Financial Daily from THE HINDU group of publications
Sunday, Apr 28, 2002
Industry & Economy - Economy
OECD optimistic of growth prospects
NEW DELHI, April 27
THE Organisation for Economic Cooperation and Development (OECD) has forecast that the economic growth in its member countries would "accelerate gradually" reaching nearly two per cent in 2002 and three per cent in 2003.
In its bi-annual World Economic Outlook, released in Paris on Thursday, the inter-governmental think-tank of 30 rich countries said while the downside risks have "diminished", policymakers continue to face a substantial degree of uncertainty.
Stating that the US is leading the upturn, it said that a gradual strengthening in business investment is likely to underpin the recovery in the second-half of 2002 and into 2003. In the Euro area, recovery would be more gradual and beyond the short-term rebound, policy decisions are needed to make European economies more productive and raise potential growth.
In Japan, deflation seems to have become entrenched, even as its exports are responding to exchange rate depreciation and the revival of global demand.
Activity in non-OECD countries as a group is likely to accelerate over the projected period (till end-2003), the Asian economies having "weathered the downturn well".
Growth in China is likely to remain around seven per cent and activity in the Asia-Pacific region is set to strengthen as the high-tech investment cycle turns up.
Latin America presents a mixed picture - while slowing, it has shown some resilience. Overall, the recovery both inside and outside the OECD area is likely to boost world trade growth from 2.5 per cent in 2002 to over nine per cent in 2003.
OECD said there are short-term negative risks to the recovery in part because the recent household spending surge in the US has been financed through a run-up in credit.
Outside the US, the main concerns are that a weaker labour market could prevent the expected normalisation of household sentiment in Europe. A further source of short-term risk attaches to the oil price, which could rise beyond the level, assumed in the projection should the political situation in or near oil-producing countries worsen.
As experienced in 2000, this could lead to higher inflation, lower incomes, depressed consumer confidence and would weaken the upturn, the organisation cautioned.
For the medium term, there are a host of areas of possible tension that could threaten the sustainability of the expansion. First pertains to the dependence of OECD and non-OECD economies alike on the US demand to fuel the expansion and the associated foreign trade gap, which is set to worsen.
US saving, private and public, needs to rise to pre-empt possible upward pressure on global interest rates.
The expansion could also be imperilled by renewed protectionist pressures, as the US decision to introduce safeguard measures affecting a broad range of steel products might prompt retaliatory action, it said.
The financial fragility of a number of emerging countries is a further related threat.
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