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Home >> Business
UPDATED: 10:40, December 14, 2005
World economic growth expected to be solid in 2006
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The world economy achieved a stable growth in 2005 despite impacts from surging oil prices, and judging from the existing factors it appears that global economic growth will continue to be solid in 2006.

Overall global economic growth hit 5.1 percent in 2004, a record high in 30 years, and analysts had predicted a moderate slowdown in the pace of world economic growth for the year 2005.

Nevertheless, the 4.3 percent growth forecast for 2005 and 2006 in September by the International Monetary Fund (IMF) is still healthy by historical standards.

The U.S. economy managed to have gained a relatively rapid growth despite impacts from rocketing oil prices and natural disasters like Hurricane Katrina, while China and India, the two major developing nations, continued the strong momentum of economic growth, which also added a spur to regional economic performance.

On an annualized basis, the U.S. economy increased by 3.8 percent, 3.3 percent and 4.3 percent in the first three quarters of this year, compared with growths of 5.7 percent, 5 percent and 1 percent in Japan and 1.2 percent, 1.2 percent and 1.6 percent in the euro zone.

China, one of the world's fastest growing economy, has witnessed an increase of 9.4 percent in the first three quarters compared with the same period of last year.

However, most of the world's major economies has experienced a slowdown in their economic growth this year, dwarfed by the strong global economic performance last year and affected by the negative influences of the rising oil prices.

According to IMF estimates, the industrialized nations will register an average economic growth of 2.5 percent this year, against the 3.3-percent increase last year. Meanwhile, the economic growth in the United States, the euro zone and Japan will stand at 3.5 percent, 1.2 percent and 2 percent respectively, down from the 4.2 percent, 2 percent and 2.7 percent last year.

The IMF also predicted an average increase of 6.4 percent for developing countries, with China, India and Russia expected to grow by 9 percent, 7.1 percent and 5.5 percent respectively.

In the coming year of 2006, growth will continue to be solid for the world economy and major economies are expected to push ahead with their stimulative economic policies. Together with the favorable financial market conditions, such as low long-term interest rates and the prevailing rosy prospect for company profits, such policies will counter the impact of rising oil prices.

Analysts are optimistic about the economic prospect for the developed nations as a whole. Apart from the United States, which is expected to keep its relatively strong development momentum, Japan's economy may have been recovering, with economic growth recorded in three consecutive quarters. The euro zone has also shown signs of an accelerated growth.

At the same time, China, India and some other major developing countries are set to keep the trend of rapid growth going in 2006.

According to preliminary estimates by the Organization for Economic Cooperation and Development (OECD), economic growth in the 30 members of the group speeded up in the third quarter of this year.

The OECD has revised the forecast for member economies' growth for 2005 and 2006 from the original 2.6 percent and 2.8 percent to 2.7 percent and 2.9 percent. The group has estimated the economic growth rates of the United States, the euro zone and Japan at 3.5 percent, 2.1 percent and 2 percent respectively.

In the meantime, the developing nations are expected to gain an economic growth of 5.9 percent in 2006, according to the forecast of the World Bank last month.

It said the economic growth in East Asia and the Pacific region will hit 7.8 percent, while the growth rate will reach 6.9 percent in South Asia, 4.5 percent in Latin America and the Caribbean and 4.6 percent in sub-Saharan countries.

However, threats remain to the world economy and at the top of all the disturbing factors loom the high oil prices.

The World Bank has predicted an average oil price of 53.6 dollars per barrel in the world market for 2005 and a further rise to 56 dollars in the following year, much higher than the 37.7 dollars last year and the 28.9 dollars a year earlier.

The IMF also warns of the possibility of continuous surging of oil prices in 2006, noting that prolonged high oil prices might hurt consumer confidence, thus multiplying its negative impacts on the world economy.

Moreover, increases in official short-term interest rates in some rich nations might also affect the world economy, especially the developing countries.

The U.S. Federal Reserves Board has raised interest rates for 12 times in the past one and half years, partly as a preventive measure to avert a possible pickup in currency inflation. The U.S. National Association for Business Economists estimates that the U.S. Federal Funds rate will have risen from the current 4 percent to 4.75 percent by the end of 2006.

In the meantime, the European Central Bank (ECB) also increased its key interest rates by 0.25 percentage points to 2.25 percent.

Interest rate rises in rich nations are not conducive to attracting foreign investment by their developing counterparts and might encourage capital flight from poor nations.

Potential threats to the world economy include a deteriorating current account balance in the United States and consequent dollar fluctuation, an increase in long-term interest rates, falls in property prices, and a major outbreak of bird flu.

All parties should shoulder their responsibility in order to improve the prospects for global economic growth, said the economists.

Efforts should be made by the United States to curb its chronic fiscal and current account deficits, and the euro-zone countries as well as Japan should work to speed up structural reform to boost growth. Developing nations also must boost the ability of their financial departments to deal with external risks.

Meanwhile, developed nations should give up their trade protection policy, and, under the current circumstances, make some concessions by scrapping farm subsidies and lowering tariffs on imported farm products, in order to complete the Doha Round of World Trade Organization talks at an early date.

Source: Xinhua

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