NEW YORK, Dec 1 (Reuters) - The recent strength of the U.S. dollar is expected to be temporary and the greenback remains at risk of a hard landing, which could drag down the U.S. economy and pull the global economy deeper into recession, a U.N. report said.
Extreme risk aversion, a tumble in oil and other commodity prices, combined with the spread of the financial crisis caused a “massive” move of financial assets worldwide into U.S. Treasury bills, driving yields closer to zero and pushing the dollar sharply higher, the U.N. said in its World Economic Situation and Prospects 2009 report.
An advance copy of the report was released at a development conference in Doha on Monday.
U.N. economists warned, however, that the current situation is pushing the external indebtedness of the United States to new heights, which could precipitate a renewed slide of the dollar once the deceleration process ends.
“Consequently, the disorderly adjustment of the global imbalances and a hard landing of the dollar remain major downside risks to the global economy, as an accelerated fall of the dollar could cause renewed turmoil in financial markets,” the report said.
“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the United States economy into a hard landing and pulling the global economy into a deeper recession,” the report added.
Since the deepening of the financial crisis in mid-September, the U.S. dollar rose more than 12 percent against a basket of six major currencies .DXY. At the same time, the euro weakened about 14 percent to trade around $1.26 EUR= in New York on Monday.
In the report, U.N. economists also said world economic growth will slow to 1 percent in 2009 from 2.5 percent this year. Global economy may even contract if stimulus packages prove too little too late, the report said. (Reporting by Vivianne Rodrigues; Editing by Leslie Adler)