World Economic situation and prospects 2006

World economic growth slowed noticeably in 2005 from the strong expansion in 2004. The world economic is expected to continue to grow at this more moderate pace of about 3 per cent during 2006. 1 This rate of growth is, nonetheless, the same as the average of the past decade. The United States economy remains the main engine of global economic growth, but the dynamic growth of China, India and a few other large developing economies is becoming increasingly important. Economic growth slowed down in most of the developed economies during 2005, with no recovery expected in 2006. Growth will moderate further to 3.1 per cent in the United States of America, while lackluster performance will still prevail in Europe, with growth reaching a meager 2.1 per cent in 2006. The recovery in Japan is expected to continue, albeit at a very modest pace of around 2 per cent. Strong, yet insufficient growth, In the poorest countries,Generally, economic growth in most parts of the developing world and the economies in transition is well above the world average. On average, developing economies are expected to expand at a rate of 5.6 per cent and the economies in transition at 5.9 per cent, despite the fact that these economies may face large challenges during 2006. While China and India are by far the most dynamic economies, the rest of East and South Asia is expected to grow by more 5 per cent. Latin America is lagging somewhat behind, with growth of about 3.9 per cent, the least developed countries (LDCs) are faring even better, reaching the fastest average rate of growth they have had for decades. Even if these record levels are sustained, per capita income growth is still not strong enough in many of these countries to make sufficient progress towards the Millennium Development Goal of halving extreme poverty by 2015. Much of the economic buoyancy of developing countries has resulted from high export commodity prices, which may not be sustainable in the longer run. In contrast, developing countries and LDCs that are net importers of oil and agricultural products have been hurt by the high cost of oil and food imports. Lacklustre employment growth worldwide The employment situation worldwide remains unsatisfactory. The slowdown in growth partly explains this. More importantly, though, employment creation is falling short of the increment in labour supply in the majority of countries. Consequently, in a large number of countries, unemployment rates are still notably higher than the levels prior to the global down turn of 2000-2001. Despite strong growth performance, many developing countries continue to face high levels of structural unemployment and underemployment, which limit the impact of growth on poverty reduction.