There is no doubt the world economy is recovering from the most serious slowdown in more than 10 years. But at the same time, many analysts say the economy is facing a rough road ahead with many risks.
As the joint Spring meeting of the International Monetary Fund (IMF) and the World Bank closed on April 21, ministers from over 180 countries shared the same view that there are more signs that the global slowdown since the middle of 2000 has bottomed out.
World Economic Outlook, the most important IMF report issued twice a year at its spring and autumn meetings, drew a better picture of the global economy. The leading economic indicators have turned up, consumer and business confidence have strengthened,as well as industrial production, including the information technology (IT) sector, which is leveling off. It is apparent in the United States, the most powerful economy in the world. In the emerging markets, there are also signs of recovery in a number of Asian countries aided by nascent improvements in the IT sector, although not yet in most Latin American countries.
The IMF also foresees a bright future for the world economy. Itpredicted that the growth rate of global economy would reach 2.8 percent in 2002 and 4 percent in 2003. The economic recovery willbe led by the US with a growth rate of 2.3 percent in 2002, and 3.4 percent in 2003, compared with pessimistic prediction of just 0.7 percent this year in the last outlook report released in December. The 15-nation European Union was projected to have a growth rate of 1.5 percent this year, slightly slower than last year's 1.7 percent, before enjoying a rebound to 2.9 percent in 2003.
The global economic recovery is being underpinned by a number of factors. First and the most important, macroeconomic policies across the world have been eased, particularly in the U.S., which lowered its short-term interest rates 11 times last year. The central banks from Hungary, Thailand to Chile, have cut interest rates a total of 206 times since December, 2000, according to a recent Wall Street Journal report. The actions have made loans much more affordable and helped push many countries' economies outof a slowdown.
The global economic slowdown, which may be the shortest and most moderate compared with most downturns since World War II, wasalso shortened by other factors, including the depletion of inventory cycles, which appeared most advanced in the U.S., and relatively low oil price in the world market in 2000.
However, there are also significant risks to a sustained upturnof the global economy, which will pose important challenges to policy-makers.
One of the uncertainties is the oil market. Oil prices have risen sharply since the beginning of this year, especially after the situation in the Middle East worsened. Were oil prices to risesubstantially in the future, there could be a significant impact on global recovery, and the economy might be pushed into a double-dip recession.
The situation in Japan is also worrisome. Japan's GDP is about 4.5 trillion U.S. dollars and accounts for an important share in the world economy. However, the outlook of Japanese domestic demand remains very weak. Its GDP growth is only expected to return to positive level by the fourth quarter of 2002 and will benegative for the whole year at minus 1.0 percent, and return to 0.8 percent in 2003. So it creates a big problem for the world economy and will at least slow the pace of recovery this year.
A number of imbalances also exist in the U.S. and the global economy. Notably, there are a large current account deficits in the U.S. and surplus elsewhere. The U.S. personal saving rate is low and the dollar is apparently overvalued, while the euro is undervalued. In some countries, there are relatively high levels of corporate and household indebtedness.
"It will be important to take full advantage of the recovery to reduce remaining economic vulnerabilities, and to pursue a collaborative approach to promote an orderly resolution to global imbalances over the medium term which remain a serious risk to economic stability," said the IMF.
(Xinhua News Agency April 23, 2002)
