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World: IMF Sees Global Economic Recovery Continuing, But At Slower Pace

The International Monetary Fund today released its annual report on the state of the world's economy ( RFE/RL takes a look at the fund's forecasts for global growth and for countries in our region.

Prague, 25 September 2002 (RFE/RL) -- The global economy is likely to continue to improve but at a slower pace than originally expected. That's the broad message of the International Monetary Fund's annual report on the state of the world's economy, which was published today ahead of the fund's annual meeting in Washington, which starts this weekend.

In its World Economic Outlook, the fund says it still expects the global economy to grow by 2.8 percent this year. But it says growth next year should reach 3.7 percent, lower than the 4 percent the fund expected in April.

A few days ago, IMF Managing Director Horst Koehler summed up the outlook by saying: "We need to be concerned about the strength and durability of the ongoing economic recovery and the stability of the international financial system. Risks to the global economic outlook today are clearly tilted more to the downside than they were a few months ago."

Chief among those risks, he said, are the continuing fallout from the collapse of the stock-market bubble and from corporate scandals in the United States, difficulties in some emerging market economies, and volatility in world oil prices. But he added that, "on balance, we in the IMF and I personally feel that we still should expect that the recovery will continue."

The fund says a global recovery has been under way since the beginning of the year, led by the United States and a pickup in trade. But the pace of that recovery has now slowed in most areas, and data coming in have generally been weaker than expected.

That's why the fund has revised downward its forecasts for most of the advanced countries -- in Europe, North America, and Japan -- that power the global economy.

Chief among them is the United States, which the IMF now sees as growing at 2.2 percent this year and 2.6 percent next year. In the European Union, a sluggish 1.1 percent growth this year should rise to 2.3 percent in 2003.

The fund cut its forecasts for nearly all regions of the world. One notable exception is Russia and its partners in the Commonwealth of Independent States. The reports said the CIS has suffered less from the global slowdown, thanks in large part to strong domestic demand in Russia, the dominant country in the area. But the fund notes what it calls a "persistent dichotomy" across the region, which it divides into more and less advanced reformers.

In the "less advanced" group are Belarus, Tajikistan, and Uzbekistan, where macroeconomic instability, lack of corporate restructuring, and an unfavorable climate for investors all put a damper on growth. Within this group, however, the fund says Tajikistan can hope to benefit this year and next from strong agricultural and industrial output.

The IMF says the war in Afghanistan has had mixed effects on nearby CIS countries. Some, such as Kyrgyzstan, are benefiting from reconstruction or leasing and airport fees thanks to the U.S. military presence there. But in others, such as Tajikistan, the report says higher perceived risks may have actually reduced foreign lending and investment.

The IMF also calls for more international financial assistance, including grants and debt relief, for CIS countries saddled with huge external debts. These are chiefly Georgia, Kyrgyzstan, Moldova, and Tajikistan, which together with Uzbekistan, Armenia, and Azerbaijan have the lowest incomes in the CIS.

The report notes the CIS-7 initiative launched this year and sponsored by the IMF and other international lenders to reduce poverty and promote growth in these countries.

Across the CIS region, the fund says, progress on economic and legal reforms remains too slow. Countries should enforce legislation, liberalize markets, and restructure enterprises.

The IMF praises Russia for its recent progress in key reforms, notably in taxes, pensions, and land law. "It is to be hoped," the report says, "that accelerated reforms in Russia will spur more rapid progress elsewhere."

Turning to the EU candidate countries, the IMF says their economies have also proved resilient in the face of the global slowdown. Growth should pick up next year across the board and reach around 4 percent in this group, which comprises Poland, the Czech Republic, Hungary, Slovenia, Slovakia, Bulgaria, Cyprus, Malta, Romania, and the three Baltic states.

The fund says that many of these countries have reaped the benefits of having stable and credible monetary authorities and market-friendly business climates. As a result, foreign direct investment has flowed in, particularly to the Czech Republic, Poland, and Hungary.

But still, the fund warns of continuing pressures. The Czech Republic, for example, is proposing a huge state budget deficit to help pay for the summer's flooding. And in Slovakia, a high current-account deficit -- made up largely of a trade gap -- could warrant higher interest rates.

In Bulgaria and Romania, the fund says, macroeconomic developments are "largely on track." They should continue to grow by 4 to 5 percent this year and next, boosted by a recovery in Western Europe.

The report says priorities for Bulgaria include lowering public subsidies and moving forward with privatization, while Romania has to tackle high inflation through wage restraint.

The Baltic countries should expect solid growth this year and next. But the IMF says Latvia's current-account deficit is very high, so the government taking office following next month's parliamentary elections will need to take action and cut the budget deficit.