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World economy to recover slowly despite woes: OECD

Brian Love in Paris | April 24, 2003 18:43 IST

The global economy should stage a slow-burning recovery now that the battles in Iraq are over, but anxiety over terrorism, disease and the way the world is run still pose multiple threats, the OECD said on Thursday.

It forecast sluggish economic expansion of 1.9 per cent this year for the OECD group of 30 mainly rich countries, close to the level in 2002, and said it expected a pick up around the year-end to allow more healthy growth of 3.0 per cent in 2004.

"Worries about oil prices, anxiety in the face of war, fear of terrorism and epidemics, loss of confidence in international governance -- the list of the so-called geopolitical and psychological factors is long," chief economist Jean-Philippe Cotis said in a preface to the twice-yearly report.

The situation had become a bit clearer since the US-led war in Iraq and the safeguarding of oilfields there, and brisk reconstruction of the country could help, Cotis said, predicting what he called a "progressive if unspectacular world recovery".

"While a relapse into recession cannot be totally ruled out, it remains a low probability," the Paris-based Organisation for Economic Co-operation and Development said in its twice-yearly Economic Outlook.

The risk of surging world oil prices related to war had now receded, it said in a report which assumed oil prices would average $25 dollar a barrel in the next year or more, not far from the level oil was trading at on Thursday.

Ministers from OPEC oil producing countries met in Vienna on Thursday to consider output cuts to ensure that oil prices would not sink, with the prospect of a full-scale return of Iraqi oil to world markets at some stage.

Lowering sights

In essence, the OECD's report said much the same in terms of growth prospects as other recent reports from the International Monetary Fund and the European Commission -- sluggish growth in the months ahead and a likely pickup towards the year's end.

The OECD's previous report last November had predicted 2.2 per cent growth for this year.

Its latest report predicted 2.5 per cent growth in the United States this year after 2.4 per cent in 2002, and a surge to growth of 4.0 per cent in 2003.

Japan, in and out of recession for the past decade, would continue to struggle, with growth forecast at just 1.0 per cent and 1.1 per cent in 2003 and 2004 respectively.

The 12-nation euro currency zone would limp along for another year with growth of just 1.0 per cent but should bounce back to growth of 2.4 per cent next year.

Cotis said the European Central Bank did not need to worry about inflation, which was easing, and that the ECB should cut interest rates to help promote money lending and growth. "The sooner the better," he told a news conference.

Virus risk?

The OECD also warned that the overall economic fallout of the SARS disease crisis for worst-affected countries -- largely Hong Kong and other parts of China and Asia as well as Canada -- could be significant.

The Severe Acute Respiratory Syndrome scare had depressed stock prices and hit airlines, tourism and retailers in several Asian countries. Travel to and from New Zealand and Canada had been hit, it said. Japanese firms were restricting travel to Singapore and other cities.

"The economic impact of this epidemic depends largely on how promptly and effectively the virus can be brought under control," the OECD said.

"We can certainly say there will be severe macroeconomic consequences locally, and in Hong Kong certainly," Cotis said. It was hard to quantify the wider economic impact at this stage.

The OECD said there were a whole range of other more classic economic headaches that world political and corporate leaders needed to tackle.

Soaring house prices in the United States and Britain posed a risk, and in continental Europe there was still a need for long-promised plans to deregulate or otherwise make economies more flexible, the report said.

The OECD also highlighted how many governments had run up "spectacular" deficits in public finances.

It also highlighted a need for Europe to pursue promised economic reforms and for governments across the world to strive for further deals to improve free trade despite a "period of diplomatic friction and loss of confidence in collective governance".

(Additional reporting Paul Carrel, Reuters OECD bureaux)


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