UNITED NATIONS: Last year's global economic recovery was marked by the growing financial weight of the world's two most populous nations - India and China - both of which have been growing more than twice as fast as the world average , the United Nations said last week.
"Continued strong growth in these two large low-income countries will benefit the world economy as a whole, reduce global poverty, and serve as an incentive to other developing countries," the world body said in a report released here.
"China is fast becoming a centre for trade in Asia - and a locomotive for Japan," UN Under-Secretary-General for Economic Affairs Jose Antonio Ocampo told reporters. But despite improved global economic prospects, large imbalances remain in the world economy, he said, launching the 75-page 'World Economic Situation and Prospects, 2004'.
Antonio Ocampo said the imbalances are epitomised by last year's US current account deficit of over 500 billion dollars, about six per cent of the country's gross domestic product (GDP).
It is matched by the aggregate of the surpluses of a number of economies in Asia and Europe, including China, Japan, Germany and Russia. Following setbacks caused by the prospects of war in Iraq and the outbreak of severe acute respiratory syndrome (SARS) early in 2003, economic growth in a number of countries shifted to a high gear in the second half of last year, according to the report.
As a result, world economic growth, which was less than 2.0 per cent both in 2001 and 2002, rose to 2.5 per cent last year, and is expected to reach 3.5 per cent this year.
India's growth rates have been more than twice and nearly three times the world average: rising from 4.5 per cent in 2002 to 6.1 per cent in 2003. This year's growth is projected at 6.2 per cent.
In December, Indian international reserves hit the 100-billion-dollar mark, putting the country in the elite ranks of Japan and China. China's vibrant growth rates are even higher: 8.0 per cent in 2002, rising to 8.5 per cent in 2003, which is the rate projected for 2004.
The two Asian economic powerhouses have populations of over one billion people each. But despite their positive contributions, the global economic recovery is still being driven mainly by the United States.
The study, however, warns that a rapid depreciation of the US dollar and an abrupt reversal of its trade deficit could have an adverse effect on the global economy.
"If the consequent adjustment mainly involved a substantial cut in consumption, investment and import demand in the United States, the global economic recovery would probably be aborted, reverting to another slowdown," it adds.
Antonio Ocampo said that as the recovery still depends on low interest rates and expansionary fiscal measures, "policy makers should be careful not to choke off recovery or prospects for needed job growth through a premature withdrawal of stimuli or precipitate tightening".
Recovery in the United States is "exceptionally strong", with business spending finally matching and soon outpacing household expenditure, and a long-awaited improvement in employment underway, the report adds.
US growth, which was 2.2 per cent in 2002, rose to 3.0 per cent last year, and is projected to hit 4.0 per cent this year. But the crowding-out effects of the large fiscal deficit and increased military spending could dampen US growth, the study warned.
In a report released in early January, the International Monetary Fund (IMF) warned that Washington's "voracious appetite for borrowing" could drive up global interest rates, slowing international investment and economic growth.
"Higher borrowing costs abroad would mean that the adverse effects of US fiscal deficits could spill over into global investment and output," the IMF added.
The recent upsurge in demand and export growth in Japan might mark a turning point after a decade of stagnation, suggested the UN report. Japan's growth was dramatic, increasing from minus 0.4 per cent in 2002 to 2.5 per cent last year, described as "one of the best performances for several years". It is projected to be above 2.0 per cent in 2004.
"The economy of Japan improved measurably over the course of 2003, due largely to the more auspicious international economic environment in the second half of the year, some tangible progress in domestic structural reform and certain policy effects," the study said.
After a decade of stagnation, including three failed recoveries, this might mark a turning point for the economy to finally move onto a sustained growth path, it added. European growth remains subdued, according to the report, but signs of a modest upturn are emerging.-Dawn/The InterPress News Service.