Global Economic Prospects: Through the Fog of Uncertainty

Policy Brief
03-2
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.