Expressing concern that the world economy is in a state of "malaise" and little improvement is expected over the 1.9 per cent growth rate recorded last year, the United Nations warned of a political backlash and loss of faith in markets and openness unless immediate corrective measures were taken.

In a report released on Thursday, the world body said only coordinated expansionary policies among leading economies can bring about a rebalancing of economic relations and called for "decisive action" to restore stability in financial and currency markets, to start a global recovery and reverse the rapid rise in unemployment.

"There is a real threat that trade imbalances and the coexistence of continued rapid growth in some parts of the world with stagnation, decline and job losses elsewhere could deepen the existing discontent with globalisation among wide section of the world's population, triggering a political backlash and a loss of faith in market and openness," it stressed.

For the past two decades, it said, the search for sound economic fundamentals in poorer countries has been all about replacing state-driven inward-looking growth strategy with a market-driven outward-oriented strategy.

But the policies pursued to eliminate inflation and downsize the public sector have often "undermined growth and hampered technological progress," the trade and development report for 2003 pointed out.

As a result, the current economic conditions in the developing world have "uncanny resemblance to conditions prevailing in the early 1980s when many countries slipped into deep crisis," the report by the United Nations Conference on Trade and Development said.

In economies with lagging industrialisation and declining share of investment, the share of manufactures in total exports has also been stagnant or falling while exchange rate depreciation and wage restraint have been bases for bolstering trade performance.

Where trade and investment rise in the context of international production networks, there is tendency for an apparent increase in technology content of exports without a similar increase in domestic value addition the report said.

The production structure in much of Latin America and Africa has seen a notable shift away from sectors with greatest potential for productivity growth towards those processing and producing raw materials.

In Asia, a handful of mature industrialised nations have shifted to a high-tech and service-heavy development pattern, leaving neighbouring countries more room to pursue their natural resources and labour reserves in support of rapid industrialisation, it noted.

By contrast, it stressed, declining shares of manufacturing output and employment have accompanied rapid liberalisation in many Latin American and African countries.

"Enclaves of industrialisation linked to international production chains have dotted this landscape without in most cases translating into more broad-based investment, value added or productivity growth," it stated.

A wide range of macroeconomic, financial and trade policies, it says, were used in East Asia to stimulate investment, target industrial upgrading and encourage exports.