The world economy is expected to grow by 2.25 per cent in 2003 following the 2 per cent growth in 2002, while trade is expected to register a 4 per cent growth as against 2 per cent last year, a United Nations survey said on Wednesday.
The persistence of a slowdown in trade and investment and the rising unemployment continue to hold back the world growth, as well as hopes for the progress in poverty reduction despite the easing of geopolitical uncertainties, according to the annual UN World Economic and Social Survey.
The foreign investment also remains hesitant, the international organisation said in a statement.
With the globally weak demand, the overcapacity created by the excessive investment in the 1990s, especially in the information and communication technology sector, has been reduced more slowly than expected.
At the same time, the geopolitical shocks of the past year have resulted in a large degree of slack in other sectors, most notably in the travel industry.
''Overcapacity will continue to have a dampening effect on the business investment that is necessary to sustain recovery,'' it said.
Even so, ''Most of the negative consequences of the earlier geopolitical uncertainties are expected to dissipate by the third quarter of 2003,'' according to the survey, which will be presented to the international policy makers at the meeting of the UN Economic and Social Council in Geneva on June 30.
Many developing countries are benefiting from the improved -- albeit still historically low - commodity prices, and those able to borrow from the international capital markets are able to take advantage of low interest rates, the survey said.
A complicating factor in the recovery picture is the long-anticipated decline in the value of the dollar, largely in reaction to the ballooning US external deficit.
''The trade-weighted index of the dollar has dropped sharply from its 2001 peak,'' the survey said in a special section on the impact of the weakened US currency.
The US growth has been the engine of the global economy in recent years and the dollar depreciation should boost US economic growth by increasing exports. But as the depreciated dollar tends to reduce US imports and to increase the competitive advantage of its products against exports of other countries, the extent of the stimulus to the rest of the world is lessened, the survey said.
More ominously, the continued depreciation would have a negative impact on the US financial markets, as it reduces the return of foreign investors on the dollar-denominated financial assets.
''This may lead to the further decline in capital inflows to the US, and reduce the demand for the dollar, begetting more depreciation of the dollar,'' it warned.
''If such a vicious circle were formed, the financial markets worldwide would be in a jeopardy,'' it added.
The depreciated dollar is among the reasons why a robust global recovery would need to be built on a broader base than just the US economy, according to the survey.
While the present positive forces in the US, in particular, and other developed countries may be strong enough to launch a recovery, they ''are unlikely to be sufficient on their own to sustain a recovery through 2004,'' it said.
(UNI)
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