Uncertainties, policy constraints to slow world economic rebound in 2003, UN predicts

9 January 2003

Despite the 2001-2002 shakeout in equities and tech investment, political and macroeconomic risks and uncertainties will continue to impede a decisive return to strong world economic growth in this year and beyond, the United Nations projects in a new report launched today in New York.

Despite the 2001-2002 shakeout in equities and tech investment, political and macroeconomic risks and uncertainties will continue to impede a decisive return to strong world economic growth in this year and beyond, the United Nations projects in a new report launched today in New York.

According to the World Economic Situation and Prospects 2003, after a slow start, the world economy is expected to pick up steam - growing by perhaps 2.75 per cent in the second half of 2003. But shaky investor confidence, overhauled asset prices, macroeconomic imbalance and slower than expected economic recovery in the United States and Western Europe will continue to weigh down the global economy.

Because the United States remains the main engine of worldwide growth, limits to the sustainability of the US trade deficit and the value of the dollar pose another major downside risk of global proportions, the report says, warning that the United States will continue to lead the global recovery, but without significant momentum. With domestic demand lacking vigour, economic recovery in Japan and Western Europe continues to rely chiefly on external demand and will remain fragile.

Speaking at a press conference in New York on the launch of the report, Ian Kinniburgh, the chief UN development policy analyst, said that overall, slower growth was expected in all major groups of countries than had previously been anticipated. The developing world, he noted, had had two very poor years. While it had experienced six per cent growth in 2000, the growth rate for 2003 was expected to be about 4.75 per cent. The slowdown in developing countries had occurred despite various reforms that they had undertaken.

"Also, due to the slowdown in the developed countries in the past two years, developing countries had faced a rather unfavourable external economic environment." Mr. Kinniburgh said. In addition, trade and commodity prices have declined in the past couple of years while private capital flows have diminished and foreign direct investment (FDI) flows to developing countries declined, with the exception of China.

Looking ahead, Mr. Kinniburgh said he expects that in the developing world, most of the regions will do slightly better in 2003 but still below the potential rates of growth seen in the mid- and late-1990s. Western Asia would continue to benefit from the higher oil prices currently prevailing and in Africa, some recovery in commodity prices and a slight improvement in trade should be expected.

Asked what effect a war in Iraq would have on the world economy, Mr. Kinniburgh said that while specific calculations had not been carried out, it was clear that an escalation of conflict in that area will only have damaging effects on the global economy. It will almost certainly have an impact on the price of oil and further damaging effects on consumer and investor confidence. "Above all, it will create destruction and havoc within the region to both human life and physical capital," he stressed, noting that that destruction would undoubtedly be a major setback to the global economy.

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UN Radio interview with Ian Kinniburgh

 

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