ECONOMY: IMF Sees Growth Slowing in Developing Nations

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Apr 21 2004 (IPS) - The world economy will rebound in 2004 and 2005, buoyed by an increase in global trade and a surging U.S. economy, but growth in developing nations will easy slightly, the International Monetary Fund (IMF) said Wednesday.

In its twice-yearly high profile ‘World Economic Outlook’ (WEO), the international lender predicted global growth will hit 4.6 percent in 2004 and fall slightly to 4.4 percent the next year.

Developing country economies, which grew by 6.1 percent in 2003, will increase by 6.0 percent this year and by 5.9 percent in 2005.

”The tentative buds of the recovery we observed six months ago are now blooming in many parts of the world,” Raghuram Rajan, chief economist at the Washington-based institution, told reporters.

But the IMF warned that the positive assessment is still fraught with "geo-political risks", including possible terrorist attacks, tensions in the Middle East and U.S.-occupied Iraq and fluctuating oil prices.

The agency calculates that for every five-dollar-a-barrel hike in the cost of oil above the baseline price – if it remains in place for one year – global growth declines by some 0.3 percent.

”It is worrisome that supply conditions are not slack enough to withstand the withdrawal of a significant producer,” Rajan said.

The IMF also warned that the current fiscal deficit in the United States, combined with similarly serious deficits in Asia, remains a threat to global recovery.

”On the fiscal side, the United States is not the only economy that needs to consolidate, but it is the most important,” said Rajan.

The United States and Asia, particularly China, led growth over the past year, says the IMF. Asia is expected to improve to 7.2 percent growth in 2004, its highest level since before its 1997 financial crisis, thanks in particular to recovery of the information technology sector.

China’s economy will expand by 8.5 percent next year, with India growing 6.8 percent this year and 7.4 percent in 2005.

Growth in Latin America, especially Brazil, remains weak, but higher commodity prices and the global recovery will help turn that around, according to the IMF, which is holding its spring meetings in Washington this weekend, in conjunction with the World Bank.

The Middle East will see slightly higher growth this year, at around 4.1 percent, versus 5.0 percent in 2005, while the former Soviet republics will grow 6.0 percent in 2004, underpinned by robust upturns in Russia and Ukraine.

Among the world’s poorest countries, growth in 2003 rose by 4.4 percent, lifted by the surge in oil production and oil prices in Nigeria. It should increase another 5.9 percent in 2005, on the back of better weather conditions, improving commodity prices and increasing oil and gas production in many African countries, predicts the outlook.

U.S. growth is projected at 4.6 percent in 2004, while the Japanese economy is expected to grow by 3.4 percent, its highest rate since 1996. Europe, which has seen the slowest pace of recovery because consumption remains weak, will grow a modest 1.7 percent, according to the IMF.

The annual outlook has been criticised for gauging the health of the world economy from the perspectives of nations that dominate the fund’s executive board – northern countries – and for making no provision for human development.

In 2003, economists and activists from the so-called global justice movement that opposes corporate-led globalisation issued their first ‘Real World Economic Outlook’ (RWEO).

Published by Jubilee Research at the London-based New Economics Foundation, the report presented an alternative view to the one offered by the IMF and other western-backed custodians of the global economic system.

The alternative outlook said that the ‘trickle down’ effect promised by the IMF and World Bank – a theory that says the benefits of economic growth will flow from the richest to the poorest – has not materialised. Instead, poor countries are lenders to the rich – unwittingly financing opulent living standards in the United States and elsewhere.

As the IMF forecast was released Wednesday, a couple of hundred protesters demonstrated outside its headquarters here.

Critics say the fund and the World Bank exacerbate global poverty by pushing policies that favour corporations in rich nations and pry open the fragile markets of developing states.

The IMF annual report did not fail critics’ expectations. The forecast is packed with the usual advice for poor nations.

It urges them to open their borders to more trade and to continue overhauling their banking and corporate sectors, code words for allowing the free transfer of wealth across borders and for giving foreign companies a free hand to operate within their territories.