December 31, 2002	Tuesday	Shawwal 26, 1423

WASHINGTON: The global economy is limping into the new year weighed down by the threat of war in Iraq and held back by tepid growth from Europe to Asia.

The lack of a strong driver in the coming year raises the risk that the world economy could lose its momentum or even slip into recession, the World Bank warned in its latest economic scorecard. Nicholas Stern, the bank’s chief economist, had held out hope for a stronger rebound, but recent events have prompted him and other analysts to lower growth projections for 2003.

“The recovery has been much more hesitant and uneven than we expected,” Stern said.

The domestic front in the United States also is fraught with uncertainty. Heading the list of worries, business experts say, is the possibility that a military conflict in the Middle East could trigger a drastic rise in oil prices or a new wave of terrorist attacks.

If a war in Iraq dragged on, it could spook US consumers whose spending has kept the nation’s economy and its trading partners from sliding into recession.

“The biggest single vulnerability right now is oil and geo- political issues,” said Stuart Schweitzer, chief global investment strategist for J.P. Morgan Fleming Asset Management in New York. “The other big issue concerns the US consumer. ... It is legitimate to ask how long the consumer can keep going.”

Such uneasiness was heightened after the retail sector reported that the just-ended holiday shopping season was the worst it had experienced in decades.

If the global economy can’t count on the United States to propel growth, neither can American businesses rely on many others around the world.

Although the Bush administration is pushing hard to wrap up trade agreements with Chile and Singapore by early next year, overseas sales are unlikely to be a major source of strength for US firms, because their biggest customers in Asia and Europe are struggling.

The only cause for cheer is a recent weakening of the dollar, which makes US goods cheaper overseas. But since products are ordered months in advance, it takes time for currency shifts to have an effect on trade flows.

“If there were additional movement in the dollar, that could be especially helpful,” said Thomas Duesterberg, president of the National Association of Manufacturers, a Washington trade group. “We don’t expect — at least in the first half of the year — for Europe, Japan or Latin America to be a source of strong growth.”

The first half of 2003 is likely to be particularly difficult for Japan. The world’s second-largest economy is threatening to slide from slow growth to no growth. At the same time, Germany, Europe’s largest economy, is saddled with rising unemployment and widespread business discontent, according to analysts.

Although growth by region is expected to vary widely — from 1.8 per cent in Latin America to 6.1 per cent in East Asia — the World Bank is projecting that global gross domestic product will rise by 2.5 per cent next year, up from 1.7 per cent in 2002 but well below the 3.9 per cent expansion in 2000.

The uncertainty in Iraq already has imposed a “war premium” of $5 to $6 per barrel of crude oil, said Gerard Walsh, director of economics at London-based research firm Economist Intelligence Unit.

Higher oil prices translate into bigger energy bills for businesses and consumers and more expensive gasoline. If the war premium lasts for as long as a year, it could shave at least 0.2 per cent off global growth, he said. Particularly vulnerable are Asia’s largest economies, which depend heavily on imported oil. Japan buys 86 per cent of its oil from the Middle East.

China, however, is emerging as an exception in an otherwise gloomy picture. Its economy, although small compared with that of the United States, is expected to continue a robust expansion propelled by an estimated $50 billion in foreign investment that poured into export-oriented manufacturing companies, automakers, steel producers and others in 2002.

“Where Japan’s leadership has difficulty dealing with the past and still has its back turned to the future, China has embraced the future,” said Kenneth Courtis, vice chairman of Goldman Sachs Asia.

China’s growth has huge benefits for a region whose primary engine, Japan, has been stalled for more than a decade. To fuel its export factories, China has dramatically increased its imports, particularly of raw materials and components. This year, South Korea, Singapore and Taiwan will ship more goods to China than to Japan, Courtis said. But in a stagnant world economy, much of China’s manufacturing growth will come at the expense of less-competitive developing countries in Asia and Latin America.—Dawn/The Los Angeles Times News Service.