Global Economic Prospects: Through the Fog of Uncertainty

Policy Brief
April 2003

After losing considerable momentum late last year, global economic recovery is likely to accelerate in the second half of 2003 and beyond--real fourth quarter to fourth quarter (Q4/Q4) global GDP growth will likely be 3¼ percent this year, about the same as last year. Higher world oil prices, fall-off in equity prices, and weak consumer sentiment slowed activity in the run-up to the US-led invasion of Iraq, but rapid victory is likely to reverse these developments. A plausible estimate of the negative impact of the Iraq war on world GDP for 2003 is about half of 1 percent of GDP--or about $200 billion. The author forecasts US Q4/Q4 growth at 2¾ percent and US year-over-year growth at 2¼ percent. Again led by China, last year's star performer, Asia, will continue its strong performance in 2003 and 2004, although Japanese growth (Q4/Q4) will fall to 1 percent this year before picking up to 2 percent during 2004. This year should see a marked improvement in growth in Latin America. Growth will remain subdued in most of Western Europe, with the German economy, Europe's most sluggish, repeating its 2002 performance.