While global gross domestic product (GDP) growth is at its highest in 30 years, heightened geo-political risks and the high oil price remain substantial concerns that could derail the current economic stability, Stanlib economist Kevin Lings cautioned on Tuesday.
He said that in 2003, global GDP rose by about 3,9%. It is expected to have accelerated to 5% in 2004. But the rate of world economic growth is likely to slow back to an estimated 3,9% in 2005, impacted by a rise — albeit modest — in world interest rates as well as the high oil price.
“Global industrial production benefited from the acceleration in economic activity in 2003/04, pushing commodity prices higher in the first half of 2004. However, the six-month rate change in the OECD leading indicators has clearly rolled over, which is consistent with a slowdown in manufacturing activity and commodity prices in 2005.
“Global inflation has now started to rise on the back of the significant monetary and fiscal stimulus in the major economies. In addition, higher oil and commodity prices have also pushed consumer prices higher,” Lings said.
He added that the United States and United Kingdom had raised interest rates, partly in response to some concerns over inflation, but also in an effort to normalise rates. Interest rates are expected to continue to increase in 2005, but at a “measured” pace.
“But heightened geo-political risks and the high oil price remain substantial concerns that could derail the current economic stability,” Lings added.
However, he pointed out that the rise in the Brent oil price is not as extreme as in the 1970s, quoting US Federal Reserve chairperson Alan Greenspan as saying the impact of the current surge in oil prices is likely to prove to be less consequential to growth and inflation than it was in the 1970s.
China’s GDP growth, he added, is likely to slow, but will remain robust. — I-Net Bridge