Banking & finance

Economists foresee slight slowdown in world economic growth

  • 22 August 2006

After two years of robust economic growth, prospects for the global economy dimmed slightly in the third quarter, an about face from more than a year of rosy forecasts, according to the latest World Economic Survey by CESifo and the International Chamber of Commerce, released today.

The quarterly report surveys 1,005 corporate and academic economists in 90 countries.

This slight tempering in expectations for business activity was seen in assessments for the world economic climate and predictions for the next six months. The Ifo index fell to 105.6 from 111.0 the previous quarter, while prospects for the coming six months dropped to 96.5 from 108.8 previously. However, assessments of the current economic situation continued to improve, registering 115.1 for the third quarter versus 113.2 in the second quarter.

“The present trend was set in motion in the second quarter. While the economy was still seen as favorable, expectations were starting to wane amid downward pressures brought on by steeply rising oil prices,” said Gebhard Flaig, Executive Board Member of the Ifo Institute for Economic Research.

“The latest results indicate the world economy is approaching a cooling-down phase of the growth cycle,” he added.

The sharpest falloff in expectations was registered in North America, where the world economic climate index dropped to 98.0 from 114.8, whereas views of the current economic environment edged up slightly. The survey indicated the US would grow at a slower but more sustainable pace but would see a rise in inflation. For Asia, prospects for the economic climate deteriorated somewhat for the second quarter in a row.

In Europe, economists remained equally optimistic about the economic climate. “In almost all euro-area countries, the same pattern in business sentiment could be observed: assessments of the present economic situation improved, but economic expectations have been downgraded,” the survey said. Only the UK bucks this trend with steady improvement seen currently and six months ahead.

As high prices for energy and raw materials feed through the world economy, experts see inflation inching up to 3.5% from 3.1% in the last quarterly survey. Inflation in the US is seen slightly above 3% for the second year in a row. In the euro area, inflation is expected to remain moderate at 2.2%. In Asia, inflation is seen inching up slightly to 2.9%.

The US dollar is viewed as fairly valued, while the euro and the British pound are considered overvalued. For the third quarter in a row, the Japanese yen is seen as undervalued.
Short-term interest rates worldwide are expected to rise in the second half of the year except in Russia, Indonesia and Brazil. The increase in long-term rates is expected to be muted in most countries.

Views on how the Internet should be governed

A growing debate is emerging in government, policymaking, civil society and business circles concerning how the Internet should be governed. To foster dialogue among these stakeholder groups, the United Nations has established the Internet Governance Forum, which will convene in Athens in October. To date, the Internet Corporation for Assigned Names and Numbers, an international non-profit, has been largely responsible for managing many of the important technical functions of the Internet.

A special question in the survey asked respondents who should govern global Internet networks: business (a global multi-stakeholder forum) or governments and queried how concerned respondents are about recent attempts by intergovernmental organizations to get involved in the technical management of the Internet. A second question was aimed at determining how great a role business should play in shaping future policies affecting how the Internet is governed.

Experts in most countries said business should play an active role in these processes. Respondents expressed a desire for an especially strong role for business in the UK, Norway, New Zealand, Peru, Paraguay, Costa Rica, India, Nigeria, Zimbabwe and Kazakhstan.

A large share – 35% of the economists surveyed – voiced strong concerns over the involvement of intergovernmental organizations in the Internet, notably in China, Zimbabwe, Mexico and Nigeria.

A higher degree of confidence in a possible role for intergovernmental organizations was expressed by some economists in Europe, Latin America, Russia, New Zealand and the United Arab Emirates. At the same time, 44% of the US respondents said a stronger role of the US government in regulating the Internet would be welcome.