United Nations Press Release | February 6, 2004
World economic growth for 2004 expected to be 3.5 per cent, Economic and Social Council told; Under-Secretary-General for Economic and Social Affairs introduces report on 'World Economic Situation and Prospects 2004'
The economic recovery in the world, with expected growth of 3.5 per cent this year, was led by the United States, but also by the growing importance of the Chinese economy, Jose Antonio Ocampo, Under-Secretary-General, Department of Economic and Social Affairs, told the Economic and Social Council this morning as it continued its 2004 organizational session.
Introducing the report entitled World Economic Situation and Prospects 2004, a joint effort by the Department of Economic and Social Affairs and the United Nations Conference on Trade and Development (UNCTAD), Mr. Ocampo said the recovery was broad based and encompassed all regions of the world, although the extent of the European recovery was a concern, and the developing world would see an acceleration of growth, including in Latin America and the Caribbean. In contrast to negative growth there in 2002, there was positive growth in 2003, which would continue in 2004.
However, recovery in employment had not kept up with recovery in gross domestic product (GDP), he said. Contrary to the growth pattern prior to the 2001 recession, current growth was based on expansionary fiscal and monetary policies in the United States and Japan, and to a lesser extent in Western Europe. There were also growing imbalances, in particular in the United States, which had lead to major exchange rate corrections as markets had interpreted the deficit in the United States as a sign that the United States might have financial problems. The devaluation of the United States dollar had a negative wealth effect on the rest of the world. Due to that fact, the correction of international imbalances could only come from more balanced economic growth, in particular from faster growth in Western Europe and Japan.
One part of the recovery consisted of faster growth of world trade '- 4.75 per cent in 2003 and an expected 7.5 per cent in 2004. However, that growth was slower than in the 1990s. On trade and finance, the report indicated that uncertainties remained about the 'Doha Round', and multiplication of regional trade arrangements had weakened the multilateral character of international trade. It would therefore be better for the world to emphasize multilateral trade negotiations, he said.
There had been several positive developments in the financial sector, he continued. Last year had shown a return of financial flows to developing countries and a decrease in the risk premiums. Nonetheless, in developing countries, the amounts of outflows continued to exceed net inflows. Official development assistance (ODA) had started to recover slowly, but commitments made during the 2002 Conference on Financing for Development in Monterrey, Mexico, only accounted for one third of the requirements to meet the Millennium Development Goals. Moreover, an initiative to develop a framework for debt reduction had not succeeded.
Answering representatives' questions, Mr. Ocampo said the major issue facing industrial countries was how to balance growth among themselves and how to phase out expansionary policies once recovery was underway.
The United States expansionary policy had to be phased out gradually, in order not to choke the recovery.
Some of the adverse effects of previous years on the international environment for development seemed to be improving, he said. The risk premiums in international markets had declined considerably, especially in Latin America and in some Eastern European countries, and were now at the same levels as before the Asian crisis. Due to negative financial flows, the major source of capital for developing countries had been foreign direct investment. Trade was accelerating and had had positive effects on commodity prices, but those were still below the levels prior to the Asian crisis.
Still, in particular for the least developed countries, expected growth rates were insufficient to meet the Millennium Development Goals, particularly in Africa, where growth rates of 6 per cent were needed to meet those goals. Poor performance of the world economy in the beginning of the decade had already delayed achievement of the Goals.
Growth for least developed countries had been 3.8 per cent for 2003 and was expected to accelerate to 5 per cent in 2004.
One of the major innovations of the New Partnership for Africa's Development (NEPAD) was the establishment of a mechanism for peer review of progress made by different members. He hoped that mechanism would be replicated in all other parts of the developing world.
He said some parts of the developing world, particularly China, were leading the increase in import demand. For example, 50 per cent of South Korea's exports went to China, and for Japan that figure was 11 per cent. Even the United States' export growth to China was very rapid. The United States and China were both locomotives for growth with China contributing 15 per cent to world growth. One major issue for China, however, was to make sure that that growth was sustainable.
One problem facing the Chinese economy was the development of its domestic financial system.
Asked what effects the outbreak of avian flu would have on the world economy, Mr. Ocampo said that phenomenon had not been evaluated yet, but from experience from the SARS outbreak, he thought the effect would be limited and short-term.
Mr. Ocampo announced that there would be a mid-year update of the report, which had been compiled in close cooperation with the United Nations regional committees. In a major innovation, Chapter 2 of the report contained a special section on the evaluation of all topics on the Monterrey agenda.
Representatives of Colombia, Jamaica, Qatar, Ghana, Benin, China, United States, Guatemala, Brazil, Ireland and the Russian Federation asked question or made comments, as did the Council's President, Marjatta Rasi (Finland).United Nations Press Release:
