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Last Updated: Tuesday, 29 April, 2003, 23:04 GMT 00:04 UK
The good-news-bad-news economy

By James Arnold
BBC News Online business reporter in Paris

"It's sort of a good-news-bad-news situation," one grandee at the Organisation for Economic Cooperation and Development (OECD) meetings tells BBC News Online.

President George W Bush
More of both would be nice
"It's just that the bad news isn't all that bad, and the good news isn't very good."

Clear as mud, perhaps, but the comment sums up the muddled mood of the world's economic leaders, who are gathering this week in Paris.

The visceral panic that has gripped economic pundits more or less since 11 September seems decisively to have faded.

In its place, there is a sense of cautious optimism - or, depending on whom you speak to, cautious pessimism.

Problems, problems

First, the bad news.

The world economy faces an unparalleled bombardment of what economists call "downside risks".

The war in Iraq is costing billions, and shaking up the delicate politics of the oil-producing Middle East.

Terrorism, with its ability to strike at the heart of the capitalist world, is an unquantifiable threat.

The Sars virus - the focus of much worried muttering here in Paris - is weighing on Asia, and could well spread.

In the rich world, wounded banks are not lending.

And economic troublespots such as Japan look like being joined in the doldrums by Europe, especially increasingly dismal Germany.

Shock tactics

But as our grandee says, the bad news ain't so bad.

SARS warning sign
Nothing to worry about - economically speaking
Short-term shocks like Sars are hogging the headlines, but their effect on global growth is reckoned to be negligible.

Nerves over terrorism have certainly forced some investors to hold onto their purse strings, but as the memory of September 11 fades, few financiers see it as a concrete reason to stop spending.

Optimists even see the woes of Germany and Japan as good news, shocks that may at last push laggard governments into serious economic reform.

The crisis, argues Padma Desai, an influential economist at Columbia University, "has been a great advertisement for the US economic growth model".

Reasons to be cheerful...

Even without rose-tinted spectacles, there is some news to cheer.

Indian worker
Non-OECD economies are still growing strongly, thank you
"Contagion", the panicky domino effect that many thought could infect markets as Argentina and Turkey slipped into crisis last year, seems to have been avoided.

Pretty much everyone agrees that global economic growth, which plunged not far above zero in 2001, should pick up somewhere near normal this year and next.

The OECD reckons its members - 30 countries which account for two-thirds of world output - should be growing by 3% next year, not far behind the recent record of 3.8% recorded in 2000.

Outside the OECD, big economies such as India and China are growing much faster than that.

If, as many expect, oil prices fall and stay low after the Iraqi war, rich countries could enjoy a further windfall - what economists oddly call an "upside risk".

... or not, as the case may be

Like the bad, though, the good news is not quite all it seems.

The US economy, absolutely central to any global revival, is far from being home and dry.

Shopper in Hong Kong
Nervours consumers may be reluctant to play ball
Although the Bush administration insists its planned tax cuts will be more than paid for in extra growth, many economists argue that they may be more than the state can afford - something that will only further pressure the drooping dollar.

And it is still far from certain that hopes of reform in Europe and Asia will be realised.

Delegates at the OECD have expended much worry over the failure of electorates to play along with free-market orthodoxy.

Europe, particularly, is seen as dragging its feet - calls, for example, for the European Central Bank to lower its interest rates are becoming deafening.

Paying the price

Most troubling of all is the likely price of next year's 3% growth.

OECD growth
Governments around the world are ramping up spending, either cutting taxes or pouring money into projects of varying usefulness, in order to give their economies a kick.

Three years ago, OECD governments had their budgets more or less balanced; next year, their average deficit will be about 4% of annual output, a tolerable but worrying level.

Powered largely by "upside risks" such as low oil prices, robust growth may not produce the wholesome effects it is supposed to - OECD unemployment, for example, is expected to exceed 7% this year for the first time since the recession of the early 1990s.

And if governments keep on spending hard, consumers may stop spending on their own account, fearing the tax increases and other strictures that coulod follow such lavishness.

Upside, downside

So take your pick.

No one may have a particularly strong idea of which way the world economy is heading.

But as three days of OECD meetings reach their conclusion - just one of dozens of lavishly-catered functions for the economic jet-set - one business is booming.

For the punditocracy - and yes, economic journalists are included - these are boom times.

Good news for some, at least.


SEE ALSO:
Global economy 'on the mend'
24 Apr 03  |  Business
New doubts over UK economy
24 Apr 03  |  Business
Warning on world economic recovery
21 Nov 02  |  Business


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