The 2003 Global Outlook: Recovery to Continue: Modest Growth Should Continue in the World's Major Economies in 2003, but Weak Performances Are Anticipated in a Few South American Economies and in Japan. While Downside Risks to the Outlook Remain Plentiful, Current Trends-Especially Low Inflation-Seem Ready to Support Global Economic Expansion
Chriszt, Mike, EconSouth
The global economic recovery that began in 2002 looks set to continue in 2003. Unfortunately, forecasters do not expect the rebound to be very impressive, and many downside risks to the outlook remain. Looking back at 2002, the recovery trend has been generally disappointing. After slowing in late 2001, most of the world's economies recovered in early 2002 at a pace that impressed many economists. The better-than-expected turnaround lost some steam midyear, however, and most major economies experienced slower growth in the second haft of the year.
As a result of the moderation in global economic growth in late 2002, forecasts for 2003 were revised downward. In September 2002, the International Monetary Fund (IMF) projected a 3.7 percent expansion in global real gross domestic product (GDP) in 2003, down slightly from its April 2002 forecast of 4 percent. Such a result would be near the average global growth rate in the late 1990s and up from 2001 and 2002 growth estimates of 2.2 and 2.8 percent, respectively (see chart 1 on page 26)
Forecasters expect the economies of the developed world to post economic growth of 2.5 percent in 2003, up from the 2002 estimate of a 1.7 percent expansion and much better than the 0.8 percent result posted in 2001. Developing economies should grow 5.2 percent in 2003, up from 2002's estimated 4.2 percent growth rate and better than the 2001 result of 3.9 percent.
Within the two broad groupings of developed and developing economies, there are significant differences. Among developed countries, for example, Canada's 2003 real GDP forecast is 3.4 percent while the outlook for German economic growth is 2 percent and Japan's forecast stands at just over 1 percent.
For developing economies, the differences are even more striking. Asia's emerging economies are expected to grow an average of 6.3 percent in 2003; Latin America's developing economies are seen expanding by 3 percent, according to the IMF. Importantly, many private forecasters expect growth to be much lower than the IMF's forecast. Even within Latin America, expected growth rates diverge quite a bit among individual economies. But before investigating specific regional outlooks, a look back at the world economy over the course of 2002 can help provide perspective.
The first half of 2002: Recovery
The rapid shift from negative to positive economic growth--or front recession to expansion--in the global economy during the first quarter of 2002 took most economists and policymakers by surprise. One of the main reasons for the reversal was the resilience of consumer demand and a widespread turnaround in manufacturing activity.
Consumers from the developed economies, especially those in the United States, were much more active than anticipated--especially in light of the global recession of the second hag of 2001 and the terrorist attacks on Sept. 11 of that year. In many economies the housing and real estate markets proved to be quite resilient as well, adding to positive momentum heading into 2002. Furthermore, a global rebound in manufacturing took hold in late 2001 and continued in early 2002.
Another important component to the 2002 recovery was low inflation. The fact that inflation in 2001 in nearly all major economies remained very low meant that central bankers were able to ease monetary conditions as economic growth slowed. For example, the average global short-term interest rate for the major developed economies in December 2000 was over 4 percent. That average rate fell to near 2 percent by the end of 2001. The positive impact low interest rates had on consumption was significant.
The second half of 2002: Stall
The positive start to 2002 was not sustained, however. By midyear, even though consumers continued to spend and robust housing markets remained a source of strength in many economies, businesses around the world clearly were not enthusiastic about their prospects. …