GENEVA — Global economic output is forecast to increase by 3.8 percent in 2004, and the expansion is projected to continue into 2005 spurred by growth in the U.S. and Asia, in particular China, according to a report by a U.N. agency released Thursday.

This story first appeared in the September 17, 2004 issue of WWD. Subscribe Today.

However, the U.N. Conference on Trade and Development warned that growth rate, which is ahead of last year’s 2.6 percent, could be slowed by the uncertainty about world oil prices. Late Thursday, oil was trading for about $43 a barrel, off its August peak of near $47, but still high.

“Should [oil] prices remain at their third-quarter 2004 levels or even rise further, they could have a considerable impact on inflationary expectations in the industrialized countries,” the UNCTAD report said. “This, in turn, might lead to increases in interest rates, which could dampen growth even more.”

Heiner Flassbeck, UNCTAD’s chief economist, said, “I’m not pessimistic concerning the world economy. In Asia, obviously, we have the economies going full steam….I don’t see, putting aside a major crisis in world currency markets, how they could be stopped at short notice. So they will go on in 2005. And the U.S. economy seems to be doing still quite well.”

Europe, said Flassbeck, is still “very much lagging behind and extremely fragile, in my opinion, because any further increase of the euro rate vis-à-vis the dollar would endanger that bit of recovery that they have.”

On Thursday, the dollar was worth 82.2 euro cents, down from 88.6 euro cents a year earlier.

For 2004, UNCTAD expects the U.S. economy to grow by 4 percent; Japan, by 4.3 percent; the euro area, by 1.8 percent; China, by 8.5 percent; India, by 6.5 percent, and Vietnam, by 7 percent.

UNCTAD argued that, with Asian countries “fiercely defending their exchange rates vis-à-vis the dollar, adjustments to the global imbalances are likely to require more pronounced exchange rate changes in the rest of the world, particularly Europe.”

Flassbeck said China “should not float its currency.” A sudden move on China’s part, he warned, could destabilize economies throughout Asia.