Magazine article Financial Management (UK)

Hope Springs Eternal: Forecasters Are Becoming Increasingly Optimistic about the Chances of Healthy Global Growth over the Coming Year. David Ross Examines the Prospects for the World's Leading Economies

Magazine article Financial Management (UK)

Hope Springs Eternal: Forecasters Are Becoming Increasingly Optimistic about the Chances of Healthy Global Growth over the Coming Year. David Ross Examines the Prospects for the World's Leading Economies

Article excerpt

After three years of below-par performance since the .the dotcom bubble burst in 2000, the world economy is poised for faster growth next year. But ever-increasing consumer debt, especially in the UK, is lurking menacingly in the background. This may make the recovery weaker and less sustained than previous expansions.

The US economy now seems to be benefiting from the monetary and fiscal stimuli it has received over the past two years. Revised GDP figures show that it expanded by an annualised 3.1 per cent in the second quarter--up from an originally estimated 2.4 per cent. This was largely a result of higher consumer spending and capital investment by companies than bad originally been forecast. Previously, most of the growth had been attributed to a huge increase in defence activity associated with the Iraqi war. The IMF is now predicting growth of 2.4 per cent this year and 3.7 per cent in 2004.

Survey evidence in America also suggests an acceleration. The US Institute of Supply Management services indicator was unchanged in August at 65.1 its highest level since the survey began in July 1997. The data also showed that companies in the sector have been stepping up their recruitment efforts. Until now, in a repeat of the experience of the early 1990s recession, this recovery has been a jobless one.

Recent figures in the UK have been disappointing. Growth in the second quarter was only 0.3 per cent (see graph), but there is plenty of evidence to indicate better progress next year. As a result, the FTSE 100 has recovered to over 4,200, compared with a trough in the spring of under 3,300. The Chartered Institute of Purchasing and Supply purchasing managers' index for the service sector climbed to 57.0 in August from 56.6 in July--its highest level since January 2001--and showed an increase in employment for the first time in two years. …

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