Falling oil prices and a quick war have made recession less likely
The early end to the Gulf War has helped to reduce the risk of global recession, according to a leading economic think-tank.
The Organisation for Economic Co-operation and Development, whose members include most industrialised countries, said the global economy would probably expand by 1.9% this year.
And it predicted 3% growth in 2004 in a more settled economic climate.
But chief economist Jean-Philippe Cotis warned of serious risks ahead.
Europe has not shared the boom in North America but we shared completely in the slowdown
Jean-Philippe Cotis, OECD chief economist
"Worries about oil prices, anxiety in the face of war, fear of terrorism and epidemics, loss of confidence in international governance - the list of so-called geopolitical and psychological factors is long," he wrote in his preface to the report.
Slow to reform
Breaking down its predictions, the OECD said European growth depended on the European Central Bank's willingness to slice half a point off interest rates "the sooner the better".
It said growth would stay at just 1% this year, a sharp slide from its predictions of 1.8% just six months ago.
"Since we published our previous OECD Economic Outlook ...economies in the euro zone have undershot an already modest forecast by a high margin," the report said, blaming slow structural reform and high budget deficits as well as rising oil prices and the uncertainty caused by the war in Iraq.
"Europe has not shared the boom in North America but we shared completely in the slowdown," Mr Cotis told a news conference in Paris.
The UK's prospects for 2003 were rather better, the OECD said, predicting 2.1% growth this year and 2.6% in 2004.
That remains far below Chancellor Gordon Brown's forecast of 3-3.5% for next year - although it outstrips the UK Treasury's average of independent forecasters' estimates, currently 2.3%.
In contrast, the OECD said the US would remain the star performer among industrialised economies, growing at 2.5% this year after a 2.4% expansion the year before.
Sars' threat to the world economy remains difficult to call
In 2004, as business investment gathered pace, growth could reach 4% although household consumption was likely to languish, the organisation warned.
Oil prices of about $25 a barrel and the weak dollar would underwrite the return to growth, it said.
But it cautioned that the growing US budget deficit, caused in part by tax cuts, was likely to push up interest rates and taxes in the future.
Japan, on the other hand, remained stuck in the economic doldrums, the OECD warned.
By recent standards its 1% predicted growth for 2003 represented a passable performance, but prices would continue to slide and bank lending would stay weak, it said.
That leaves Japan entirely reliant on a pickup in world trade, as demand at home remains delicate.
On the broader front, the Sars virus sweeping across Asia and out into the rest of the world could present a significant threat.
Its effects were "difficult to quantify", Mr Cotis said, warning that the impact would depend "largely on how promptly and effectively the virus can be brought under control".