BASEL, Switzerland, July 8: A global economic recovery appears to be under way, especially in industrialized countries, but several obstacles could hold the rebound back, the Bank for International Settlements (BIS) said on Monday.
The signs are clearest in North America but also evident in East Asia and Europe, the Swiss-based institution that acts as a central bankers’ central bank said in its annual report.
Industrial economies can expect 1.7 per cent growth in real gross domestic product (GDP) this year, compared to 1.1 per cent in 2001, it said.
The United States on its own is forecast to see 2.8 per cent annual growth, while the 12-nation euro zone can expect economic growth of 1.3 per cent.
Only Japan is heading for a setback — BIS figures project a one per cent decline in real GDP growth in 2002.
After the 2001 downturn, the report noted: “The picture emerging late in the first half of 2002 is that the downturn was relatively mild and that a broad-based global recovery may already be underway.”
Both the easing of monetary policy and a more expansionary fiscal stance had contributed to supporting the current upturn, the report said.
In addition, the study pointed to lower oil prices until the end of last year which reduced inflation and helped “sustain real disposable income”.
“Second, the inventory swing strongly supported global output at the beginning of 2002, notably in the automobile and Information Technology (IT) sectors,” it said.
But the BIS explained that in the medium-term the strength of the current global recovery was likely to depend partly on the prospects for inflation.
Global inflation is expected to remain low during 2002, although risks existed in European countries with rigid labour markets, it said, adding energy prices which have risen recently could rise further in “an unstable political climate”.
However, the BIS warned that financial market conditions could dampen the recovery, and that government bond yields were sensitive to changes in investor perceptions of the recovery.
After rates increased late last year, investors became concerned about the strength of the recovery and bond rates fell again in April and May 2002.
“Although this should help recovery, corporations’ ability to borrow remains limited given greater investor caution after a series of high-profile bankruptcies in several countries,” it said.
On the corporate side, an important question is also “how quickly profits can be restored”, it added.
In its report, the BIS said the strength of the apparent recovery in early 2002 had differed markedly from country to country, primarily because of differing policy stances, for example, in the easing of monetary policy.
It said that “striking disparities” could also be seen in fiscal policy.
But it said more importantly that the potential rate of growth seemed to differ widely among major industrialised countries with different underlying economic strengths.—AFP