• PAGE ONE
• INDEX
• HOME

UN paints grim picture of world economy

Our Bureau

NEW DELHI, Oct. 11

EVEN as the Indian authorities are perturbed over the perceptible decline in the country's exports in the current fiscal, the United Nations (UN) has forecast that the volume of international trade is expected to register ``virtually no growth'' this yea r but is likely to increase by 4 to 5 per cent in 2002.

In its revised assessment of the global economic prospects released in New York on Wednesday, the UN said the attacks in the US would have far-reaching effects on the economy. It would further retard the world economy, already growing at its lowest rate in a decade, and hasten the contraction of many economies around the world.

``The shock is expected to reverberate through the world economy and global financial markets in the coming months,'' the UN report said adding that ``military and political reactions to the attacks would greatly amplify already existing uncertainties ab out the short-term global outlook and are likely to have a significant long-run implications as well''.

The most severely affected developing economies are in East Asia with the deceleration being extremely sharp in Hong Kong, Korea, Malaysia, Singapore and Taiwan Province of China and the global slump in information, communication and technology sector.

Though some signs of softening have appeared recently in China, but it has so far been less hit by the global downturn and is forecast to grow by 7.5 per cent in 2001. On the other hand, growth in India, another large economy that had achieved ``solid pr ogress'' since the mid-1990s, is expected to slow to about 4.5 per cent in 2001.

The UN report forecast a worse than previously expected downturn in the US, as the attacks would likely to cause ``an absolute decline in gross domestic product in the third and fourth quarters''.

Stating that different regions of the world are likely to feel the negative impact of the slowdown, exacerbated by the attacks, the report said the most severely affected developing economies are likely to be South and East Asia, where 2001 GDP growth pr ojections have been dropped from 4.1 per cent to 1.7 per

cent.

GDP growth in Africa has been reversed downwards from 4.3 per cent to 3 per cent and in Latin America GDP is projected to grow at 0.8 per cent down from 3.1 per cent.

Among developed countries, Canada would feel the greatest impact of the significantly weaker US economy, but Japan's performance is likely to be the weakest with GDP likely to decline more than 0.5 per cent in 2001.

Along with the downward revision in the forecast for global growth, the outlook for global trade has become much worse than previously expected. As a result of the reduction in import demand, a large number of economies in North America, Europe, East Asi a and Latin America experienced a continuous decline in international trade flows for several months in early 2001.

Moreover, world trade in services, particularly tourism and transportation which have served as important sources of growth in recent years, is likely to decline because of the attacks.

UN report said private capital flows to developing and transition economies are likely to fall in the coming year, due to the heightened risk aversion of international investors since the attacks. Since the 1997 Asian financial crisis private capital flo ws had been stagnating at a level much lower than the pre-crisis peaks.

The outlook for international commodity prices remains close to the prediction in the Survey, but the attack has complicated the underlying dynamics of supply and demand. In the near term, lower global growth implies a continued weakening in demand for o il while any uncertainties about supply could prompt price escalations.

Now, the near-term slowdown in demand seems likely to outweigh any upward pressure on prices, but oil prices are likely to be volatile because the international political and economic milieu has made it more difficult for OPEC to gauge market.