The World Bank doesn’t have much good news for the new year. In December, the organization sharply cut its outlook for world economic growth in 2003 by more than a percentage point to 2.5 percent. Retailers sourcing private label goods and manufacturers will have to navigate the world’s hot spots where there is growing economic and political instability.
EAST ASIA AND PACIFIC
The recent terrorist attacks in Bali will depress tourism in East Asia. But since world trade and output growth in the developed world is still expected to be stronger in 2003 than 2002, any slowdown in East Asia should be limited, especially as growth continues to be strong in China, whose economy grew 8 percent last year.
The recent global economic slowdown, adverse weather conditions, and security concerns reduced economic growth for the South Asia region in 2002. Future prospects appear brighter, however. South Asia should achieve an average of 5.4 percent growth in 2003, and 5.8 percent in 2004, according to the World Bank. This assumes improved political stability in places such as Nepal and Sri Lanka.
MIDDLE EAST AND NORTH AFRICA
The Middle East and North Africa face an economic slowdown, with short-term growth prospects contingent upon whether military actions are taken in the region. This, despite a continuation of high oil prices. “The bleak growth prospects in the Middle East and North Africa have made an already difficult social situation critical, as ever more newcomers to the labor market join the ranks of the unemployed,” said the World Bank’s chief economist for the region.
EUROPE AND CENTRAL ASIA
As a whole, Europe and Central Asia have weathered the recent global economic downturn relatively well, largely because of fairly strong domestic demand throughout most countries. Still, the slack external environment, especially in Western Europe, has been contributing to a general slowdown of growth, the World Bank report said. Germany, Europe’s largest economy, and the third-largest in the world, is struggling with widening budget deficits.
Sub-Saharan Africa was vulnerable to the economic difficulties throughout the world, especially since many countries in the region have limited options to absorb adverse shocks. Growth in the area remains restrained by unfavorable domestic conditions including civil unrest and drought. However, a robust recovery for African trade is predicted by the World Bank, with growth ratcheting towards 6 percent by 2004.
The World Bank concluded that the economic effects of the terrorist attacks of Sept. 11, 2001 were most severe in the United States. But the organization said that the steep decline in tourism and the increase in risk perceptions did not occur, which bodes well for consumer spending in the future, although that surge certainly did not materialize this past holiday season.
Organization for Economic Cooperation and Development countries include Canada, France, United Kingdom, United States, Germany, Italy and Japan. OECD output growth dampened by 1 percent.
In Europe, investment was concentrated in the over-indebted telecommunications sector and the financial sector. Continued tension in financial markets made any recovery less uniform than it would have been under normal circumstances. Deteriorated government deficits combined with low interest rates have left little room for further economic stimulus.
*LATIN AMERICA AND THE CARIBBEAN
Economic activity in Latin America and the Caribbean has fallen behind production trends in other developing countries. The crises in Argentina and Venezuela clearly contributed the most to the decline in regional output. In Brazil, a combination of rising public debt and declining export revenues contributed to the weakening.
After Japan suffered steep output declines for three quarters, it broke away from negative growth rates. Still, Japan remains encumbered by massive fiscal imbalance and Japan’s strong export performance is at risk if demand for its goods weakens. The luxury market’s most enthusiastic customer has been hampered for some time and may have to sit on the sidelines for a while longer.
SOURCE: WORLD BANK’S GLOBAL ECONOMIC PROSPECTS 2003
*SAME GDP FOR TWO REGIONS IN NO PARTICULAR ORDER