15 January 2004
Global Economy Surges in 2004, but Dangerous Imbalances Continue to Mount, Say UN Economists
NEW YORK, 14 January (DESA) -- Spurred by low interest rates and stimulative fiscal measures in the United States especially, and by the rapid rise of China as a major importer, as well as export powerhouse, world economic growth is expected to accelerate to 3.5 per cent in 2004, the United Nations said today. Developing country growth rates, in general, are picking up in the wake of expansion in the major economies, according to the United Nations World Economic Situation and Prospects 2004.
Employment generation continues to be a problem in most countries, however. Nearly all economies experienced an increase in unemployment or under-employment in the past few years of global slowdown, and employment always lags other aspects of a recovery.
As the recovery still depends on low interest rates and expansionary fiscal measures, policymakers should be careful not to choke off the recovery or prospects for needed job growth through a premature withdrawal of stimuli or precipitate tightening, said Under-Secretary-General for Economic and Social Affairs Jose Antonio Ocampo at a press launch today at United Nations Headquarters in New York.
But continued and growing international imbalances, manifested in the large United States external deficit and matching surpluses in a handful of other economies, also pose a serious threat, United Nations economists warn. How these imbalances eventually unwind will have profound implications for the future stability, efficiency and equity of the world economy, says the beginning-of-the-year economic overview.
A realignment of exchange rates, as has been advocated in some quarters, is unlikely to prove effective in correcting imbalances and could produce adverse effects, according to the report. Also to be avoided is the temptation to deploy protectionist measures to lessen current account deficits and to protect jobs. Job growth is hampered largely by domestic cyclical factors, as well as the need for structural reform in some countries, rather than by the transfer of employment to developing countries.
A preferable adjustment process would involve coordinated policy actions to narrow structural growth differentials among the major economies, as well as international cooperation to facilitate sustained growth in the developing countries and thereby improve demand overall. In particular, United Nations economists see a need for the United States to reduce its government deficit, while Europe and Japan take measures to boost long-term growth.
Recovery in the United States currently is exceptionally strong, with business spending finally matching and soon outpacing household expenditure, and a long-awaited improvement in employment just under way. In Japan, a recent upsurge in demand and export growth may mark a turning point after a decade of stagnation. European growth remains subdued, but signs of a modest upturn are emerging.
After three very bad years since 2000, Latin America is expected to resume growth of greater than 3 per cent in 2004. Growth in Africa may exceed 4 per cent, while last years surge in the transition economies will moderate only slightly. Led by India and China, average growth in South and East Asia should increase to 6.25 per cent, almost a percentage point higher than in 2003. In Western Asia, growth now projected at 4 per cent could be driven higher or lower, depending on progress or lack of it in resolving geopolitical tensions and in the reconstruction in Iraq.
But it should not be assumed that a repeat of the sustained high level of economic growth often seen during the 1990s is under way, the United Nations cautions.
While global trade is projected to grow by 7 per cent this year, it is unlikely that the buoyancy of pre-2000 years will be repeated, especially given setbacks in the Doha round of trade negotiations. Foreign direct investment of $660 billion in each of the last two years is less than half of the peak level achieved in 2000, and its recovery, as well as that of other international capital flows, is expected to subdue. Moreover, the dampening effects of geopolitical tensions and threats of international terrorism are more prevalent now than in the years immediately before 2001.
Therefore, United Nations economists urge careful measures to nurture the recovery and avoid a precipitous unwinding of international imbalances.
A particularly adverse possibility would be a rapid depreciation of the United States dollar and an abrupt reversal of its trade deficit, the report says. If the consequent adjustment mainly involved a substantial cut in consumption, investment and import demand in the United States, the global economic recovery would probably be aborted, reverting to another slowdown.
For more information, contact Tim Wall of the Development Section of the United Nations Department of Public Information, 1-212-963-5851, e-mail: firstname.lastname@example.org.
World Economic Situation and Prospects 2004 available for $10.00 (Sales No. E.04.II.C.2, ISBN 92-1-109146-2) from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York, NY 10017, USA; tel. 1-800-253-9646 or 1-212-963-8302; fax. 1-212-963-3489; 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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