World economy 'on the mend,' according to U.N. report

By Edith M. Ledder
Associated Press

UNITED NATIONS — Declaring that the world economy is "on the mend," the United Nations last week predicted global economic growth of 1.8 percent this year rising to about 3 percent next year — providing there are no major shocks.

"After a pervasive global slowdown in 2001, with roughly a dozen economies falling into recession, a recovery is unfolding," according to the U.N. Global Economic Outlook, which is compiled from reports by 250 economic experts from 60 countries.

But the U.N. report said risks to the U.S.-led recovery abound: possible escalation of the Israeli-Palestinian conflict and the linked possibility of higher oil prices, a resurgence of war in Afghanistan or elsewhere, the increasing global dependence on the U.S. economy, and the potential for a financial debacle in Japan.

Even before Sept. 11, a U.S. slowdown had helped drag down the world economy. But the economic shock waves from the attacks led the United Nations in October to revise its global forecast for 2001 down from 2.4 percent to 1.4 percent. According to the new 17-page outlook, the global economy grew by just 1.2 percent in 2001.

"There isn't any doubt that the outbreak of terrorism set back the United States economy," said Nobel economics laureate Lawrence Klein, who heads the U.N. expert group that meets twice yearly. "It brought us almost to a very serious recession. But the United States economy has a lot of resilience and it is on the mend at the moment, not by a huge amount, but nevertheless it's not falling at the present time."

Since the beginning of 2002, a spate of statistics indicate that the upturn in the world economy arrived much earlier than most forecasters expected — especially in the United States, the forecast said.

Data from other regions including Asia and Europe all show signs of recovery, it said, although developing countries aren't likely to benefit until the second half of this year.

"The world economy is on the mend," the U.N. forecast said.

It cited low interest rates in many countries, fiscal measures to stimulate economic growth, depleted inventories, resilient household spending, lower oil prices, and increased consumer and business confidence.

A sustained recovery will depend on a resurgence in corporate profits leading to increased capital spending, an improved job market to support consumer spending, and a rebound in international trade, the forecast said. Experts added there are many questions about the breadth of the recovery.

The United States will recover, but gradually, and Western European economies will grow only moderately, Klein said. Countries in Eastern Europe are also performing better.

In Asia, South Korea is doing well "and the world's two largest countries, China and India have done reasonably well and were areas of stability in the world," Klein said.

But the outlook for Japan, the world's second-largest economy, is "pessimistic" until 2004, he said.

And in the developing world, Klein said, "the deterioration in Latin America is significant" and it's hard to find an area that's doing well economically.