ECONOMY: Slow, Unsteady Growth Ahead for Developing Regions – IMF

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Apr 9 2003 (IPS) - Economic performance will continue to languish in most regions of the world in 2003, with developing countries recording slight improvements and rich nations achieving mixed results, said the International Monetary Fund (IMF) Wednesday.

Growth in the globe’s major economic engines, the United States, the European Union and Japan, will not take off until late in 2003, it added.

”Industrial production has stagnated in the major advanced countries, accompanied by a slowdown in global trade growth; labour market conditions remain soft; and forward-looking indicators – with a few exceptions – have generally weakened," the IMF said in its semi-annual ‘World Economic Outlook’ (WEO).

IMF Chief Economist Kenneth Rogoff told reporters Wednesday that the war on Iraq would further damage the global economy, even if it ends soon. ”Our baseline here is for subnormal growth,” he said.

The Fund is forecasting that world economic output will grow 3.2 percent in 2003, up from 3.0 percent in 2002, to reach 4.1 percent in 2004. This is less than the 3.7 percent forecast in the IMF’s September 2002 outlook.

Among the poorest countries, gross domestic product (GDP) growth – the most important measure of economic activity based on goods and services produced in a year – is expected to rise to 3.9 percent in Africa in 2003 from 3.4 percent last year and will climb to 5.2 percent in 2004.

Poor weather – with the effects, according to Fund economists, complicated by governance problems and the HIV/AIDS pandemic – has led to a serious famine in southern Africa, the Horn of Africa, and the western Sahel, now affecting 38 million people.

The ongoing chaos in Zimbabwe and the political crisis in C- te d’Ivoire also have serious effects for these countries.

The Fund said growth in Africa remained relatively resilient to the global downturn over 2002, reflecting improved macroeconomic policies and stability, progress in resolving regional conflicts and rising commodity prices.

It predicts a similarly fragile recovery for Latin America. After the deep recession of 2001¡02, activity has accelerated and growth is expected to reach 1.2 percent in 2003 up from negative growth of 0.1 percent last year. The rate will jump to 4.2 next year, says the WEO.

But it warns of ”significant vulnerabilities” in a number of countries, including Argentina, Brazil, and Uruguay, and a political crisis that has had a serious impact on economic activity in Venezuela.

The IMF applauded its controversial debt relief plan, the Heavily Indebted Poor Countries (HIPC) initiative, for helping free up productive capital to countries in Africa and Latin America – a view that many economists, including some from the World Bank, who call the programme a failure would quarrel with.

According to the WEO, many Middle Eastern countries, like Saudi Arabia, have benefited from higher oil prices, but the regional security situation continues to drag down economic activity in the region, particularly in countries that have close economic ties to Iraq, such as Syria and Jordan. Israel, the West Bank and Gaza, and also Egypt, where tourism has taken a major blow, are also affected.

The Fund said growth in emerging Asia would be better than forecast in 2002, particularly in China, with overall growth predicted at 6.3 percent this year, down from 6.5 last year, and climbing to 6.5 percent in 2004.

But the recent slowdown in the global information technology (IT) sector will, if sustained, have an adverse impact on the newly industrialised economies and the ASEAN-4 (Indonesia, Malaysia, the Philippines, and Thailand), while the recent outbreak of SARS (severe acute respiratory syndrome) poses a risk to activity in several countries of the region.

GDP growth has also remained strong in the so-called transition countries or former Soviet republics. The Fund, which generally urges nations to liberalise their economies, warned that Russia’s delays in implementing such reforms have weakened investment prospects.

The area will grow by 4.0 percent this year and reach 4.1 percent in 2004, the 2002 level.

U.S. GDP growth is projected to be somewhat lower than in 2002 – 2.2 percent in 2003 compared to 2.4 percent – but the IMF predicts it will rise to 3.6 percent next year.

The Fund is banking on a recovery in confidence and investment and additional fiscal stimulus to lead that recovery.

With domestic demand still fragile, fiscal policy tightening, and the Euro appreciating, the IMF has chopped its growth prognosis for the European Union to 1.1 percent this year.

GDP growth is also expected to remain weak in Japan. It rose from 0.3 percent last year to only 0.8 percent in 2003 and will climb slightly to 1.0 percent in 2004 thanks to persistent deflation and fading domestic demand, says the Fund.