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State of world economy & trade in 2006 – WTO reports

12
Apr '07
The year 2006 witnessed robust growth in the world economy and vigorous trade expansion. Global gross domestic production (GDP) growth accelerated to 3.7%, the second best performance since 2000. All major regions recorded GDP growth in excess of population growth.

Economic growth in the least-developed countries continued to exceed 6% for the third year in a row. A large part of the stronger global economy is attributable to the recovery in Europe, which turned out to be stronger than expected in early 2006.

The United States economy maintained its overall expansion as weaker domestic demand was balanced by a reduction in the external deficit, mainly due to a faster export growth. In Japan somewhat faster economic growth was achieved despite weaker domestic demand reflected in a widening of its external surplus. China and India continued to report outstandingly high economic and trade growth.

Strong economic fundamentals in many key economies contributed to stronger investor confidence worldwide. General government deficits decreased in the United States, the European Union and in Japan and inflationary pressures were contained.

A high level of global monetary liquidity combined with a low level of real interest rates contributed to a rally on global stock markets. Stock markets in emerging economies again recorded much faster growth than those in developed economies. Increased investor confidence in emerging markets is also reflected in the sharply reducedspread in interest margins between emerging market bonds and those of US government bonds.

The more favourable investment climate is also reflected in a sharp rise in global foreign direct investment (FDI) flows in 2006, which approached the record levels of the past. UNCTAD reports that global FDI inflows surged by one-third to $1.23 trillion, the second highest level ever.

The high growth of global FDI flows can be attributed partly to increased mergers and acquisitions activity and higher share prices. A high level of total net private capital flows to emerging markets was reported by the Institute of International Finance.


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