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World faces ‘bumpy’ fallout from end to U.S. spending: U.N.

World faces ‘bumpy’ fallout from end to U.S. spending: U.N.

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Published : 2013-12-19 19:40
Updated : 2013-12-19 19:40

UNITED NATIONS (AFP) ― The United Nations said Wednesday that the world economy should grow in 2014 but faces a “bumpy” ride when the U.S. government starts ending its major stimulus spending.

The U.N.’s annual World Economic Situation and Prospects report predicted the global economy would grow by 3.0% in 2014 and 3.3% in 2015, up from an estimated 2.1% in 2013.

U.N. experts said they were more positive about the world economy as euro-using countries were emerging from recession and U.S. growth has strengthened.

“A few large emerging economies, including China and India, managed to backstop the deceleration they experienced in the past two years and veered upwards moderately,” said the report.

“These factors point to increasing global growth.”

The U.N. report said inflation will remain “tame” but creating jobs will remain difficult.

It predicted international trade will grow by 4.7% in 2014 but the price of most commodities will remain “flat.”

The U.N. said there were risks however from “a possible bumpy exit from the quantitative easing programs” used by the U.S. Federal Reserve to spur the economy during the economic crisis of recent years.

The report was released just before the Fed announced that it will start cutting back its spending in January.

It will spend $75 billion a month on bonds from starting in January, down from the $85 billion a month it has spent for a year in an effort to keep down interest rates to stimulate growth and jobs.

“Efforts by the Fed to pull out of quantitative easing programs could lead to a surge in long term interest rates,” said the report.

It added that there could also be a sell-off in global equities and a fall in capital flows to emerging economies.

“Emerging economies will face more external shocks,” from the Fed’s change of course, said the United Nations.

The report also raised doubts about “fragility” in the banking system and the euro economy and “continued political wrangling in the U.S. on the debt ceiling and the budget.”

It said rising tensions in the Middle East and elsewhere “could derail the world economy.”

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