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Tue, Dec 14, 2004 - Page 12 News List

Global economy to slow next year, think tank says

FORECASTS World GDP growth will fall to 3.2 percent next year, the Economist Intelligence Unit said in a report, which also cited four potentially serious risks


The global economy is set to slow down next year, and this deceleration could yet turn into a full-blown slump if one of a number of potential threats take hold, a leading London-based think tank said yesterday.

Overall, world GDP growth, using market exchange rates, will slow from 4.1 percent this year to 3.2 percent next year, the Econo-mist Intelligence Unit (EIU) said in its annual forecast.

Among individual countries, China will again be the fastest-growing major economy at a rate of 8.1 percent, while growth in the US will slow to 3.1 percent, the EIU's 2005: country by country report said.

Eurozone big hitters Italy, France and Germany were tipped to be still more sluggish, occupying seventh, ninth and 10th spots respectively in the report's predicted top-10 slowest growing economies, at rates of between 1.5 and 1.8 percent.

However even this "relatively benign" set of forecasts is menaced by four potentially serious risks, said the EIU, the think tank arm of The Economist magazine.

These are the impact of another sharp spike in oil prices; heavy interest rate increases causing a housing or debt crisis; the effect on exchange rates and elsewhere of substantial economic imbalances in the world's main economies; and a sharp slowdown in the Chinese economy.

"Any of these on their own, if they take a nasty turn for the worse, could alter the outlook significantly -- were they to strike simultaneously, they could turn the global slowdown into a slump," the report warned.

The 12-state eurozone was "particularly at risk," the authors said, while a downturn in China would affect Asia especially badly.

The report tipped the Commonwealth of Independent States (CIS), the loose grouping of 12 former Soviet republics, as the best-performing region next year, with expected GDP growth of 6.2 percent.

Meanwhile Britain was expected to continue out-performing its near neighbors in the eurozone, the report said.

The biggest contrasts would come in Africa, which was forecast to contain both the world's two fastest-growing economies next year -- Equatorial Guinea and Liberia, at 19.4 and 15 percent -- and its two biggest losers.

These were expected to be strife-torn Zimbabwe and Ivory Coast, the economies of which were forecast to shrink by 3.1 and 1.2 percent each.

Iraq would see a growth rate of 11.9 percent next year, the sixth-best in the world, the report said.

"Iraq's slow but ongoing recovery from total collapse ensures that it will continue to be the fastest-growing country in the Middle East in 2005, albeit still from a very low base," it said.

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