26 June 2003
TRADE SLUMP, UNEMPLOYMENT HOLD BACK WORLD ECONOMIC GROWTH, SAYS ANNUAL UNITED NATIONS REPORT RELEASED TODAY
NEW YORK, 25 June -- Geopolitical uncertainties that sidetracked a once-promising economic recovery are easing, but the persistence of a 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 in New York, Geneva and Santiago, Chile.
Overall, the world economy is expected to grow by only 2-1/4 per cent in 2003, according to the United Nations 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, as 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 and communications technology sector, has been reduced more slowly than expected. At the same time, the geopolitical shocks of the past year have resulted in a large degree of slack in other sectors, most notably in the travel industry. According to the report, “Overcapacity will continue to have a dampening effect on the business investment that is necessary to sustain recovery.”
Even so, “most of the negative consequences of the earlier geopolitical uncertainties are expected to dissipate by the third quarter of 2003”, according to the Survey, which will be presented to international policy makers at the 30 June convening of the United Nations Economic and Social Council in Geneva.
Several of the elements of a return to strong growth are in place, the Survey finds:
-- In a low-inflation world environment, policy-makers have been able to launch stimulative macroeconomic and fiscal policies.
-- Reduced inventories brought on by protracted weakness since 2000 now need to be replenished, bolstering demand.
-- 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.
A complicating factor in the recovery picture is the long-anticipated decline in the value of the dollar, largely in reaction to the ballooning United States external deficit. The trade-weighted index of the dollar has dropped sharply from its 2001 peak, the Survey says in a special section on the impact of the weakened United States currency.
United States growth has been the engine of the global economy in recent years, and dollar depreciation should boost United States economic growth by increasing exports. But, as the depreciated dollar tends to reduce United States imports and to increase the competitive advantage of its products against exports of other countries, the extent of the stimulus to the rest of the world is lessened, the Survey says.
More ominously, continued depreciation would have a negative impact on United States financial markets, as it reduces the return of foreign investors on dollar-denominated financial assets.
“This may lead to further decline in capital inflows to the United States, and reduced demand for the dollar, begetting more depreciation of the dollar”, the Survey warns. “If such a vicious circle were formed, financial markets worldwide would be in jeopardy.”
The depreciated dollar is among the reasons why a robust global recovery would need to be built on a broader base than just the United States economy, according to the Survey. While the present positive forces in the United States, in particular, and other developed countries may be strong enough to launch a recovery, they “are unlikely to be sufficient on their own to sustain a recovery through 2004”, it says.
The need for widespread growth adds urgency to fulfilment of the “new development commitment” that was forged in 2001 and 2002.
“For any improvement in growth to be sustained over the medium term, it will be necessary to revitalize international cooperation for development in order to address some underlying challenges to growth in developing countries”, the United Nations report says.
A global consensus on development policies and cooperation had been reached at the Doha Ministerial Meeting of the World Trade Organization, the Monterrey International Conference on Financing for Development, and the Johannesburg World Summit on Sustainable Development in 2001 and 2002. While progress in all areas has been mixed, United Nations economists express most concern regarding the trade agenda.
The Survey calls on developed countries to eliminate export subsidies and discontinue dumping agricultural products on developing country markets –- not as a negotiating trade off, but as a unilateral action to kick start negotiations and bring the developed countries into alignment with international development principles. It also calls for emulation by other developed countries of the European Union decision in 2000 to eliminate tariffs on all imports from the least developed countries, except for armaments.
Relatively greater progress is visible in terms of official development assistance (ODA). Aid increased in 2002 in absolute terms, as well as marginally, as a proportion of donor country gross national income and pledges made on the basis of broad development principles in 2002 in Monterrey will, if fulfilled, provide for sustained increases in the years to come. Nevertheless, the increases would still fall short of estimates that ODA needs to be doubled from its 2000 level if world poverty is to be cut in half by 2015.
The relation of economic policies to development goals will be further analysed in part two of the Survey, to be released later this year. Sales information appears below.
For more information, contact Tim Wall of the Development Section of the United Nations Department of Public Information, tel. 1-212-963-5851; e-mail: firstname.lastname@example.org.
World Economic and Social Survey 2003: (Sales No. E.03.II.C.1, ISBN 92-1-109143-8) from United Nations Publications, Two United Nations Plaza, Room DC2-853, Dept. PRES, New York, NY 10017 USA, tel.: 1-800-253-9646 or 1-212-963-8302, fax: 212-963-3489, e-mail: email@example.com; or Section des Ventes et Commercialisation, Bureau E-4, CH-1211, Geneva 10, Switzerland, tel.: 41-22-917-2614, fax: 41-22-917-0027, e-mail: firstname.lastname@example.org; Internet: http://www.un.org/publications.
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