WASHINGTON, Feb. 15 (UPI) -- Economists are predicting a continued economic slowdown of the world's economy in 2005, according to a quarterly report released Tuesday by Germany's Ifo Institute for Economic Research and the International Chamber of Commerce (ICC), of Paris.
Although economists said that a recession was unlikely, they predicted that the world's economy would continue to slow down over the next six months due to steep oil prices, current business climate and current exchange rate among currencies in the euro area and Japan. More than 1,000 economists in 90 countries were surveyed by the Ifo Institute and the ICC for the report.
"The steep path of global economic growth over the past two years was part of a cyclical recovery that reached its peak in mid-2004," said Hans-Werner Sinn, president of Ifo.
Based on figures presented by Ifo-ICC, the overall economic climate indicator fell 2.7 points from 103.8 in the fourth quarter, a decrease that has been gradual since its peak of 110.1 points in the second quarter of 2004. Yet, even with the drop, the climate indicator remained above its long-term average of 94 points.
"By the end of 2004, the economic cycle had already entered a cooling-down phase," said Sinn.
Additionally, economists predicted that the current business climate in 2005 would be less than favorable in the previous quarter, falling by 3.6 points. Business expectations in 2005 also dropped slightly compared to the fourth quarter at 101.4 points.
Based on the figures, business expectations in 2005, though much lower than its highest peak in the first quarter of 2004 at 128.1, have stabilized. Business expectations have been gradually dropping since first-quarter predictions. The largest plummet in 2004 occurred during the third quarter when economists lowered business expectations from 115.8 to 101.8 in the fourth quarter.
"Most determinants of short-term prospects remain positive. However, further downward pressure remains: possible disruption in oil supplies as a result of terrorism or another attack on an oil-producing country in the Near East," the ICC-Ifo report said.
The survey also created a regional breakdown of economic climate showing that countries in Western Europe were worse off than other regions in the world, namely Germany and France. The climate indicator in Western Europe fell slightly below the long-term average for the first time since the fourth quarter of 2003.
"Growth was strong in North America, moderate in Japan, and remained weak in Europe," according to the survey.
The survey reported that North America's economic climate increased in 2005 to 106.8 points from the fourth quarter at 103.3. This upturn did not include Canada. Western Europe fell by 4.3 points to 90.4 in the first quarter of 2005. In Asia, economic expectations worsened dropping 2.8 points to 103.7.
Economist explained that the lowered economic expectations in Asia were due to the less than favorable assessments of the current economic situation. But they added Asia and Latin America were still the fastest growing economies over the last two decades.
Economic slow down is expected to continue over the next six months for all three regions, but all three will experience a soft landing.
"Economic regions like the euro area and Japan will have to live with a rise of their currencies vis-à-vis the U.S. dollar, making their exports less competitive compared to the U.S. goods, and the U.S. economy will face rising interest rates and a less expansionary fiscal policy, bringing new challenges to keep up economic growth," the report said.
Based on a separate poll by Ifo-ICC, economists said that counterfeiting and theft of intellectual poverty were the two biggest problems facing business.
"It is consumer demands that drives counterfeiting: the low household income and the high price of genuine goods," economists said, adding that fighting such piracy would not be easy.
According to the Director of the Center for Global Business Studies at Pennsylvania State University, Fariborz Ghadar, the economic slowdown predicted was not an alarming forecast by economists.
Citing the rapid gross domestic product growth rate in China by 9.5 percent, United States by 4.4 percent and a pickup in growth in Europe, Ghadar explained that it is only natural that the global economy would slow down after a strong growth period.
"You would anticipate that when everybody starts to pick up, the growth rate will be faster and if the economy is more or less matured it becomes slower. So I don't think it is disconcerting at all," said Ghadar.
Jonathan Huneke, spokesman for the U.S. Council for International Business, U.S. affiliate of the International Chambers of Commerce, agreed.
"It is indicative that things have leveled off. But we've never really gotten back to the high growth mode that we had before 2001," said Huneke.
