London - Economists have reduced their forecasts for how much the world's major economies will grow this year due to concerns over curbs on spending resulting from job losses and corporate cost cutting, according to a Reuters poll.
The poll of 180 economists from the G7 countries shows that growth estimates for 2003 have been chopped by between 0.2 and 0.6 percent since a similar Reuters poll in March. Economists also predicted that central banks will keep official interest rates lower for longer than they had expected earlier this year.
Canada topped the league in predicted growth rates amongst the G7 countries, with economists expecting its economy to grow by 2.6 by the end of the year, down from 2.9 percent in March. Germany is expected to turn in the worst performance with only 0.1 per cent growth compared to the 0.7 predicted by economists in March.
In March economists thought a short war in Iraq would boost consumer and business confidence and demand. However recent economic data shows sentiment and activity, although improving, are still weak as economists expect firms to struggle to work off excess debt and capacity built up during the late 1990s.
Economists cut their growth forecasts for the US economy from 2.4 percent in March to 2.2 percent. However, a pick up in the US economy is expected in the second half of this year as the corporate adjustments process comes to an end, and tax cuts and lower borrowing costs encourage spending.
The predicted US recovery is not expected to help the euro zone, battling euro gains of around thirty per cent against the dollar, to maintain exports to the United States. Growth estimates for the euro zone region in 2003 have tumbled to 0.6 percent from 1.1 percent.
"In the past a U.S. recovery would translate into a boost for euroland,"
said Susana Garcia-Cervero at Deutsche Bank in London. "That won't be the case this time. Americans will substitute expensive euro products for goods produced at home."
Italian growth, also dependent on exports, is expected at a sharply lower 0.6 percent compared to 1.1 predicted in March. France, which relies less on exports, is likely to outperform Germany and Italy, but its growth forecast is still lower at 0.8 percent from 1.2 percent.
"Businesses are still in an adjustment phase and need to improve profitability by holding down investment and reducing staffing levels,"
said Laure Maillard at CDC Ixis in Paris.
Economists expect a cooling housing market in Britain to check consumer demand, but that this will be partly offset by a rise in government spending and a weaker pound which should bolster exports. The British economy is expected to grow by 1.8 percent in 2003. In March the forecast was for 2.0 percent.
In Japan, falling exports are expected to add to the problems of weak domestic demand and deflation. However, higher investment spending will help the economy to grow at a slightly faster rate of 1.0 percent from 0.8 percent in March. "Capital spending will probably recover due to cyclical factors but if you look at other parts of the economy, there's not much you can hope for," said Dresdner Kleinwort Wasserstein's Shuji Shirota in Tokyo.
Full details of the growth and interest rate forecasts are available at request. Forecasts for official interest rates are available at request as well.
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Reuters
Susan Allsopp
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Corporate Communications - UK
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Note to Editors
Methodology
Polling was carried out July 10-16. Reuters surveyed a total of around
180 economists in separate surveys covering the United States, the euro
zone, Japan, Britain, Germany, France, Italy and Canada.
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