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by Kushani Ratnayake

The United Nations predicts that the economies in transition will maintain their recent pace, with 3.4 percent growth projected for 2002 and 4 percent in 2003. The recent rebound in several Asian-developing economies is also expected to continue, and growth in China is also expected to exceed 7 percent this year and the next.

The rate of growth of gross world product is forecast to be only 1.7 percent in 2002, and less than 3 percent in 2003, according to a global forecast by economists from around the world, released last week at the United Nations.

Particularly hard hit is Latin America, where Gross Domestic Product (GDP) is expected to decline by 0.9 percent in 2002, according to project LINK, a co-operative, non governmental, international research activity, jointly co-ordinated by the UN Department of Economic and Social Affairs (DESA) and the University of Toronto.

The recovery process is not only more sluggish than previously anticipated but is also subject to additional uncertainties. Chief among these factors are: The impact of heightening geopolitical tensions in the Middle East is an economic wild card. The decline in equity prices, especially in the US, is of historic dimensions in terms of duration and severity.

The report foresees that a prolonged continuation of the slide could put push recovery in the US beyond mid 2003.

It is generally agreed that the longer external deficits of the United States continue, the greater the risk of an abrupt correction and a shock to the world economy. But in the short run "strong import demand from the United States, thus a further widening of the country's trade and current account deficits, remains desirable " for a global recovery; the report states.

The latest debt crisis in Argentina underlines the risks that may arise from financial fragility and debt overhang within nations. "The spill over effects of the Argentine crisis have over time, been more significant than was originally expected," it adds.

While monetary and fiscal policy stimuli, resilient consumer spending, and inventory restocking continue to support the recovery, tepid business capital spending and increasingly lower equity prices continue to drag down global economic growth. During the past six months, a few more adverse factors have emerged. Rising geopolitical tensions have contributed to higher energy prices, the price of oil has risen by more than fifty percent from January 2002 to the end of September.

Faulty corporate governance in some major industrial countries, particularly the United States, a global deterioration in business and consumer confidence and worsening economic vulnerability in Latin America have also inhibited global economic buoyancy.

To make matters more difficult, many economies are increasingly constrained in their capacity to pursue further policy stimulus because fiscal imbalances are already large, monetary policy is already quite relaxed, or there are self imposed policy constraints.

Developing countries continue to be confronted with a challenging international environment: weak external demand, historically low prices for most non-fuel primary commodities and on the whole, contracting net capital inflows.

After the African economic growth of only 2.7 percent in 2002, less than the rate at which the population is expanding, Africa is expected to grow by around four percent in 2003, due mainly to strengthened domestic economic factors.

Economic growth in West Asia is subject to great uncertainty due to increased volatility in oil prices and mounting geopolitical tensions.

The largest drag on the GDP of Latin America has been the precipitous contraction in Argentina, estimated at about 12 percent in 2002. Another impetus for the downturn comes from Brazil, where concern about the country's large debt has been exacerbated by uncertainties regarding future national policies and the situation of neighbouring Argentina.

Paraguay and Uruguay have also been badly affected. Mexico is expected to recover from a recession year in 2001, but only to the extent of 1.9 percent growth in 2002.

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