After a very long time, the IMF seems optimistic about the global economy, which, it sees, will shortly return to normal growth. The Fund noted that immediate geopolitical uncertainties have receded, aftershocks from the bursting of the equity price bubble are dissipating, and the massive policy stimulus put in place after the downturn is starting to bear fruit. But the growth will not be balanced in the United States and emerging Asia. The WEO baseline projections for global growth in 2003 and 2004 have not changed since the spring WEO: 3.2 per cent for 2003 and 4.1 per cent, just a little bit above normal, for 2004. But now the IMF sees at least as much upside potential as downside risk over the next 9 - 12 months. The forecast for US growth of 2.6 per cent in 2003 and 3.9 per cent in 2004 seems realistic. The prospects until late 2004 are that these projections might even be exceeded.

Japan is not yet out of the woods. Trade with booming emerging Asia, including China, has helped fuel short-term growth, as has business fixed investment. But under-lying problems with corporate and bank balance sheets, the soaring government debt, and entrenched deflationary expectations are all still major road blocks to strong sustainable growth. The WEO has upped its growth forecast for 2003 to 2 per cent and, for 2004, to 1.4 per cent. As for Europe, Germany, Italy and the Netherlands were all in recession in the first half of the year, and French GNP declined in the second quarter, as did GDP for the euro area as a whole. Weak consumer confidence and fragile corporate balance sheets are among the main problems. For the moment euro,-area growth will pick up from 0.5 per cent in 2003 to 1.9 per cent in 2004.

In developing countries china and India’s strong growth portends an inevitable changing of the guard in Asia. The WEO projects China’s growth at 7.5 per cent for both 2003 and 2004. India is also expanding strongly, with growth forecast at 5.6 per cent in 2003 and 5.9 per cent in 2004. In Latin America, a tentative recovery seems to be emerging on the back of strong exports, though domestic demand is still weak. Growth in sub-Saharan Africa (excluding South Africa) remains resilient at 3.6 per cent in 2003 and 5.9 per cent in 2004, though the latter depends on a substantial improvement in political stability and favourable weather conditions. In the Middle East and North Africa region, growth is forecast at 5.2 per cent in 2003 and 4.5 per cent in 2004.

The projections assume higher oil prices and increased oil production while the security situation in the Middle East has hindered growth - for example, through its effects on tourism. There has been progress in some areas of structural reform, but, certainly, over the long term, further reform - including flexible economies, diversifying away from oil production, opening economies to trade, strengthening institutions, and reducing the role of the public sector - will be needed to increase growth. The big challenge is to achieve higher and sustained per capita growth and thereby address high unemployment across the region. For the global economy, current account imbalances pose a serious problem for the medium term and the problem is probably getting worse with the unbalanced recovery.

ME & N. Africa

The Middle East and North Africa (MENA), a region of almost 500 million people, benefited immensely from the wealth created by the sharp increase in oil prices in the 1970s. The explosion of investment and growth in the oil-exporting countries was echoed in other parts of the region, with a sharp rise in worker remittances and increased trade and capital flows leading to a remarkable improvement in living standards. In addition, financial assets were accumulated abroad as overall national savings exceeded investment, especially in the oil producing countries. But the boom period soon faded, prompting a slowdown and, in many cases, a decline in growth rates in the 1980s, as oil prices and production softened, leaving the governments, which had grown considerable in size in the previous decade, burdened with deficits and debt.

Despite attempts to spur recovery and initiate structural reforms, many countries in the region remain on a slow growth path, effectively sidelined from globalization and the benefits of closer economic integration with the rest of the world. Although the region still dominates the global oil market, the benefits from oil that had brought about a market improvement in living conditions in the 1970s and early 1980s failed to generate a sustained growth dynamic or bring about greater regional economic integration. In part because of resource endowments, but also because of historical factors, income levels continue to vary widely. Per capita GDP in 2001 ranged from an estimated high of $27,900 for Qatar to $350 for Djibouti.

Real per capita GDP growth in the MENA region over the past two decades has faltered compared with the rest of the developing world. Although the non-oil economies in the region performed better on average than the oil economies, their per capita GDP growth rates are still below the developing country average.