Trade slump and unemployment hold back world economy - UN annual survey

Political uncertainties that sidetracked a once-promising economic recovery are easing, but the persisting slowdown in trade and investment and rising unemployment continue to hold back world growth as well as hopes for significant progress on poverty reduction, according to the United Nations' annual economic survey released today.

A complicating factor in the recovery is the long-anticipated decline in the value of the dollar, largely in reaction to the ballooning external deficit of the United States and a robust recovery would need to be built on a broader base than just the US economy, the survey says.

Overall, the world economy is expected to grow by only 2¼ per cent in 2003, according to the UN World Economic and Social Survey forecast, following 2 per cent growth over the course of 2002. Trade also is expected to pick up incrementally to 4 per cent growth in 2003 compared with 2 per cent last year. Foreign investment remains hesitant.

With globally weak effective demand, the overcapacity created by excessive investment in the 1990s, especially in the information, communications and technology sector, has been reduced more slowly than expected, and political shocks of the past year have resulted in a large degree of slack in other sectors, most notably in the travel industry, the report says.

"Overcapacity will continue to have a dampening effect on the business investment that is necessary to sustain recovery," it adds, but even so "most of the negative consequences of the earlier geopolitical uncertainties are expected to dissipate by the third quarter of 2003."

Among elements of a return to strong growth that are in place, according to the Survey, which will be presented to international policy makers at the 30 June start of the UN Economic and Social Council in Geneva, is a low-inflation world environment which has allowed policy makers to launch stimulative macroeconomic and fiscal policies.

Other factors include the need to replenish reduced inventories brought on by protracted weakness since 2000, thus bolstering demand and the fact that many developing countries are benefiting from improved, albeit still historically low, commodity prices, and those able to borrow in international capital markets are able to take advantage of low interest rates.

Introducing the survey, Ian Kinniburgh, Director of the Development Policy Analysis Division, UN Department of Economic and Social Affairs, told a news conference the delay in recovery had imposed costs on the world economy, particularly in developing countries in terms of the long term and achieving the Millennium Development Goals of halving poverty by 2015.

In developing countries, growth in 2003 had been one half per cent less than anticipated, Mr. Kinniburgh said. It would take a while for them to get back to former growth rates. But the most populous countries, India and China, had achieved high rates of growth, which was important, as those two countries also had the largest number of the world’s poorest people.

He added that 2004 would show the road to recovery but major risks to that recovery were of a geopolitical nature, as terrorist attacks were feared. Factors such as the SARS epidemic also could have global economic consequences. The past few years had been an inauspicious beginning of the millennium, as growth in developing countries had been offset by population growth, he said. There was a need for international cooperation and long-term stimulus measures.

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