Country risk March 2002: Economists predict a strong rebound but not until 2003
Six months ago rising oil prices, the bursting of the new economy bubble and weaker financial markets were increasing the dangers of a recession even before the blow of September 11. Although the direct effects of the attacks have been relatively small and sector-specific, the effect on business confidence is likely to be large in the short term. In our latest review of country prospects Euromoney's panel of experts has revised down average global projections for 2002-03 for 79 countries and has revised up 105. On balance, consensus growth forecasts indicate strong resurgence in 2003.
A cautiously optimistic outlook for European and US growth emerges from Euromoney's latest poll of economists. The imprecision of judgements on the strength of the US recovery over the next year as well as the resilience of the EU consumer in the face of a possible gradual rise in unemployment make these forecasts highly provisional.
In Europe the value of the euro has fallen by over 10% since its launch, adding to consumer price inflation and squeezing real household incomes. Average growth continues to be relatively slow in 2002 in all the major eurozone economies. Growth estimates for Germany (7) have been reduced to 1% for 2002 but move back towards the Euroland average in 2003. Germany is particularly vulnerable to the slowdown in world trade growth, which is expected to continue during the first half of 2002. Other major Euroland economies are expected to grow more rapidly than Germany in 2002, with growth in France (13), Spain (18) and the Netherlands (6) getting back to 2.5% to 3%.
Prospects for candidate EU countries rest on the benefits of continued but slowing Russian growth relative to the losses from the slowdown in EU-related trade.