Global economy expected to tumble

Associated Press

WASHINGTON — The global economic slowdown triggered by a slumping U.S. economy is expected to push world economic growth down to 2.4 percent this year, with at best a modest recovery going into 2002, according to a U.N. report based on research from more than 60 countries.

•	Link: World Bank World Bank economic report

The U.N. report predicted that economic growth will fall from last year's 4 percent to 2.4 percent this year — with a rebound to about 3 percent next year dependent on a number of factors, particularly the economic recovery in the United States.

"The biggest risk for the global economic outlook would be a deeper and longer downturn in the United States, and a larger spillover to the rest of the world," it said.

The report predicted no recession for the United States, but said economic growth for the first half of 2001 might be flat. An expected rebound in the second half of the year should boost U.S. economic growth by 1.5 percent, down sharply from the 5 percent growth rate recorded in 2000, it said.

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Highlights of the forecasts The U.S. will expand only 1.2 percent this year. Japan's economy is expected to grow by less than 1 percent, with a marginally higher pace for 2002. Many European economies are expected to grow 2.7 percent. Developing nations' economies will expand 4.2 percent on average this year, down from a decade-high of 5.4 percent last year. Latin American economies will grow 3.7 percent, down from 3.8 percent last year. East Asian and Pacific countries will grow by 5.5 percent, down 2 percentage points from 2000.

The strong performance in 2000 for countries making the transition to market economies can't be sustained, it said, and growth will drop to 3.6 percent this year.

The panel said the two global economic powerhouses — Japan, which has the second-largest economy, and Europe — don't have the strength to make up for the U.S. slowdown.

Also yesterday, the World Bank forecast a small economic rebound in some countries later this year.

Nicholas Stern, the bank's chief economist, presented "Global Development Finance — 2001," the bank's annual report on external financing prospects for developing countries and those making the transition to market economies.

The report is the first in a series of economic snapshots the bank and its sister institution, the International Monetary Fund, will issue before their annual spring meetings at the end of the month.

The bank report said world gross domestic product growth is expected to bottom out at 2.2 percent this year, compared with a forecast last November of 3.4 percent, then climb to 3.3 percent in 2002.

Inflation in the seven industrialized countries is expected to average 1.8 percent this year, slightly down from 1.9 percent forecast last November.

Growth rates in the developing countries are expected to average 4.2 percent in 2001, a drop of more than a full percentage point from last year.

Growth is expected to be highest in East Asia and the Pacific at 5.5 percent and lowest in Europe and Central Asia with 2.3 percent because the Turkish and Russian economies are not expected to do as well as they did last year.

The 275-page report said developing country growth will depend heavily on the performance of the three big industrialized economies— the United States, Japan and the 15-nation European Union. For these economies, the report foresees "near term weakness and fairly rapid recovery by the end of 2001/early 2002."

It says the EU economies are likely to prove most resilient to the slowdown, while growth in Japan has reverted to an anemic pace and the prospects for outright recession have increased.

Growth prospects for Latin America differ markedly from country to country. Mexico, which sends 75 to 80 percent of its exports to the United States, is likely to be most affected by the slowdown in the United States. Brazil and Argentina, which trade more with Europe, will not be hurt as much, the report said.