Global Policy Forum

World Forum, Back in Davos, Confronts Slow Growth

Print
Reuters
January 23, 2003


Global business and political leaders gathering for the annual World Economic Forum on Thursday faced a sobering prospect of weak global growth and possible war with Iraq that would darken the outlook further.

Economists warned at the opening session that in a troubled world where growth is stalled in three of the world's largest economies, the United States provides the only set of broad shoulders to muscle forward the global economy.

But those shoulders are shaky ones at the moment.

``We are looking forward to a set of risks, certainly surrounding war in the Middle East, that have a truly profound downside,'' Gail Fosler, chief economist for the U.S.-based Business Council.

She was upbeat on prospects that a pickup in business investment after three grim years will allow the U.S. economy to grow by 3.5 percent on average in 2003 -- enough to support world growth of about two percent.

But Fosler, who heads a research group funded by over 5,000 companies worldwide, warned that the hit to consumer and investor confidence from a Gulf war, especially if chemical weapons are unleashed, is unpredictable.

``The big wild card is will there be an event, or will the war take a course that scares the wits out of the American consumer?'' Fosler told Reuters.

WAR WORRIES

Some 2,300 delegates from 104 countries are expected to take part in this year's meeting of the World Economic Forum, the largest and perhaps the most illustrious gathering of leaders. Yet worries over the U.S.-led war on Iraq are expected to dominate the six-day meeting, which started on Thursday.

Switzerland is mounting its biggest ever security operation at a cost of some $10 million, equivalent to around $5,000 per delegate.

Hundreds of police and soldiers are patrolling the small Swiss mountain resort where a light snow fell. Davos is not on the route of commercial airlines, and Swiss government officials have said any light plane seeking to overfly it could be shot down by Swiss fighters if it ignores orders to change course.

The Forum returns to Davos this year after transferring to New York in 2002 in a gesture of solidarity with the United States following the September 11 attacks.

U.S. WEAKLING

The fallout from those attacks still is uppermost in the forecasts provided by prominent economists. Stephen Roach, chief economist at Morgan Stanley in New York who long has forecast the slowing U.S. economy will slip back into a double-dip recession, was especially dour.

``The engine of the world, the U.S., is struggling,'' he said and doubted it can provide much power.

The U.S. is still mired in a post asset-bubble hangover and growth last year was ``pathetic,'' he said. Moreover, it probably stalled in the final few months of 2002.

``If we went into war with a big (economic) cushion, we might be able to come out of it. When you hit with a zero growth rate, we will go into recession,'' Roach told Reuters.

If that happens, Roach said he expects the U.S. economy to contract by 1.0 percent to 2.0 percent for several quarters, even if oil prices are high for only a few weeks.

Concerns over the vulnerability of the U.S. economy was shared by Robert Hormats, vice chairman at Goldman Sachs.

``We are very well prepared militarily but not prepared economically,'' Hormats told Reuters. ``We have a big U.S. budget deficit. We are using more of our budgetary powder for non-stimulative purposes,'' he said.

NO LIGHT FROM EUROPE, JAPAN

Europe is in no better position.

Growth in Germany, which accounts for one-third of the euro zone economy, is stalled. Juergen von Hagen, economics professor at the University of Bonn, held out little hope that his country will undertake the structural reforms to labor markets and social benefit programs needed to restore European growth to its potential rate of just under 2.0 percent.

``I think the chances are very strong of getting lots of rhetoric and lots of committees, doing lots of reports,'' but little more, he said.

Indeed, with labor costs rising, productivity low and monetary conditions loose, the spectre of stagflation stalks Europe, economists agreed.

The rapid appreciation in the value of the euro, up about 15 percent in the past year, also will apply a brake to Europe's export-driven manufacturing sector, von Hagen said.

As for Japan, Haru Shimada, an adviser to Japan's Prime Minister Junichiro Koizumi and economics professor at Keio University, said the government's plan to accelerate bad loan write offs, while badly needed, will worsen unemployment in a country that has seen 12 years of virtually flat growth.

He said many view the government's forecast for 0.6 percent growth this year as optimistic, and it depends on the U.S.

"It is up to mainly the U.S. economy," he said.

In the medium to long term, China will emerge as a major driver of world growth, economists said. But for now, the United States is sole driver.


More Information on the World Economic Forums in Davos

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.


 

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.