UN calls on world economies to improve macroeconomic policy coordination

The difficulties facing the global economy highlight the urgent need for improved macroeconomic policy coordination among key economies and better rules and regulations regarding international finance, said a UN press release received here Saturday.

The financial turmoil that began with the collapse in the U.S. subprime mortgage market and spread to European countries has had limited impact on the financial sectors of developing countries so far, instead the main danger for the developing world comes from the wider economic implications, said the press release by the UN Conference on Trade and Development, which will launch its 12th session here Sunday.

The press release said "the direct impact would be felt most strongly by those countries that have a large share of their exports in the United States market, especially the other members of the North American Free Trade Agreement and other Latin American and Caribbean countries."

The UNCTAD secretariat estimates that with zero growth in the United States that would not be compensated, at least in part, by stronger stimulation of demand in Western Europe and Japan, growth in developing countries would fall by between 2 and 2.5 percentage points.

"Such a scenario reinforces the case for macroeconomic policy coordination among the world's main economies, which has been lacking in recent years," said the UNCTAD.

A recession in the US would be transmitted to other parts of the world mainly through trade linkages. Imports of the United States account for 15 percent of total world trade, with some 44 percent coming from other developed countries and more than 50 percent from developing countries.

The United States can reduce the risk of a hard landing for the global economy by adopting expansionary macroeconomic policies. But the sharp fall in the value of the dollar resulting from these policies may hurt economic growth in countries that export to the United States, according to the UNCTAD.

"Better international coordination is needed to help mitigate the impact of the weaker dollar and gradually reduce global imbalances," it said.