Global GDP seen to grow 2.5% in 2003

After exceptionally slow growths in 2001 and 2002, global GDP is now expected to rise by 2.5 percent in 2003, higher than the previous two years but still well below the 3.9 percent expansion recorded in 2000 and significantly below long-term potential growth rates, according to a World Bank report.

World Bank has warned that the global rebound might quickly lose momentum and there is a significant risk that the world could slip back into recession. It further added that action to remove barriers to trade and investment that hurt poor people in developing countries is becoming increasingly urgent.

The report, called Global Economic Prospects and the Developing Countries 2003: Investing to Unlock Global Opportunities, states that uncertainties in global financial markets "have sapped the momentum of the modest recovery that began in late 2001."

According to the report, the United States is forecast to grow from 2.3 percent this year to 2.6 next year, Japan from 0.0 percent to 0.8 in 2003. High-income countries in general are expected to grow by about 2.1 percent in 2003.

In contrast, the East Asia and Pacific region, which includes the Philippines is said to grow by 6.3 percent in 2002 but slip to 6.1 next year. On the average, developing countries will grow by a modest 3.9 percent.

South Asia will grow by 5.4 percent, Latin America managing a mere 1.8 percent. The report said that outside of Asia and Eastern Europe, growth rates in most developing countries are too low to generate a marked reduction in poverty.

"The recovery has been much more hesitant and uneven than we had expected," Nicholas Stern, World Bank chief economist and senior vice president for Development Economics, said in a statement.

The report cited several factors that are suppressing global growth in the near term. These include waning consumer confidence, high debt levels in the face of a weak global and regional equity market, and the corporate financial scandals in the US, and continuing investor worries over imbalances in the Japanese banking system.

It also cited other reasons such as over-investment in telecommunications and other high technology companies in Europe, concerns over debt problems in Latin America, the presence of international trade cartels, and trade barriers favoring the developed countries.

Private capital flows to developing countries have been reduced and will continue to decline, the report said. Net commercial bank lending has turned negative, and foreign direct investment flows to developing countries have fallen since their peak in 1999.

Private foreign investment in infrastructurje is down 25 percent from 1997 in developing countries. Investors are becoming averse to long-term projects; accounting scandals in industrial countries have driven from the market major players such as Enron and Worldcom; and slower growth in East Asia, Russia and Brazil has reduced investment demand.

The Global Economic Prospects 2003 report said that a new investment agreement could help developing countries. But it should tackle issues with the largest development impact such as removing investment-distorting trade barriers facing developing countries’ exports while favoring foreign imports.

One barrier to competition described in the report that does hurt developing countries but has received relatively little public attention is international cartels or groups of large companies, usually based in rich countries that agree among themselves to fix prices and allocate export markets.

Six international cartels prosecuted in the 1990s are estimated to have over-charged developing countries a total of about $3 to $7 billion. The cartels covered products such as vitamins, citric acid and stainless steel tubes.

Some cartels, such as maritime transport, are officially exempt from anti-trust laws. Bank research cited in the report found that breaking up price fixing arrangements among private shipping lines could reduce maritime transport prices by about 20 percent, saving developing countries at least $2.3 billion per year on their import costs. The World Bank report urged developing countries to increase practices of good governance, sound institutions, and property rights as necessary conditions to produce greater quantities of private investment.