Slow economic recovery forecast.

• Author: Currier, Nuchhi
• Position: The State of the World

The world economy is in the process of a slow recovery, but impediments to growth remain in the form of overcapacity, overvalued asset prices, shaky investor confidence and macroeconomic imbalances, according to two recent economic reports of the United Nations Conference on Trade and Development (UNCTAD): "World Economic Situation and Prospects 2003", a joint publication with the United Nations Department of Economic and Social Affairs; and World Investment Report 2002.

Uncertainties associated with geopolitical tensions resulting in higher oil prices, hesitant business capital spending, slow hiring of workers and lower equity prices, coupled with large external imbalances, fragility of the international financial system and the domestic corporate sector in some countries, and other structural problems, portend substantial vulnerability for the world economy in the medium term.

The two reports call for greater macroeconomic policy coordination among the major economies. They also advocate lowering of protectionism and a reduction of tariffs and subsidies among developed nations to enable developing economies to exploit their comparative advantages fully by securing better access for their local goods and services. The ultimate aim of enhanced export competitiveness, according to UNCTAD, should remain long-term development gains. "At the top of the agenda should be the development of domestic capabilities, as this helps not only to attract quality foreign direct investment (FDI) but also to upgrade existing activities", states Rubens Ricupero, Secretary-General of UNCTAD.

The increase in corporate scandals, particularly in the United States, the worsening fiscal and external debt problems in several Latin American economies, and severe floods and droughts in other countries exacerbated previous weaknesses in world economy, but were mitigated somewhat by key supportive factors, such as monetary and fiscal policy stimuli, resilient consumer spending and inventory restocking. In today's more globalized constellation of production, trade and financing, individual economies have become more dependent on aggregate demand worldwide. This applies in particular to the high-technology sector. The persistent loss of employment, as well as benign inflation, is contributing to the weakness of global economic recovery, posing a long-term policy challenge and key hurdle to poverty reduction.

The gross world product IGWPI is estimated to have grown by 1.7...