Global economy predicted to slow

The global economy is set to slow this year, hitting some of Australia's largest trading partners hardest, Canberra's chief commodities forecaster has warned.

    Growth is expected to fall in the United States

    The Australian Bureau of Agricultural and Resource Economics (Abare) said in its annual commodities publication on Tuesday that it expects world economic growth to slip to 3.7% this calendar year and to 3.6% in 2006 after running at 4.6% in 2004.

    But it also said Australia's commodities exports are expected to rise 16% to a record $90 billion in the fiscal year ending June 2006, reflecting higher negotiated prices for coal and iron ore.

    The bureau said a decision by China to clip growth would have a major knock-on effect through the rest of the global economy.

    "Considerable risks remain in the outlook for global economic performance," it said.

    "A further sharp depreciation of the US dollar or an economic slowdown in China could adversely affect world economic growth."

    China currency revaluation

    The bureau expects growth in the United States to fall to 3.3% in 2005. In Japan, growth is tipped to slip from 2.6% to 1.3% while China's growth is expected to fall to 8% from 9.5%.

    "Considerable risks remain in the outlook for global economic performance.

    A further sharp depreciation of the US dollar or an economic slowdown in China could adversely affect world economic growth"

    Australian Bureau of Agricultural and Resource Economics

    Abare said a sharp fall in the US dollar could lead to a substantial drop in confidence in the world's biggest economy, which would then lead to a sharp fall in capital inflows.


    The bureau said if the deterioration became extreme, capital might start to leave the US.

    A revaluation of China's currency also poses a risk to the global economy, Abare said, but it added: "It would be unlikely for China's government to undertake market-based exchange rate reforms without first achieving a soft landing of its economy."

    SOURCE: AFP


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