spark a sharp global downturn, the United Nations said today.
The UN Department of Economic and Social Affairs said countries needed to help bridge global gaps in financial flows resulting in US deficits and matching Asian and Middle Eastern surpluses.
Noting additional pressures from high oil prices, rising interest rates, volatile commodities and cooling housing markets, it said in a report that concerted effort was needed to avoid a US recession that could damage the world economy.
"Coordinated global adjustment will require measures that will stimulate savings in the deficit countries and domestic demand in the surplus countries," the UN division said in its World Economic Situation and Prospects update for mid-2006."
The report called on the International Monetary Fund (IMF) to spearhead better macroeconomic coordination between countries and undertake more monitoring of cross-border trends, including the spillover effects of one economy on others.
"To make multilateral surveillance effective for international policy coordination, the larger economies should be willing to accept advice from the IMF," it added.
The Group of Eight (G8) countries -- Russia, the United States, Canada, Britain France, Germany, Italy and Japan -- is too narrow a forum to deal with current economic instabilities, Ocampo said in a statement released ahead of the coming weekend's G8 meeting in St Petersburg.
The UN report noted that recent investor jitters had made it more expensive for developing countries to secure financing through the markets, and urged caution over commodities whose prices have shot up due to geopolitical and other worries.
"Primary commodity exporting countries should be vigilant about the risk of a sharp reversal in prices," it said, adding the broader risks that startled markets in recent months "will weigh on the world economy in the near to medium future."
"While the baseline outlook assumes no abrupt adjustment of the global imbalances in 2006, there does loom the risk of a disorderly adjustment of global imbalances leading to a worldwide recession and destabilisation of global financial markets," the report said.
Noting the US current account deficit could top US$900 billion in 2006, the UN also cited "serious" risks to the global economy from a retrenchment of housing prices that stalls consumer demand and said any significant oil market disruption could also choke off world growth.
Though costly, the UN said preparations for a possible bird flu pandemic would be justified in the medium-term even if the H5N1 strain does not trigger the devastation some fear.
- REUTERS
UN urges more co-operation on economic imbalances
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