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Global boom winding down, warns
UN
By Ulysses de la Torre
NEW YORK - The world economy expanded by
4% last year, up from 2.8% in 2003. But a falling
US dollar, continuing rise in interest rates and
sluggish worldwide job growth are expected to
reduce growth to 3.25% this year, according to a
report titled "The World Economic Situation and
Prospects" released recently by the United
Nations.
At the annual launch of the
report, UN under secretary General Jose Antonio
Ocampo predicted that "world trade and growth will
moderate, the cyclical peak seems to have been
reached in 2004". International trade grew at an
estimated 10.5% in volume terms in 2004, up from
6.2% in the previous year, with China and India
leading the way. Trade is expected to slow to 8%
in 2005.
China, together with the United
States, provides the backbone of global growth.
"US consumption stimulates the world manufacturing
sector while burgeoning Chinese demand for raw
materials is improving the market for
commodity-exporting developing countries,
including as far away as in Africa and Latin
America," according to the report.
East
Asia
East Asia and the Commonwealth of
Independent States led worldwide economic growth,
with each experiencing growth rates above 7%.
Meanwhile, Western Europe has "replaced Japan as
the lagging economy", with 2.3% economic growth,
according to the report. In addition to East Asia,
above-average economic expansion occurred across
all regions of the developing world by an average
of 5.5%, the strongest level in two decades.
Ocampo attributed this phenomenon to rising prices
among non-oil commodities exported by the
developing world, currency appreciation against
the dollar to offset rising oil prices and
improved macroeconomic stability, the last of
which is reflected in narrowing yield spreads on
emerging markets' sovereign debt.
Although
a full assessment of the damage done by the
tsunami in Asia will not be possible until later
this year, many of the affected countries will
probably not be significantly impacted since the
damage to industrial and port facilities was
limited and offshore oil and gas fields were
spared, said the report. Thailand and Sri Lanka,
where tourism accounts for 6% and 2% of gross
domestic product (GDP) respectively, are expected
to be hit the hardest economically.
While
some argue that global economic imbalances -
particularly the twin fiscal and trade deficits in
the US - are unsustainable, the UN report asserts
that the dollar's continuing weakness will not be
enough to reduce a US trade deficit that increased
from $550 billion in 2003 to more than $650
billion last year - more than 5% of its GDP. The
report projects that barring a major policy or
market correction, this gap will widen further in
2005. The principle reason for this is that the US
is in the unique position of financing its debt in
its own currency.
According to the report,
this dollar devaluation has a positive wealth
effect within the US and a negative wealth effect
internationally since the value of
dollar-denominated debt held by US creditors
declines in value. Thus the increased
competitiveness normally bestowed on US exporters
by a cheaper dollar is offset by a decline in
global demand.
Africa
Only six
African nations last year grew by more than the 7%
needed to achieve the UN Millennium Development
Goals (MDGs) to reduce poverty in the region -
Angola, Chad, Equatorial Guinea, Ethiopia, Liberia
and Mozambique. And with the exception of
Mozambique, growth in these countries is driven
largely by the oil industry, noted the report. "As
the oil sector is capital intensive, its direct
contribution to poverty reduction through
employment generation is limited, while its
limited backward and forward linkages with the
rest of the economy may mean that high growth does
not translate into meaningful poverty reduction."
In three countries - Cote d'Ivoire,
Seychelles and Zimbabwe - the economy actually
contracted last year due to political instability,
isolated drought and other factors. The MDGs
include a 50% reduction in poverty and hunger;
universal primary education; reduction of child
mortality by two-thirds; cutbacks in maternal
mortality by three-quarters; the promotion of
gender equality; and the reversal of the spread of
HIV/AIDS, malaria and other diseases.
An
overall growth of 4.5% in Africa was driven by
higher agricultural output, improved political
stability and incoming donor support as well as
stronger commodity markets - factors that are
expected to remain in the coming year. "The main
downside risk for Africa is the unpredictability
of the weather," said Carl Gray, an economist in
the Economic Monitoring and Analysis Unit in the
UN's Department of Economic and Social Affairs.
According to Gray, the weather factor is an even
bigger consideration than oil volatility or a
trade imbalance propagated by the US. "Often we
predict very good growth for Africa and then we
have a devastating drought, or like last year,
some locust infestation, or else it's heavy
rainfall. If any of those conditions wipes out a
significant portion of the crops - food or
commercial - then the economy will suffer."
Latin America
Growth in Latin
America, which was negative as recently as 2002,
surged 5.5% last year, propelled mostly by faster
growth in Brazil, a strong recovery in Venezuela
and continued recovery in Argentina. Greater
external demand fueled higher export growth, which
in turn propelled domestic investment. This past
year was also the first time in more than half a
century in which Latin America had a trade surplus
for two consecutive years. While economic
expansion is expected to continue in 2005, the
broad deceleration expected around the world could
reduce Latin American growth to 4%.
All of
the UN report's projections are of course subject
to volatility in the oil markets, which Ocampo
named as one of the primary downside risks facing
worldwide economic growth. After rising by 50% in
the first half of 2004, oil prices retreated, but
Ocampo said they still remain subject to what he
called a "fear premium", due mainly to
deteriorating security in Iraq and threats to oil
and installation facilities in Saudi Arabia and
elsewhere. He noted, however, that the impact of
higher oil prices was countered by currency
appreciation against the dollar in some cases and
for non-oil commodity producing countries, by
higher prices for their exports.
In
addition, unlike previous shocks to the world oil
market, last year's price rise resulted not from
decreased output, but from increased demand,
primarily from China and secondarily from the US
and India. The report predicts that the "fear
premium" should be offset by an anticipated
deceleration in demand and increased production in
non-OPEC countries, paving the way for a smooth
market adjustment that should stabilize the price
of Brent crude in 2005 at an average of $38, down
from the 2004 average of $40.
(Inter Press
Service) |
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