Global outlook optimistic

  • Business
  • Saturday, 27 Mar 2004

THE outlook for the global economy has become increasingly optimistic following the strong upturn in the second half of 2003. 

Amid improved prospects, most growth projections have been revised upwards. For this year, world output and trade are projected to grow at a faster pace of 4.1% and 5%–6% respectively. 

World consumption growth is expected to continue, albeit at a more moderate pace as the benefits of mortgage refinancing and tax cuts abate. Investments are expected to provide a higher contribution to growth although excess capacity still remains in certain sectors. 

The upturn in equipment and software growth is expected to lead the increase in investment and gains in corporate profits, and capacity expansion is expected to stimulate business expenditure. And inventory rebuilding from decade low levels is expected to spur growth further. 

The Asian economies' share of global trade increased in 2003. Measured in terms of global exports of goods and services, the region's share increased from 16.3% in 1994 to 19.6% in 2002. 

Favourable export performance, continuing growth in private consumption and expansion of investments are expected to lead to higher growth for Asian economies this year. 

Amid a low inflation environment, the growth momentum in the United States may be hastened by expansionary monetary and fiscal policies that have been in place for some time, as well as productivity gains, investment and inventory rebuilding. 

Growth of the US economy is expected to remain strong and more broad-based this year, with real gross domestic product (GDP) growth strengthening to 3.9% from 3.1% in 2003. 

Growth in the euro area is expected to recover gradually as expansionary fiscal policies continue to be adopted by major economies in the area. 

The area's real GDP is expected to expand by 1.6% in 2004. Domestic demand has remained subdued due to weak labour markets and uncertainties related to social welfare reforms. 

However, the low interest rate environment coupled with rising real disposable incomes should provide some impetus for growth and investment, and inventory rebuilding is expected to recover owing to improvements in global demand. 

In Britain, economic growth – estimated at 2.3% – is expected to remain resilient, underpinned by public and private consumption. The recovery in exports will be influenced by exchange rate movements and demand conditions in the euro area. 

While the economic recovery in Japan is affected by long-term structural problems, deflationary pressures have begun to ease and signs of sustainable recovery have emerged since the second half 2003. 

The country is expected to continue on its recovery path. Major contributory factors include robust exports, stronger investment supported by improved business confidence, corporate profitability as well as increased consumption as a result of personal income growth and more stable employment conditions. 

Inflation is expected to remain benign in major industrialised countries in 2004 and is projected to remain low at 1.3% but higher global crude oil prices could exert upward inflationary pressures, especially in the United States. 

However, in the euro area, the stronger euro may offset the impact of higher crude oil prices. 

Despite improving growth prospects, Japan's economy is expected to continue to experience deflationary pressures.

For the full report from Bank Negara click here

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