World economy to recover further

  • Business
  • Saturday, 13 Sep 2003

THE world’s economic growth for the second half of this year would be “gradual but firm,” according to Economic Report. 

Global economic growth is expected to continue next year, reaching 4.1% compared to the projected growth of 3.2% this year. 

The strengthening global economy is expected to be driven by positive developments in the economies of the United States, Japan and Europe. 

In the US, low interest rates, rising consumers retail spending, housing construction, and rising industrial production in the high-tech and auto sectors are driving the economy forward, while Japan is seeing improved corporate profits and increased business fixed investment. 

In the Euro area, personal computers replacements led to higher investment and strengthening of consumption. 

The growth in developed economies would go hand in hand with improved economic performance in Asia, which will see stronger export growth spurred on by increasing consumption and the impact of stimulus packages introduced by countries in the region. 

On the flipside, geopolitical tensions and potential acts of terrorism would pose risks to the global economy, especially to the travel and hospitality industry. 

Slow reconstruction efforts in Iraq is also a cause for concern, as is any delayed or faltering US economic recovery, which could hold back recovery in the rest of the world, the report said. 

Growth in global output is expected to increase only marginally to 3.2% this year from 3% last year, due largely to persistent weaknesses in the Euro area and Japan, and the continued dependence on US economic growth. 

Real GDP growth in the US reached 2.3% in the first half of this year, driven by personal consumption, defence spending and residential and non-residential fixed investments. 

In the Euro area, real GDP grew 0.1% in the first quarter this year, supported by increases in private consumption. Growth is projected to reach only 0.7% due to doubts on the sustainability of an upturn in economic activity. 

Japan recorded a 0.6% GDP growth in the second quarter, with a recovering US economy expected to increase demand for Japanese products. 

World trade growth is expected to increase to 4.3% this year from 2.9% last year, in tandem with the expected recovery in the global economy, with inflationary worries projected to remain low. 

World equity markets have been on the rise since early March, after having suffered a downward trend throughout last year up to the first two months of this year. 

The Malaysian equity market has been the best performer in the region since the pegging of the ringgit to the US dollar was put in place in September 1998, rising from 262.70 points then to 743. 3 on Aug 29 2003.  

The decline of the US dollar could help spur recovery in the US, while a stronger Euro might slow things down in the Euro area, the report said. 

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