*EPF214 12/18/2001
Global Slowdown Worse than Previously Thought, IMF Reports
(Rebound now projected in 2003) (610)

By Kathryn McConnell
Washington File Staff Writer

Washington -- The global slowdown will be more prolonged than previously projected with growth at only 2.4 percent per year in 2001 and 2002, reports the International Monetary Fund (IMF).

Global growth is now expected to rebound in 2003, the IMF said in its December edition of World Economic Outlook. The interim Outlook provides preliminary assessment of global economic performance following the September 11 terrorist attacks.

Growth in the United States in 2002 projected at 0.7 percent will be behind that of France, Italy, the United Kingdom and Canada, the report said. Developing Asia will experience the best growth at 5.6 percent. World growth was 4.7 percent in 2000.

The report said the economic situation was worse in the United States, Europe and Japan before September 11 than previously reported, making the effects of the September 11 events even worse.

There has been a marked decline in trade growth, significantly lower commodity prices and deteriorating financing conditions in emerging markets since 2000 in nearly all parts of the world, the report said.

"A particularly disturbing feature of the current slowdown is its synchronicity across nearly all regions," it said.

It said that U.S. recovery will be hampered by a slow pick-up of confidence but that quick implementation of additional fiscal stimulus "while demand is still weak" could improve the outcome; that stimulus plan is still stuck in Congress. The report said that "structural reforms" in Europe and Japan are needed to improve growth and boost confidence there.

Developing countries should implement even deeper reforms to strengthen or restore their economies and ensure future access to finance, the report said. It called on industrialized countries and international financial institutions to support these efforts through providing additional concessional financing as necessary and by increasing their foreign aid to the United Nations target of 0.7 percent of gross national product (GNP).

The report said the costs of increased security following the terrorist attacks are not "large enough or long-lasting to have significant impact on medium- and long-term growth trends."

The report also said:

-- The strengthening of financial markets between the end of September and early December may reflect overreaction and "should not be seen as indicating that a recovery is in sight."

-- The pronounced economic slowdown has adversely affected many emerging markets' trade and confidence, constraining capital flows including foreign investment.

-- The poorest countries -- and especially rural areas -- are being particularly hurt by weaker external demand and falling commodity prices. Oil exporters are also affected by lower prices.

Despite the uncertainties, recovery could occur because policymakers generally moved quickly, the report said. It also noted that weakened oil prices have stimulated global activity.

The report said that completions of corrections to inventories will support future demand. It noted that lower inflation and improved fiscal positions in many countries and a shift to more flexible exchange rates has led to increased resilience to external shocks.

Following are some key figures:

Projected Annual Percent Change in World Output for 2002

Difference from
Current October 1
projections projections

World 2.4 -1.1

Advanced economies 0.8 -1.3
United States 0.7 -1.5
Japan -1.0 -1.3
Germany 0.7 -1.1
France 1.3 -0.8
Italy 1.2 -0.8
United Kingdom 1.8 -0.6
Canada 0.8 -1.4
Euro Area 1.2 -1.0

Developing countries 4.4 -0.9
Africa 3.5 -0.9
Developing Asia 5.6 -0.5
Middles East, Malta
And Turkey 3.9 -0.9
Western Hemisphere 1.7 -1.9
Central and Eastern
Europe 3.2 -1.0
Countries in Transition 3.6 -0.4

(The Washington File is a product of the Office of International
Information Programs, U.S. Department of State. Web site:
http://usinfo.state.gov)


(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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