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To: Jim Willie CB who wrote (10291)	12/11/2002 3:41:17 PM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

World Bank-Global economy may fall back to recession By Anna Willard WASHINGTON, Dec 11 (Reuters) - There is a "significant risk" that the recovering global economy could slip back into recession, further frustrating efforts to improve conditions for the world's poorest people, a World Bank report found. Flagging consumer confidence, weak stock markets, concerns over Japan's banking system, worries about debt problems in Latin America and uncertainties over a potential U.S. war with Iraq and the impact on oil prices are all contributing to a gloomy economic outlook, the bank said. "The global rebound might quickly lose momentum and there is a significant risk that the world could slip back into recession," the bank's 2003 assessment of global economic prospects finds. The bank is predicting the world economy will squeeze out just 1.7 percent of gross domestic product growth this year, a slight increase from 1.1 percent in 2001. The world economy may pick up speed next year, rising to 2.5 percent, but that is still far below potential and there are risks it could be knocked off course. "The recovery has been much more hesitant and uneven than we had expected," said the bank's chief economist, Nicholas Stern. Rich countries are expected to continue to have sluggish growth. The United States will lead the way, expanding 2.3 percent this year and climbing to 2.6 percent in 2003. Japan will not grow at all in 2002 and will be able to muster only 0.8 percent growth next year. The 12-nation euro area will not fare much better, expanding only 0.8 percent, climbing to 1.8 percent in 2003. Economies may steam ahead in some developing countries, but in most of them this growth will be too low to generate a marked reduction in poverty. The most rapid regional expansion by far will be in East Asia and the Pacific, with growth seen roaring ahead 6.3 percent this year. Dogged by financial crises in several countries and the deep recession in Argentina, Latin America comes in bottom of the pile, the only region to post a contraction -- of 1.1 percent -- in 2002, the worst contraction in two decades. Most regions are making progress towards meeting the United Nation's Millennium Development Goals to cut poverty in half by the year 2015. But the 2.5 percent growth expected in Sub-Saharan Africa this year, falls far short of the 5 percent growth the bank estimates is needed to get the many impoverished countries in the region on track to meeting the goals. KETCHUP TARIFFS TOO HIGH Such disappointing growth numbers do not bode well for the world's poor. The bank warned the slowing economy may detract from progress in trade talks that began in Doha last year with an eye to helping developing countries. The next round of discussion will take place at a world trade summit in Mexico next September. "It would be unfortunate indeed if a myopic focus on short-term issues permitted protectionist forces to stifle progress in removing trade barriers," said Uri Dadush, director of the bank's international trade department. Developing countries in general face external barriers to their trade in manufactured goods that are twice that of rich countries, the bank said. Fresh Chilean tomatoes exported to the United States have a tariff of 2.2 percent, but if they are turned into ketchup or salsa, the tariff is nearly 12 percent. Stern, who has been highly critical of rich countries' trade policies, welcomed a recent U.S. proposal to reduce tariffs on manufactured goods to zero by 2015. But he cautioned it was a much bigger challenge for developing countries to reduce their tariffs to zero than it is for the rich countries, so they may need more time to make changes. "We have to bear that in mind when we think about the pace of change," he cautioned. He also urged rich countries to rethink their policies on trade barriers for agricultural goods, often the key export for the world's poorest nations. INVESTMENT FLOWS EVAPORATING Capital flows to developing countries are also continuing to sink as the world economy struggles to get back on its feet. Net commercial bank lending has turned negative and foreign direct investment flows have shown the most sustained fall since 1981-83. Investors are becoming averse to long-term projects and accounting scandals in industrial countries have driven major players such as Enron and Worldcom out of the market. But poor countries must also play a part in helping to attract investment, the bank said. Improving the investment climate by breaking up monopolies, designing better regulations, removing legal restrictions to foreign investment, could all help attract capital. ((anna.willard@reuters.com Tel-202 898 8309 Fax-202 898 8383)) REUTERS