World economic recovery held hostage to imminent risks: UN

The gradual world economic recovery underway is held hostage to a number of imminent risks with global economy likely to grow at a little over two per cent and world trade by six per cent, the United Nations said in a report Thursday.

In an assessment of year-ahead prospects, the UN analysts warned that despite the 2001-02 shakeout in equities and tech investments, impediments to a decisive strong world economic growth in 2003 and beyond remain in the form of over-capacity, over valued asset prices, shaky investor confidence and macroeconomic imbalances, a UN release said in New Delhi.

'World Economic Situation and Prospects 2003', released in New York, said following a slow start, the world economy is expected to pick up in second half of 2003 and after an expansion of only 1.7 per cent, is projected to grow by 2.3/4 per cent this year.

World trade is forecast to grow at a modest six per cent in 2003 following less than two per cent in 2002 and a decline in 2001, the report said.

Key to the prospects of several developing countries, the weakness of global demand has exerted downward pressure on the prices of non-oil commodities, it said.

Flows of foreign direct investment to the developing countries too have declined by slightly more than a quarter in 2002 to about $540 billion marking a level of barely one-third of the peak attained in 2000, the only exception being China, it said.

As the US remains the main engine of the global economy, limits to the sustainability of the US trade deficit and the value of the dollar pose another major downside risk of global proportions, the report said.

"The United States will continue to lead the global recovery, but without significant momentum," it said.

Moreover, in the developed countries, falling equity values and weak business spending are constraining economic recovery and a prolonged depression in major equity markets could trap the global economy in a protracted period of low growth or send it into a tailspin, it said.

However, domestic demand in China has been important not only in sustaining the country's own high growth during the global slowdown but also provided stimulus to exports from some other countries, particularly in East Asia, it said.

An added complication comes from rising geopolitical tensions in West Asia which have already pushed up oil prices and dampened business and consumer confidence, it added.

If a military action were to take place in West Asia, it will "be a further brake on world economic growth", it said.

Appreciating the accommodative national macroeconomic policies, the report said it was helpful in preventing the world from falling further into a widespread downturn.

But most other countries have been constrained in their ability to adopt policy stimuli and the measures implemented have proven insufficient for activating a strong global recovery, the report said.

It also called for a greater macroeconomic policy coordination among the major economies to revive global growth, the release said.