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Mideast war clouds global outlook
By Geoff Hiscock
HONG KONG, China (CNN) -- A war in the Middle East could cut global growth by as much as one percentage point next year, according to a World Bank expert. Richard Newfarmer, lead author of the bank's 2003 Global Economic Prospects report, told CNN on Thursday that the impact of conflict in Iraq was difficult to predict because of uncertainty about the length of any hostilities and the reaction of oil producers. But he said the bank had included the possibility of a Middle East war in its "low case scenario" and concluded it could slice growth by as much as one percentage point. Given that growth this year is likely to be just 1.7 percent and the bank is predicting a rise to 2.5 percent in 2003, Newfarmer said a cut of this size would be a "severe impact". Releasing its 2003 economic outlook in Washington, the World Bank said that a hesitant, uneven recovery and uncertainties in global financial markets meant there was still a danger the global rebound might quickly lose momentum. "There is a significant risk that the world could slip back into recession," it said. Investment climate
Newfarmer told CNN that the U.S. interest rate cuts and similar action in Europe recently was "all to the good" but investment had not kicked in as much as the bank would have liked. He said it was important for developing countries to ensure they put in place "good investment climates". The World Bank's 2003 outlook, which has a special focus on investment opportunities in developing countries, predicts developing countries will grow at an average 3.9 percent next year. But it says this average masks wide regional differences, with East Asia leading the way on 6.1 percent, followed by South Asia at 5.4 percent. Latin America will grow at a mere 1.8 percent. It says that outside of Asia and Eastern Europe, growth rates in most developing countries are too low to generate a marked reduction in poverty. Among advanced nations, it says the U.S. will likely finish this year with growth of 2.3 percent, the European Union will manage 0.8 percent and Japan will finish with zero growth. Those figures will rise next year to 2.6 percent for the U.S., 1.8 percent for the E.U. and 0.8 percent for Japan. Momentum slowedThe bank says that the economic recovery in East Asia that began in late 2001 continued to strengthen in the first half of 2002, but momentum slowed in the second half and uncertainties increased. But it said any slowdown in East Asia next year would likely be limited, particularly because the continued strong growth in China provides a strong market for intra-regional exports from the rest of Asia. It said East Asian growth would ease mildly from 6.3 percent in 2002 to 6.1 percent in 2003. It saw continuing investor worries over "imbalances" in the Japanese banking system as a factor dragging on global growth. Its outlook is broadly in line with that of regional economists. ING Financial Markets said last week it expected 5.7 percent growth next year for Asia, excluding Japan. It said this would include figures of 7.5 percent for China and 5.5 percent for South Korea. Regional analyst IMA Asia, in its own December review released last week, opted for 2003 growth of 5.5 percent for Asia, excluding Japan. But it is nominating higher growth rates for China and South Korea of 7.9 percent and 7.0 percent respectively. Morgan Stanley's regional economist Andy Xie said in a commentary Thursday that he saw Asia ex-Japan growth of 5.3 percent next year. He is more restrained on both China, at 7.2 percent, and South Korea, where he is opting for just 4.0 percent growth because of the Seoul government's efforts at depressing short-term consumption to rein in a credit bubble. IMA Asia said the global economy faced considerable risks over the next six months, including a slide into deflation and a possible U.S. war in Iraq. 'Negative impact'It said a mid-2003 recovery would be investment-based, after almost two years of negative or weak investment growth. But it warns that the biggest political issue that may impinge on business in Asia over the next six months is the "potentially negative impact" in Southeast Asia of a U.S. war in Iraq during the March quarter. "Popular opinion in the Muslim communities of Indonesia and Malaysia is almost wholly opposed to U.S. military action," it notes, adding the governments of these two countries will come under pressure to move against U.S. interests. IMA Asia sees Japan growing at 0.5 percent next year, sustained by exports -- including to China as U.S. demand slows. Its outlook, and that of the World Bank, contrasts with the revised GDP figures for the September quarter released on Monday by the Japanese government. This showed GDP rose 0.8 percent from the second quarter, lifting annualized growth to 3.2 percent. In theory, that would make Japan among the faster-growing advanced economies, but the Bank of Japan's own economic outlook is one of "greater uncertainty" and most analysts say growth momentum has stalled. Morgan Stanley's Xie is projecting Japan growth of 0.9 percent in 2003.
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