Weak Demand Threatens Already Bleak Global Economic Forecast

21 November 2001

There is an unpleasant sting in the tail of the latest economic projections by the Organization for Economic Cooperation and Development.

The Paris-based body’s biannual report which noted that global output growth had slowed to a virtual standstill this year, also forecast a strong recovery in the second half of 2002.

But a footnote warns that given certain adverse conditions the reverse could happen and the world will enter its first recession in twenty years. If demand continues to fall, the world’s three major economies – the US, the Eurozone and Japan – will bear the brunt.

Should Eurozone consumption decline by even one percent and investment by 2%, a further 1.1% will be sliced from the region’s growth next year. The US and Japan would suffer slightly less given the same percentages, respectively sacrificing 0.9% and 1% in growth.

Britain, on the other hand, is predicted to emerge relatively unscathed and bounce back strongly in the second half of next year. The nation is set to be the fastest-growing G7 economy in 2002 for the second successive year and is expected to outperform most Eurozone countries – fanning the flames of Britons’ largely anti-Euro currency stance.

In the six months ahead, however, the UK is likely to experience a short-term dip in performance as recession in America, Japan and Germany damages export prospects. But the Bank of England’s aggressive interest rate cuts coupled with government spending increases should help secure a swift UK recovery.

News sources: Wall Street Journal; The Times (London)