The Hindu Business Line : Global economy growth rate pegged at 3.7 pc

THE world economy is expected to grow by 3.7 per cent this year which is basically the continuation of a strong pace of recovery that started in the second half of 2003, according to a group of 100 economists from 60 countries meeting at the United Nations under the auspices of Project LINK.

The economists, according to a release, have also maintained in their Global Outlook for 2004 that the current phase of acceleration is expected to wind down the second half of this year. The programme is co-ordinated by the UN Department and Economic and Social Affairs and the Project LINK Research Centre at the University of Toronto.

The anticipation of LINK is that the US will show an annual economic growth of 4.7 per cent this year and moderating to 3.6 per cent in 2005; Japan will post a growth rate of 3.1 per cent this year and easing off to 2 per cent next year; and the European Union see a growth rate of 1.9 per cent in 2004 but rising to 2.4 per cent in 2005. India's annual growth rate has been pegged at 6.3 per cent this year, and dropping slightly to 6.1 per cent in 2005.

What has been pointed out is that conditions across regions and countries that favour a buoyant economy "are almost ubiquitous"— low interest rates, low inflation, rising equity markets and increased demand leading to increased trade and cross-border investment.

"The combination is providing a welcome opportunity for many developing economies in Africa, Asia and Latin America to pull out of the slowdown they experienced in the early part of the decade," the United Nations study says.

Net capital flows to the developing countries have increased significantly since mid-2003; foreign direct investment is expected to rebound in 2004; and portfolio investment is already on the rise as most emerging markets stock markets in late 2003 and early 2004 outperformed those in the developed economies in the same period.

LINK has warned that unemployment remains a large problem with the cyclical recovery in employment has been unusually slow in many economies. But rising global demand coupled with the linkage of commodity prices to a declining US dollar are boosting the return on commodities to the benefit of many commodity exporting developing economies the study has said.

The study makes the point that the longstanding notion of the US being the "sole locomotive" for global growth is now "complex" for the reason that this "locomotive" has been "powered" by resources borrowed from the rest of the world.

"The sustainability of the US economic expansion is therefore crucially dependent on the willingness of the rest of the world to continue to lend to the US by accumulating assets...Such a cycle of interdependency between the US and the rest of the world is unlikely to prove sustainable," the study has said.

On the subject of outsourcing the economists have taken the position that so far slow pace of job increases is because of a cyclical lag rather than being caused by either outsourcing of jobs overseas or as an inevitable aspect of increased productivity.

According to the Global Economic Outlook for 2004, the explanations of outsourcing and productivity growth "may be partially true at firm or industry levels but do not hold at all to the macro-economic level where efficiency gains from either technological changes or international economic integration should not harm aggregate employment."

Further LINK has warned against any attempt to bolster employment in developed economies through protectionist measures saying that these would be "self-defeating domestically and harmful to the global economy."