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India and China fuel global
recovery
By Thalif Deen
NEW
YORK - Last year's global economic recovery was marked
by the growing financial weight of the world's two most
populous nations - India and China - both of which have
been growing more than twice as fast as the world
average, the United Nations said Wednesday.
"Continued strong growth in these two large
low-income countries will benefit the world economy as a
whole, reduce global poverty, and serve as an incentive
to other developing countries," the world body said in a
report.
"China is fast becoming a center for
trade in Asia - and a locomotive for Japan," UN under
secretary general for economic affairs, Jose Antonio
Ocampo, said. But despite improved global economic
prospects, large imbalances remain in the world economy,
he said, launching the 75-page "World Economic Situation
and Prospects, 2004".
Ocampo said that the
imbalances were epitomized by last year's US current
account deficit of over US$500 billion, about 6 percent
of the country's gross domestic product (GDP), which is
matched by the aggregate surpluses of a number of
economies in Asia and Europe, including China, Japan,
Germany and Russia.
Following setbacks caused by
the prospects of war in Iraq and the outbreak of severe
acute respiratory syndrome (SARS) early in 2003,
economic growth in a number of countries shifted into
high gear in the second half of last year, according to
the report. As a result, world economic growth, which
was less than 2 percent in both 2001 and 2002, rose to
2.5 percent last year, and is expected to reach 3.5
percent this year.
India's growth rate was more
than twice the world average in 2002 (4.5 percent) and
nearly three times the world average in 2003 (6.1
percent). This year's growth rate is projected to be 6.2
percent. In December, Indian international reserves hit
the $100 billion mark, putting the country in the elite
ranks of foreign reserve holders alongside countries
such as Japan and China. China's growth rates are even
higher - 8 percent in 2002, 8.5 percent in 2003 and a
projected 8.5 percent for 2004.
The two Asian
economic powerhouses have populations of over a billion
people each. But despite their positive contributions,
sustained global economic recovery is still being driven
mainly by the US.
The study, however, warns that
a rapid depreciation of the US dollar and an abrupt
reversal of its trade deficit could have an adverse
effect on the global economy. "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," it adds.
Ocampo said that as the recovery still depends
on low interest rates and expansionary fiscal measures,
"policy makers should be careful not to choke off
recovery or prospects for needed job growth through a
premature withdrawal of stimuli or precipitate
tightening".
Recovery in the US is
"exceptionally strong", with business spending finally
matching and soon outpacing household expenditure, and a
long-awaited improvement in employment under way, the
report adds. US growth, which was 2.2 percent in 2002,
rose to 3 percent last year, and is projected to hit 4
percent this year. But the crowding-out effects of the
large fiscal deficit and increased military spending
could dampen US growth, the study warned.
In a
report released in early January, the International
Monetary Fund (IMF) warned that Washington's "voracious
appetite for borrowing" could drive up global interest
rates, slowing international investment and economic
growth. "Higher borrowing costs abroad would mean that
the adverse effects of US fiscal deficits could spill
over into global investment and output," the IMF added.
The recent upsurge in demand and export growth
in Japan might mark a turning point after a decade of
stagnation, suggested the UN report. Japan's growth was
dramatic, increasing from minus 4 percent in 2002 to 2.5
percent last year, described as "one of the best
performances for several years". It is projected to be
above 2 percent in 2004.
"The economy of Japan
improved measurably over the course of 2003, due largely
to the more auspicious international economic
environment in the second half of the year, some
tangible progress in domestic structural reform and
certain policy effects," the study said.
After a
decade of stagnation, including three failed recoveries,
this might mark a turning point for the economy to
finally move onto a sustained growth path, it added.
European growth remains subdued, according to the
report, but signs of a modest upturn are emerging.
(Inter Press Service)
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