Magazine article Financial Management (UK)

A Global Gloss: The Big Three Economies of the World-The US, Japan and Germany-Are Showing Few Signs of Vigour, Writes David Ross. but That Hasn't Stopped the IMF from Making Bullish Growth Forecasts. (Economics)

Magazine article Financial Management (UK)

A Global Gloss: The Big Three Economies of the World-The US, Japan and Germany-Are Showing Few Signs of Vigour, Writes David Ross. but That Hasn't Stopped the IMF from Making Bullish Growth Forecasts. (Economics)

Article excerpt

The International Monetary Fund has forecast that the world economy will grow by 3.7 per cent in 2003. This is less than what it had anticipated in April, but still close to the potential growth rate for the global economy. The IMF bases its expectations for a recovery on the substantial monetary policy stimulus in the pipeline and a continuing inventory rebound.

Inflation is projected to reach a modern-era low of 1.4 per cent by the end of 2002 in industrialised countries and rise to 1.7 per cent in 2003. But the IMF still believes that rumours of the death of inflation are greatly exaggerated, and that central banks need to watch out for a steady increase in years to come.

The IMF forecasts that the US economy will have grown by 2.2 per cent in 2002 and predicts a rate of 2.6 per cent in 2003. In forecasting only 0.9 per cent in 2002 and 2.3 per cent in 2003 for the euro area, it has registered concern that domestic demand is weak and insufficient to fuel a recovery. It also notes that, unless Europe reinvigorates its inflexible labour markets, its growth will probably continue to lag. Unusually, the UK economy has shown relative strength in the global downturn. Even so, the IMF has shaved its forecasts for UK growth from 2.8 per cent to 2.4 per cent for 2003.

As for Japan, the IMF suggests that a more aggressive monetary easing to tackle deflation is still needed. Nevertheless, it forecasts that the country will emerge from its third recession in a decade with a growth rate of 1.1 per cent in 2003 after -0.5 per cent in 2002.

Fragile stock markets, volatile oil prices and talk of war with Iraq are not the best background to engender the improvement in business and consumer confidence that the IMF anticipates. Despite its bullish-looking forecasts, there is still the prospect of a double-dip recession in the US, while Japan is stuck in a deflationary recession and Germany seems to be heading that way. …

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