 U.S. engine needed for global recovery
UNITED NATIONS Ñ While viewing the U.S. as the Òlocomotive of global economic growth,Ó and a leader in the worldwide economic recovery, a current UN report warns there are still many uncertainties and risks to sidetrack an economic rebound this year. Following a slow start from 2002, the world economy is expected to pick up steam in the send half of this year according to the World Economic Situation and Prospects 2003.
ÒAmong the developed economies, the United States is forecast to continue to lead the global recovery, but without significant momentum,Ó states the report adding, ÒIn Japan and Western Europe weak domestic demand means that economic recovery continues to rely chiefly on external demand and will remain fragile.Ó
Ian Kinniburgh, Director of Development Policy Analysis in the UN Department of Economic and Social Affairs, stressed, ÒThat the vigorous recovery in the second part of 2002 had not materialized and as a result the world economy was projected to grow by 2.75 percent in 2003.Ó He cited a Òslow recovery in the U.S. and added that ÒWestern Europe was doing more poorly than expected Éand Japan continued to be weak.Ó
In fact foreign investment has declined globally with notable exception in Mainland China which actually surpassed the U.S. as the largest recipient of such investment.
Many factors on the horizon shadow growth. A war in Iraq could, among other things, raise petroleum prices; Kinniburgh speculated that a hypothetical $10 increase in oil prices to $40 a barrel over a six month period, would trim one half a percent in growth. Beyond Middle Eastern concerns, the percolating political situation in Venezuela could tip the balance too.
Most economists agree that at least short term economic stimulus is needed now. President George W. Bush has pushed for a vigorous $674 billion recovery plan as a way to keep the U.S. on track, which in turn should positively impact upon the international scene. The proposed jobs and growth package will serve as stimulus by cutting taxes which the Economist lauds, Òthe idea of eliminating the tax on dividends happens to be a good one.Ó
Ironically, as the Wall Street Journal adds, while the U.S. launching a economic stimulus package, EuropeÕs largest economy is heading the other way in the other direction,: Raising taxes and cutting spending to in order to lower deficitsÉThe German economy, traditionally the economic engine of Europe, is in trouble.Ó
Much of the problem can be blamed on the profligate spending policies of Chancellor Gerhard SchroederÕs Socialist government.
ÒThe twelve member Eurozone isnÕt in great shape either: Data on consumer confidence, spending, and unemployment, provide fresh evidence that the region risks stagnation,Ó advises the Wall Street Journal.
Naturally the Bush economic recovery plan is a work in progress; Congress has yet to fine tune and tinker with virtually every provision. And they will. Tax cuts, eliminating double dividend taxation and allowing the people keep more of their own money, should not be scoffed upon by Statist economists.
LetÕs not forget that the ÒU.S. government debt level is much lower than that of Germany and other European countries, so it can afford a higher deficit at the moment,Ó according to Eric Chaney, an Euro-zone economist with Morgan Stanley.
Globally we have seen a serious deterioration of economic standings in developing countries as well as the equally dangerous meltdown or even stronger economies such as Argentina and Venezuela. Such a downslide bodes ill for all.
As the World Economic Situation and Prospects Report opines, ÒAnother feature of the present situation is that the economic recovery of a large number of countries continues to depend largely to a large degree on the health of the economy of the United States. There is no major economy that, at lest in the short run, could possibly assume the role of the United States as the locomotive of global economic growth.Ó
An American economic rebound can help bring the global economy back from crisis to comeback. And not a moment too soon.
John J. Metzler is a U.N. correspondent covering diplomatic and defense
issues. He writes weekly for World Tribune.com.
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