The global economy should stage a slow-burning recovery now that the war in Iraq is over, but anxiety over terrorism, SARS and the way the world is run still pose multiple threats, the OECD has said.

   

The Organisation for Economic Cooperation and Development (OECD) has forecast sluggish economic expansion of 1.9 percent this year for the OECD group of 30 mainly rich countries, close to the level in 2002, and said it expected a pick up around the year-end to allow more healthy growth of 3.0 percent in 2004.

   

"Worries about oil prices, anxiety in the face of war, fear of terrorism and epidemics, loss of confidence in international governance -- the list of the so-called geopolitical and psychological factors is long," chief economist Jean-Philippe Cotis said in a preface to the twice-yearly report. 

   

The situation had become a bit clearer since the US-led war in Iraq and the safeguarding of oilfields there, and brisk reconstruction of the country could help, Cotis said, predicting what he called a "progressive if unspectacular world recovery".

 

Slow economic progress
anticipated

"While a relapse into recession cannot be totally ruled out, it remains a low probability," the Paris-based OECD said in its twice-yearly economic outlook.

   

The risk of surging world oil prices related to war had now receded, it said in a report which assumed oil prices would average $25 dollar a barrel in the next year or more, not far from the level oil was trading at on Thursday.

   

In essence, the OECD's report said much the same in terms of growth prospects as other recent reports from the International Monetary Fund and the European Commission -- sluggish growth in the months ahead and a likely pickup towards the year's end.

 

The OECD's previous report last November had predicted 2.2 percent growth for this year.   Its latest report predicted 2.5 percent growth in the United States this year after 2.4 percent in 2002, and a surge to growth of 4.0 percent in 2004.

   

Japan, in and out of recession for the past decade, would continue to struggle, with growth forecast at just one percent and 1.1 percent in 2003 and 2004 respectively.

   

The 12-nation euro currency zone would limp along for another year with growth of just one percent but should bounce back to growth of 2.4 percent next year.

   

Cotis said the European Central Bank did not need to worry about inflation, which was easing, and that the ECB should cut interest rates to help promote money lending and growth. "The sooner the better," he said.

   

The OECD also warned that the overall economic fallout of the SARS disease crisis for worst-affected countries -- largely Hong Kong and other parts of China and Asia as well as Canada -- could be significant.

   

The Severe Acute Respiratory Syndrome scare had depressed stock prices and hit airlines, tourism and retailers in several Asian countries. Travel to and from New Zealand and Canada had been hit, it said. Japanese firms were restricting travel to Singapore and other cities.

 

"The economic impact of this epidemic depends largely on how promptly and effectively the virus can be brought under control," the OECD said.

   

"We can certainly say there will be severe macroeconomic consequences locally, and in Hong Kong certainly," Cotis said. It was hard to quantify the wider economic impact at this stage.

   

The OECD said there were a whole range of other more classic economic headaches that world political and corporate leaders needed to tackle.  Soaring house prices in the United States and Britain posed a risk, and in continental Europe there was still a need for long-promised plans to deregulate or otherwise make economies more flexible, the report said.

   

The OECD also highlighted how many governments had run up "spectacular" deficits in public finances. It also highlighted a need for Europe to pursue promised economic reforms and for governments across the world to strive for further deals to improve free trade despite a "period of diplomatic friction and loss of confidence in collective governance".