The world economy [March 2003]

All the major economies grew more strongly in the first three quarters of 2002 compared to 2001 but growth slowed in the last quarter of 2002. At the beginning of 2002 the outlook for the world economy was marginally weaker than in the third quarter. The uncertainty over geopolitical tensions has had a substantial effect on equity markets. The UK FTSE 100 is close to an 8 year low; the Dax is now close to 2,200 points, which suggests that this is more severe in relative terms than the Great Depression in Germany during the 1930s. In Tokyo the Nikkei is near a 20 year low and only the Dow and the Nasdaq remain above crisis levels. Equity markets have lost 15 per cent of their value in the third quarter of 2002. The markets urgently require an injection of confidence but this will only happen when the situation in Iraq is resolved. Oil prices are also suffering from the heightened uncertainty and oil prices are being squeezed upwards. The outlook for the world economy is that recover y will be led by the US in 2003, followed by the Euro Area. Both domestic demand and external demand are likely to strengthen while world trade is forecast to grow significantly. Growth is forecast to be stronger in 2004 as economic activity strengthens across the globe.