WorldWorld EconomicEconomic SituationSituation andand ProspectsProspects 20042004 United Nations WORLD ECONOMIC SITUATION AND PROSPECTS 2004 iii CONTENTS Chapter Page EXECUTIVE SUMMARY . .1 I. GLOBAL OUTLOOK . .3 Improved global economic prospects . .3 Overcoming the shocks . .3 Recovery broadening across countries . .4 Benign inflation and lagging employment growth . .6 Addressing the global imbalances . .7 Reasons for the imbalances . .7 Correcting the imbalances . .8 Uncertainties and risks . .10 Current policy challenges . .10 Managing the shift in macroeconomic policies . .11 Deciding exchange-rate policy in developing countries . .12 Improving global development prospects . .13 II. INTERNATIONAL TRADE AND FINANCE . .15 International trade recovers . .15 Commodity price recovery led by raw materials . .19 Agricultural commodities . .21 Minerals, ores and metals . .22 World oil market: increased volatility and uncertainty . .23 Key trade policy developments . .24 Slow progress in World Trade Organization (WTO) negotiations . .24 Regional and bilateral trade agreements . .26 Trade disputes . .29 Security-related measures affecting trade . .29 Financial flows to developing and transition economies . .29 Private financial flows . .29 Official flows . .31 Net transfer of resources . .32 Foreign direct investment: global flows bottom out . .32 Inflows by region . .32 Long-term sectoral changes in foreign direct investment . .35 Policy responses . .36 International financial cooperation . .37 Official development assistance . .37 Official development cooperation . .37 Heavily Indebted Poor Countries (HIPC) Initiative . .37 iv WORLD ECONOMIC SITUATION AND PROSPECTS 2004 CONTENTS Chapter Page Surveillance and international standards and codes . .38 Crises prevention and resolution . .39 Global financial governance . .41 III. REGIONAL DEVELOPMENTS AND OUTLOOK . .43 Developed economies . .43 North America: a solidifying recovery . .44 Developed Asia and Pacific: is this recovery sustainable for Japan? . .45 Western Europe: is a recovery finally at hand? . .47 Economies in transition . .48 Central and Eastern Europe: a modest recovery . .48 Commonwealth of Independent States: sustaining fast growth . .50 Baltic countries: fastest growing region . .51 Developing economies . .52 Africa: a favourable outlook . .52 East Asia and China: strong recovery interrupted . .53 South Asia: sustaining growth amidst fiscal imbalances . ..