*EPF417 09/20/01
Finance Group Director Calls Global Economic Situation Bleak
(Says continued support for emerging economies needed) (710)
By Kathryn McConnell
Washington File Staff Writer
Washington -- The economic situation in the Group of 7 (G-7) industrialized countries and in emerging economies is "bleak," says International Institute of Finance (IIF) Managing Director Charles Dallara.
In a September 20 briefing with reporters Dallara forecast a U.S. recession that would ease in the second quarter of 2002. He said developing countries' economies were forecast to expand only 2.8 percent in 2001.
Dallara called for multilateral organizations to continue to support economic growth programs in emerging economies that have adopted sound policies so that these economies can be sustained "economically and politically." He also called on private and public lenders around the world to "revisit" ways in which they can work together. IIF is a global association of financial institutions.
Dallara said the September 11 terrorist attacks on the World Trade Center and Pentagon increased economic and financial uncertainty "against the background of an already weakened economy." IIF projections are based on data collected through September 19.
In the near term, weaker confidence among investors and consumers is expected to intensify, according to the IIF. It forecasts growth in the G-7 -- Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States -- to slow from 3.2 percent in 2000 to 0.8 percent in 2001. Continued weakness in Japan and Europe likely will keep G-7 growth near its lowest pace since 1992-1993, IIF predicts.
"A synchronized global slowdown is under way, and although some recovery seems probable, its timing, strength and sustainability remain uncertain," according to the IIF. It emphasizes the need for a "coordinated response" by the world's leading central banks and "strong action in the days and weeks ahead [that] could help short-circuit a broad and extended deterioration of investor and consumer confidence and stabilize market sentiment."
As a result of economic slowdown in industrial countries and higher risk aversion on the part of investors, IIF projects private investment in emerging economies to reach only $106,100 million in 2001, down from $165,500 million in 2000. Weaker global economic performance will continue driving down exports levels, IIF says.
Emerging economies may need more money from official sources -- the international finance institutions and bilateral creditors -- IIF said. It predicted that official flows to these economies will shoot up to $29,600 million in 2001 and $20,200 million in 2002 from a negative flow of $1,300 million in 2000.
"The problem [of low growth in emerging economies] is not too much money going to these markets. The problem is too little money going to them," Dallara said. He said temporary financial assistance to the economies alone "does no good" toward their sustainable growth.
The IIF also predicts:
-- U.S. economic growth will recover to 1.3 percent in 2002.
-- Excluding China the aggregate growth rate for emerging economies will be only 1.6 percent in 2001.
-- Buoyed by growth in both China and India, the Asia/Pacific region will experience only a moderate slowdown in economic expansion in 2001 at 4.7 percent, down from 7.1 percent in 2000.
-- Latin America is expected to expand just 0.6 percent in 2001, down from 4.1 percent in 2000, largely due to contraction in the Argentine economy and domestic factors, such as an energy crisis in Brazil.
-- Mexico will expand less than 1 percent in 2001, down from almost 7 percent in 2000, reflecting the drop in U.S. demand.
-- Growth in emerging Europe will slow from 6 percent in 2000 to 1.3 percent in 2001, mostly because of a 5 percent fall in output in Turkey.
-- Growth in Africa and the Middle East will increase slightly from 3.4 percent in 2000 to 3.8 percent in 2001.
-- Exports from emerging economies will fall 2 percent in 2001 after rising 22 percent the previous year.
-- World trade will grow only 2.5 percent in 2001. Reasons include weak commodity prices, including "high-technology commodities," and a strong dollar earlier in the year that discouraged U.S. exports.
(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Website: http://usinfo.state.gov)
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