2004 Marked By Strong Economic Growth Despite High Oil Prices
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As in 2003, growth was fastest in China, where economy expanded by
over nine percent The world economy grew at an impressive pace in
2004, despite a sharp rise in oil prices.
It was on balance a very good year. Raghuram Rajan is the chief
economist at the International Monetary Fund (IMF). He addressed
reporters in October when he released the Fund's annual world economic
outlook.
"Because of the tremendous growth in the early part of the year, we
have raised the global growth forecast from the one we made in April
to five percent for 2004," said Mr. Rajan. "This is the fastest in
nearly 30 years. For 2005, however, we have lowered our forecast
slightly to 4.3 percent, largely reflecting the effects of higher oil
prices."
As in 2003, growth was fastest in China, where the economy expanded by
over nine percent. Growth has been so fast in China over the past
decade that this nominally communist country with a now largely
market-based economy has lifted nearly 300 million people out of
poverty.
There were worries at mid-year that the sharp increase in oil prices
would push the world economy into recession. That didn't happen even
though growth did slow in Europe with the 12 countries that use the
euro currency growing by less than two percent. By contrast the
economies of both the United States and Japan expanded by about four
percent.
Oil pumpsThe world oil price averaged $41 per barrel in 2004. That was
a 31 percent increase over the previous year.
Raghuram Rajan of the IMF says increased demand from China was the
principal reason that oil prices rose so significantly.
"Between 30 to 50 percent of the increased demand this year is from
China. And approximately eight to ten percent from India," he noted.
Oil analyst Philip Verleger says oil prices are likely to stay high.
He believes that demand has so far outstripped supply, that the world
oil market is very tight. Mr. Verleger says prices for forward
contracts of oil show the market expects prices to remain very high.
"What you can see from the chart is that from 2000 to 2003 those
forward crude prices were steady at about $25, $22 a barrel," he said.
"They've recently increased by 50 percent as buyers and long-term
investors began to realize that we had a collision with the failure to
expand supply."
As 2005 begins the world textile and apparel trade will undergo its
most far-reaching change in 40 years. The patchwork system of quotas
that has regulated textile trade is being abolished. The small
exporting developing countries that pushed so hard for this reform a
decade ago are now having second thoughts. They fear that big
producers like China and India will take over the textile and apparel
market. Gary Hufbauer of the Institute for International Economics in
Washington D.C. says that various safeguard measures being activated
by the United States and Europe will prevent any immediate disruption.
But Mr. Hufbauer has no doubt that big changes are on the way.
"There are a lot of legal actions being prepared as we speak to delay,
we could say, the onslaught of competition from China and India as
well," he said.
As with the oil price there is uncertainty as to just what will
actually happen in the garment trade. Nonetheless most economists are
generally optimistic about the coming year.