New York  - The United Nations on Thursday projected a steep decline in world economic growth to 1.8 per cent this year and 2.1 per cent next year in the wake of the credit crisis, the housing slump in the United States and the drop in the value of the US dollar.

The world's economic growth stood at 3.8 per cent last year.

Increases in food and energy prices are expected to contribute to economic problems as well as create social and political instability in some developing countries, the UN said in a mid-year study on the world economy and prospects in 2008.

The study said the economic projection is a baseline scenario, which is subject largely to developments in the United States because the country remains a prime trend setter in the global economy.

But it said, "If monetary and fiscal stimuli recently instituted in the US take hold, the world is likely to experience only a moderate slowdown, to 2.8-per-cent growth in 2008."

It warned, however, that if the stimuli did not work and the continuing fall in US housing industry is coupled with a decline in equity prices and contraction of the credit availability, the world economy could come to a "virtual standstill." (dpa)