Trade & investment

Economists predict soft landing for world economy

  • 23 May 2005

Expectations for the global economy deteriorated for the fifth time in succession, but remained above the long-term average, a world poll of 1,118 corporate and academic economists in 91 countries disclosed today.

The quarterly poll by the International Chamber of Commerce (ICC) and the Munich-based Ifo Economic Research Institute indicates a “soft landing” for the world economy rather than any sharp decline in economic activity. Ifo President Dr Werner Sinn said the poll showed very little decrease in expectations for the next six months. The expectation is that the present cooling of the world economy is unlikely to last.

The biggest deterioration in the economic climate indicator was in Western Europe, below the long-term average. In North America there was a drop in expectations for the next six months, but an improvement in the assessment of the current economic situation.

The economic climate indicator for Asia improved for the first time in almost a year, largely due to improved assessments for the next six months.

The poll showed that economic growth is expected to slow further in the next six months.

The ICC/Ifo survey said:

“For the world economy as a whole, growth is expected to continue in the coming six months, but at a slower pace.”

However, the expansion may be endangered by serious imbalances in the world economy, such as the huge US current account deficit, weak growth in the euro zone and Japan and inflexible currency regimes in Asia, e.g. in China.

On the economic situation of the euro zone, the economic experts forecast only weak growth in 2005.

Only in Finland and Ireland was the current economic situation judged to be above the satisfactory level. Unemployment was deemed to be the euro zone’s biggest economic problem, followed by insufficient demand.

The survey estimated that consumer price inflation would be 2.9% in 2005, exactly the rate recorded in 2004. This was slightly more than estimated in the previous survey. The worst inflation in the euro zone was expected to be in Greece, estimated at 3.4%. The lowest inflation rate in th e euro zone in 2005 was expected to be 1.4% in Finland.

The US dollar was seen as undervalued compared with the euro and the British pound, both seen as overvalued.
The US dollar was expected to remain more or less stable or to decline slightly over the next six months.

The trend of rising short-term interest rates was expected to accelerate moderately over the next six months in the euro area, Latin America and the United States.

Discussing economic growth prospects, the survey said that on average in the 91 countries covered in the survey, real gross domestic product (GDP) in constant prices in 2005 was expected to be 3.1% higher than in 2004.

Views on climate change and the Doha round of trade negotiations 

A special section of the survey asked respondents about the role of the private sector in providing economically sound solutions to environmental sustainability and the importance of the World Trade Organization’s Doha round of multilateral trade negotiations.

As many as 88% of the economists polled believed that it would be the private sector that would provide the environmentally friendly technologies that would play a major role in providing environmentally sound solutions to climate change.

A total of 69% of the panel of economists agreed that G8 leaders at the Gleneagles Summit in July should give priority to ensuring that the Doha round of trade negotiations makes considerable progress towards a successful conclusion in 2006.

A massive 82% of the economists polled agreed or strongly agreed that the improved market access for developing countries resulting from a successful

Doha round would make a significant contribution to economic and social development and the alleviation of poverty.

ICC is the world business organization, the only representative body that speaks with authority on behalf of enterprises from all sectors in every part of the world. ICC promotes an open international trade and investment system and the market economy. Business leaders and experts drawn from the ICC membership establish the business stance on broad issues of trade and investment, e-business, IT and telecoms policy, as well as on vital technical and sectoral subjects. ICC was founded in 1919 and today it groups thousands of member companies and associations from over 130 countries.
Since 1981 the Ifo Institute has conducted a quarterly survey in numerous countries on business cycle developments and other economic factors in the experts’ home countries. The survey is conducted in co-operation with ICC in Paris and with financial support from the European Commission.

A detailed regional analysis appears in the quarterly journal, CESifo World Economic Survey. This press release contains advance information on the most important results.