Tepid Euro zone growth dampens trade prospects

ED RICHARDSON DESPITE POSITIVE signs of recovery in most markets around the world, there is concern that the economies of countries in the Euro zone are not performing as well, says Reserve Bank governor Tito Mboweni. Speaking in Durban at a Mercury/Safmarine business breakfast recently, Mboweni said “after a number of false starts, the world economic recovery was well under way in the latter half of 2003, particularly in the United States and Asia.” Real growth in the US had risen to 3,1% in 2003, and the latest IMF World Economic Outlook forecast is for 4,6% growth in 2004. The recovery has been accompanied by high levels of productivity growth, and more recently by increases in employment. Mboweni played down the effect of a slowdown in China, which has had a negative impact on commodity prices in recent weeks. “These fears are likely to be exaggerated, as China still has enormous growth potential. Although Chinese growth may decline from its unsustainably high levels, the country is likely to remain an important and dynamic engine of economic growth internationally. “Of greater concern to South Africa is the low growth in the euro area, South Africa’s largest trading partner. Growth in the euro area was 0,4% in 2003 and although there are encouraging signs that some of the countries in the region are beginning to recover, growth is only expected to reach 1,7% in 2004,” he said. However, other trading partners such as the United Kingdom, Latin America, Australasia and Africa have also been part of the global recovery “to varying degrees”. Threats to the recovery include the US trade and current account deficits, and the rising international oil prices.