Expectations down for global economy in 2003

www.northjersey.com Sunday, February 2, 2003 By VIOREL URMA associated press

NEW YORK - Some economic predictions for 2003: The United States will not see a true recovery before summer; Asian economies are expected to accelerate later in the year; Europe will pick up only slightly. In Latin America, economic turbulence in Brazil and Argentina will continue.

"Weak financial markets and tepid consumer demand should weigh on the global economy well into 2003," the Organization for Economic Cooperation and Development said in a November report.

In its latest review, the Paris-based OECD said the world's 30 largest economies should grow by 2.2 percent in 2003, compared with 1.5 percent in 2002. The new figures are a downward revision from the group's June report, which had projected 1.8 percent GDP growth in 2002 and 3.0 percent growth during the next year.

The International Monetary Fund also trimmed its expectations for global growth in its latest World Economic Outlook because of increased risks since last spring.

Besides concerns about a growing impact of the U.S. and European stock market declines, the economy also could be hurt by a war with Iraq, a jump in oil prices, and a possible destabilizing plunge in the value of the dollar, the IMF said.

The IMF had forecast the global economy would grow by 2.8 percent in 2002, up only slightly from 2.2 percent growth the year before, which had been the worst performance in a decade. In 2003, the world economy is projected to rise 3.7 percent.

The global growth outlook depends critically on the United States. Most economists expect the U.S. economy to grow about 3 percent to 3.4 percent in 2003, slightly above the estimated 2.7 percent growth in 2002, with real economic momentum not expected until the second half of the year.

In Asia, most economies are expected to remain sluggish early in the new year, though some experts predict things will pick up later in 2003 or at worst by 2004.

"We are looking for growth to accelerate as we go through the year," said Steve Brice, chief Southeast Asia economist at Standard Chartered Bank in Singapore. "Obviously, we are in a bit of a soft spot at the moment."

As always, Asian nations are dependent on stronger U.S. demand for their exports. "We will look for the U.S. to begin to lead in a slow resumption of growth that accelerates, so that by the end of [2003] we're pretty much prepared in 2004 for a return of potential growth on a global basis," said Cliff Tan, director of Asian economics for Citigroup in Singapore.

Strong exports pushed Asian economic growth higher than expected last year, but the growth rate likely will not rise further in 2003, the Asian Development Bank said.

The regional bank, based in Manila, Philippines, upgraded its Asian growth forecast for 2002 to 5.6 percent from its previous forecast of 5 percent in September. The bank, however, lowered its forecast for 2003 to 5.6 percent from 5.7 percent.

The ADB forecast does not include Japan, Australia, or New Zealand.

The bank forecasts China's economy, already Asia's fastest-growing, to expand 8 percent in 2002 but slow to 7.2 percent in 2003.

Indonesia, Malaysia, and Singapore will grow faster in 2003 because of sustained domestic demand, while Thailand and the Philippines are expected to slow, it said.

India, the only South Asian country for which a projection was available, is seen expanding 5.5 percent in 2003, up from the projected 5 percent growth in 2002.

In Japan, the world's second-largest economy, an adviser to the Japanese prime minister recently criticized the government's banking reform program, warning that the economy would worsen in the new year and possibly not recover at all.

"One scenario is that Japan's economy will zoom back in a V-shaped rebound," said Taichi Sakaiya, a former Cabinet member. "But the question remains whether Japan will just drop like a bungee jumper on a severed cord."

Lending is expected to tighten and bankruptcies to worsen. Japan's banks are burdened with massive bad debts and the unemployment rate is at a record high 5.5 percent. Stock market levels continue to hover near 19-year lows.

After contracting 0.7 percent in 2002, the Japanese economy is seen growing 0.8 percent in 2003, the OECD estimates. But Japanese analysts worry that may be too optimistic.

"Japan's economy has stabilized as a whole, but there is still substantial uncertainty toward recovery," the Bank of Japan said in its December report.

In Europe, the European Central Bank has sharply cut its projections for 2003 economic growth in the 12 countries using the euro, citing "persistently high uncertainty" over financial markets and political developments.

The bank cut its projection for the coming year's growth in the sluggish euro zone to 1.1 percent to 2.1 percent for the full year, from its earlier figures of 2.1 percent to 3.1 percent. It also cut its outlook for 2002 to 0.6 percent to 1.0 percent, from 0.9 percent to 1.5 percent. Growth was 1.5 percent in 2001.

The bank said growth prospects were being undermined by uncertainty about up-and-down financial markets and "geopolitical tensions with potential consequences for oil prices," usually interpreted as a possible war against Iraq. Europe's economy is heavily dependent on imported oil.

While most business confidence indicators in the euro zone have stabilized, Germany is struggling with widening budget deficits and lower tax collections from the slow economy. Comprehensive reforms of the country's tightly regulated job market are being urged.

"Germany is the weakest link in the region," said Jacques Cailloux, economist at Barclays Capital Inc.

The nation of 82 million people, and Europe's biggest economy, has been mired in near-zero growth for more than a year. Unemployment, which reached 9.7 percent in November, tops the 4 million jobless mark. The government has slashed its 2002 growth forecast to 0.5 percent from 0.75 percent.

In Russia, economic growth fueled by high prices for oil - a key Russian export - has helped the country dramatically increase its foreign reserves and meet its debt obligations in recent years. But Moscow will face a major test in 2003 when foreign debt payments reach $15 billion. Russian officials insist they are prepared to meet the challenge, even if the price of oil drops.

Economic turbulence in South American giants Brazil and Argentina set the tone for a rocky year in Latin America - where the economy shrank by 0.5 percent in 2002 - and the uncertainty will continue in 2003.

Brazil's new president, former union boss Luiz Inacio Lula da Silva, took office Jan. 1 with promises to create jobs, feed Brazil's 50 million poor, and revive the continent's largest economy.

But Silva also has pledged to generate a budget surplus, meet payments on Brazil's $264 billion foreign debt, and curb inflation that has soared to 10 percent, an eight-year high.

Argentina is groping for ways to solve the most severe economic crisis in its history, after a year marked by a $141 billion debt default, a 70 percent devaluation of the peso, and unemployment that has left one in five Argentines jobless. Talks with the International Monetary Fund over a new aid program have stalled, and the fund may prefer to wait to deal with the successor to President Eduardo Duhalde, who will be chosen in an election April 27.

The outlook is murky elsewhere on the continent.

Paraguay is nearly broke, Uruguay is mired in a three-year recession, and Venezuela, which has the largest oil reserves in the Western Hemisphere, is racked by a political struggle to oust populist President Hugo Chavez.