Global Economy Seen Improving

The global economic recovery is fragile but should pick up steam in 2004, the World Bank said Wednesday.

The outlook is better in developing countries where growth will be 4.0 percent for the rest of 2003 compared to 1.5 percent in the industrialized countries, the bank said in a new report. It projected growth for developing countries in 2004 at 4.9 percent and 2.5 percent for industrialized nations.

"The world economy is still not firing on all cylinders, said Hans Timmer, head of the lending institution's global trends team, "but current trends point to a better 2004."

He said the foundation for the optimistic outlook was efforts by governments to rein in spending, contain inflation and open up more to trade.

"But persistent structural problems in rich countries" — growing budget and trade deficits in the United States and poor performances by European and Japanese banks — "risk precipitating a disruptive fall in the U.S. dollar or other unexpected confidence shock that cuts off the investment recovery," Timmer said in a statement. "If these risks materialize, all bets are off."

The bank said global economic growth and reduction in poverty could get a boost if progress on an international trade treaty emerges at next week's World Trade Organization meeting in Cancun, Mexico.

Officially, the Cancun meetings are an interim stocktaking for the trade negotiations, called the Doha round, which are scheduled to be completed by Jan. 1, 2005.

However, the bank noted in its 299-page "Global Economic Prospects-Realizing the Development Promise of the Doha Agenda," the meetings occur at a time when the global economy and international trade are languishing.

The report said the trade talks are stalled over disagreements that are important to developing countries, such as agriculture and tariff reduction on manufactured products such as textiles.

"Progress in Cancun could bolster investor confidence and create momentum towards a more significant WTO agreement that would spur trade," the report said. "Such a result would eventually raise incomes around the world, leading over time to a substantial reduction in poverty" that could affect as many as 144 million people by 2015

The bank said world trade in 2003 would grow at 4.6 percent, slightly more than last year but still less half the rate in 2000.

The report highlights inequities in the world trading system that drag down export growth in the developing countries.

In agriculture, for example, Japanese support to rice producers amounts to 700 percent of production costs, which effectively shuts out exports from Thailand, Vietnam and other countries, the report said.

Annual cotton subsidies to U.S. farmers of more than $3 billion, or three times U.S. foreign aid to Africa, the report continued, depress world cotton prices and crowd out poor but efficient farmers in West Africa, Central and South Asia.

Direct subsidies to farmers in the European Union cost around $100 billion annually and depress world market prices in sugar, dairy products and wheat, the report said.

Gobind Nankani, the bank's vice president for the poverty reduction and economic management network, said the industrialized countries have to take the lead in negotiating a fair outcome to the Cancun talks.

"It is critically important that the rich countries take the lead in breaking the deadlock" in these negotiations, Nankani said. "The big issue in Cancun will be agricultural subsidies and it is extremely important that rich countries take action to move that forward."