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Last Updated: Thursday, 3 April, 2003, 20:56 GMT 21:56 UK
Global growth under pressure from war
By Tim Bowler
BBC World Service business reporter

US soldiers on guard duty near a burning oil well in Iraq
The World Bank expects a slight improvement in economic growth this year but says this could be hampered if the war in Iraq drags on.

The Bank's Global Development Finance 2003 report said the global economy would grow by 2.3% this year compared with growth of 1.7% last year.

But it warned that the war in Iraq is affecting economic recovery with its impact on the price of oil and the uncertainty among investors and businesses regarding the length of the conflict.

The Bank - which has the brief of aiding and investing in developing nations - says its forecasts are based on the war in Iraq lasting just a few months.

It admits projections could change if the war were to last longer.

The impact of housing price busts, when they do occur, is much more significant on the real economy, probably double the average impact of an equity price bust
Jonathan Ostry
IMF global economist
However if the war ends relatively quickly, the Bank sees a hesitant recovery in richer nations like the United States this year.

Boom to bust?

The International Monetary Fund, which released excerpts from its World Economic Outlook at the same time, is a little more optimistic.

The chance of a US recession - a dangerous prospect for the entire world economy - have dropped to just 15%, it said.

But it sounded a note of caution about the rapid rise in housing prices in Europe and the US - but particularly in the UK.

Stripping out inflation, UK house prices are up 70% from the last trough, while the Netherlands, Ireland and the US were all in the danger zone as well.

"The impact of housing price busts, when they do occur, is much more significant on the real economy, probably double the average impact of an equity price bust," said IMF global economist Jonathan Ostry.

Steep climb

The World Bank's report also expressed concern about the lack of response to policies designed to boost the recovery.

"For all the emphasis on simulative policies and all the help that we're giving the global economy we're actually getting very little in the way of underlying global acceleration," report author Philip Suttle told the BBC's World Business Report.

Mr Suttle said the global economy did mount a recovery in 2002 but he was disappointed by the level of progress.

"It's really quite an anaemic, bumpy recovery," he said.

Philip Suttle, report author
"It's really quite an anaemic, bumpy recovery"

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