US consumers cannot act forever as the engines of global economic growth and other nations, notably Japan and Germany, must take up some of the burden by increasing spending, the United Nations said last week.
Redressing global trade imbalances will require a multilateral effort, given that the US is running a huge deficit and others massive surpluses, the UN trade and development agency UNCTAD said in a report.
It was unlikely that the US savings rate could continue to decline so sharply and the public budget be allowed to deteriorate so fast, the agency said, with the result that pressure could build for a dollar depreciation.
"Without quick international action to reduce the global trade imbalances, financial crises in the wake of a tumbling dollar will threaten the benign growth performance of the world economy," it said.
"UNCTAD economists fear that the United States has become overburdened in its role as consumer of last resort and the locomotive of global growth," the agency added in its Trade and Development Report 2006.
Although developing countries had large external surpluses, the main culprits were other big industrial states. "The huge external surpluses of Japan and Germany... show that the competitiveness gains on the US's part should mainly come at their expense," UNCTAD said.
China, on the other hand, which has come in for US criticism over a perceived reluctance to revalue its currency, had "played a vital role" in sustaining global economic growth.
Domestic demand and imports have grown strongly. Beijing should continue gradually revaluing the renminbi rather than go for an abrupt change in the exchange rate, UNCTAD said.
Despite the nervousness of international investors, most emerging economies were less vulnerable to financial crises than during the major shocks of the 1980s and 1990s.
Nevertheless, developing country governments, many of whom were benefiting from higher prices for oil and other raw materials, needed to do more to promote economic growth through capital accumulation and structural change. This required a break with past orthodoxy - promoted by international agencies such as the International Monetary Fund (IMF) which sets price stability as the number one goal.
"Governments... should be actively involved in fostering and strengthening domestic businesses," it said, in contrast to past advice from 'Bretton Woods institutions' to keep their hands off and let market forces do the work."
They should not be "overly restricted" by international trade rules and should not shy away from using subsidies and tariffs to help and protect fledgling enterprises.
But UNCTAD Secretary-General Supachai Panitchpakdi, a former head of the World Trade Organisation, said this did not mean that the agency wanted to weaken international trade accords.
"We are not recommending any anti-trade stance. Do not misunderstand us," he told a news conference. "We are just trying to point out the need to strengthen the creative forces of the market - this is the key to the recommendation."
Countries could also look at "non-monetary" instruments for tackling price pressure, including income policy and controls.