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Asian growth ahead of the
world
By Emad Mekay
WASHINGTON - A possible United States attack on
Iraq, subdued recovery in the United States, spiraling
oil prices and faltering emerging markets are among the
reasons that global economic growth will be sluggish
this year and in 2003, the International Monetary Fund
(IMF) forecast on Wednesday.
"Global growth in
the second half of 2002 and in 2003 will be weaker than
earlier expected, and the risks to the outlook are
primarily on the downside," the IMF said in its
semi-annual World Economic Outlook report. The
Washington-based institution calculates that global
growth will reach 2.8 percent in 2002 - as it forecast
in April - then rise to 3.7 percent in 2003, down from
the 4 percent it predicted earlier this year.
The grim report was released in advance of this
weekend's annual meetings of the 182-nation IMF and the
World Bank, where civil society groups from throughout
the world will protest the policies and operations of
the sister institutions for further impoverishing the
world's poor. On Wednesday, spokespeople from those
groups said they object to the Bank and IMF simply
because they "put profits before people".
The
report said that the recovery in some Asian emerging
markets had been stronger than expected, driven by the
rebound in global trade, a nascent recovery in
information technology and, in some countries - notably
China, India and Korea - growing domestic demand.
Asia's growth is projected to increase to 6
percent in 2002 and to remain at that level in 2003, but
the fund said that recovery in this region remains
dependent on external demand, and the prospect of a
weaker global recovery adds to downside risks.
Commenting on Japan, the IMF said that it was
the slowest-growing major economy, with growth projected
at negative 0.5 percent for 2002 and positive 1.1
percent for 2003. "Japan appears to be emerging from its
third recession in a decade. However, there is no
guarantee against another similarly bad decade, absent a
determined effort to address the nation's core economic
problems, the need for profound bank and corporate
restructuring, together with decisive steps to finally
end a historic period of deflation unprecedented among
industrialized countries since World War II," the IMF
said. "To reinvigorate the Japanese economy on a lasting
basis, banks' loan portfolios need to be cleaned up
quickly and fully, and corporate reforms need to pick up
a pace, and more aggressive monetary easing to deal with
the problem of deflation is still needed.
In its
report, the IMF said that gross domestic product (GDP)
growth in Africa has held up "surprisingly well",
supported by improved macroeconomic policies, fewer
conflicts and debt relief under the IMF's HIPC (heavily
indebted poor countries) initiative. But it warned that
serious problems existed in certain parts of the
continent - most importantly, a deepening famine in
southern Africa. Growth in 2003 is projected to rise to
4.2 percent, aided by stronger commodity prices.
The IMF, whose policies are often blamed for
helping to create today's economic turmoil in Latin
America, said that risks in emerging markets, in
particular South America and Turkey, had increased and
could get even worse. "Were problems in South America to
intensify - especially if accompanied by weaker growth
in industrial countries - the potential for a more
widespread impact on the emerging market asset class,
including through cross-border bank lending, would
increase significantly," it said.
The outlook
for the major emerging markets - developing countries
that are seen as favorable to free-market policies - has
become increasingly diverse, the report said. In Latin
America, the outlook has seriously deteriorated, and
output is expected to decline in 2002. Output there
contracted by 2.5 percent in the first quarter of 2002
(compared with the final quarter of 2001).
Risks
of inflation have sharply increased in many countries in
Latin America, especially Argentina, whose economy has
almost collapsed and where a "sustainable monetary
framework is not yet in place", said the report. Uruguay
faces serious difficulties, and the outlook for Brazil,
Venezuela and a number of smaller countries has
deteriorated markedly as well, it added. But the fund
said that growth was accelerating in Mexico, and was
expected to follow in Chile: "Both countries are
relatively open and have strong credit ratings," it
said, meaning they comply with the fund's own
free-market prescriptions.
The IMF's outlook for
the Middle East has changed little despite improving
prospects for oil prices. The "difficult security
situation" will affect growth in Israel and its
neighbors. The outlook for the so-called "countries in
transition" remained solid, aided by strong growth in
Russia, the Ukraine and in Central and Eastern Europe
and by buoyant foreign direct investment.
On the
risks side, the fund cautioned that oil prices could
spike sharply if the security situation in the Middle
East were to deteriorate further - a reference to a
possible war in the region. "Depending on its extent and
duration, this increase could have a significant
negative effect on global growth both directly and
indirectly through its effects on confidence. It would
also increase the likelihood of other risks to the
outlook occurring, and exacerbate their impact," it
said.
Another threat to the world economy is
that the increasingly linked equity markets - especially
of industrialized countries - could plummet further.
"While a considerable portion of the irrational
exuberance that characterized stock valuations in the
late 1990s may now have been eliminated, recent
accounting and auditing scandals have seriously weakened
confidence," the fund said.
IMF critics, many of
them gathering in Washington this week, have previously
faulted the agency's surveillance of global economic
developments as too awkward and politically manipulated
to be helpful in promoting the fund's policies. In
October 1997, as the financial typhoon lashed Asia's
power-house economies, the fund ventured the prediction
that world output would pick up to 4.3 percent in 1998.
Instead, it fell to 2.5 percent. Others have said that
the fund is still obsessed with financial markets and
statistical figures, but its documents remain short on
information about the homes, farms and factories that
form the world's real economy.
(Inter Press
Service)
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