Fri Jul 23, 2004
By Toni Vorobyova

LONDON (Reuters) - The world economy is on track for its best performance since 2000 this year, thanks to an improved employment market in the United States and Japan's much better than expected performance, a Reuters poll showed.

Growth is also expected to be above trend in 2005, despite a slowdown in the world's top three economies by purchasing power parity (PPP) -- the United States, China and Japan.

The median forecast in the July 21-22 survey of 27 strategists at major banks showed global growth of 4.6 percent this year, making it, according to IMF figures, the best year since growth of 4.7 percent during the tech boom of 2000.

For 2005, growth was seen slowing to 3.9 percent.

"We believe that growth will be strong this year, based upon very strong growth seen in both the U.S. and Japan and continued growth in China," said Michael Woolfolk at Bank of New York.

"Next year growth will slow, as China slows and (this has an) impact on the region."

Economists have raised their forecasts since a comparable poll in May, which showed growth at 4.2 percent in 2004 and 3.8 in 2005, because official data has been stronger than expected.

"As of early May I think we only had one healthy (U.S.) jobs number. We've now got three or four (so) people may be upgrading their U.S. views," said James Shugg at Westpac in London.

"Japan has already been surprising to the upside and may continue to do so," he added.

The 2004 median was bang in line with the latest forecast from the International Monetary Fund, which raised its global growth view in April from 4.1 percent. The fund has suggested that another upward revision could be on the cards in September.

Forecasts for this year ranged from 3.5 to 5.0 percent.

The majority of forecasters -- 18 of the 27 -- used GDP adjusted for PPP to weight the contribution of the different countries in their calculations.

Their forecasts were on average a little higher than those of economists who used total GDP, because PPP rates give greater importance to emerging markets. For example China, whose economy grew by 9.1 percent last year, is ranked second by PPP but only seventh by total GDP, behind much slower growing European economies.

RATE HIKES, CHINA SLOW 2005 GROWTH

Regardless of the calculation method, all respondents saw growth slowing in 2005, as effects of rate hikes kick in.

"We expect (tighter) monetary policy to start to weigh on growth in the second half of 2005, maybe from the first half in the UK," said Tom Vosa at National Australia Bank.

A cooling of the Chinese economy is also likely to trim global expansion next year, thanks to government moves to curb investment in red-hot sectors and limit money available for lending.

"Cooling GDP growth in China will not only hit U.S. exports but will also affect Japan," said Kenneth Broux at Lloyds TSB.

But there are signs that government measures are succeeding and that China's economy may avoid the crash landing many had feared, cushioning the blow for the rest of the world.

"China is slowing down, although it is certainly not heading for a collapse," said Klaus Baader at Lehman Brothers, forecasting its GDP to grow 8.0 percent this year and 7.0 next.

The median forecast for 2005 global growth, at 3.9 percent, was still above the 3.5 percent that the global economy has averaged in the past 20 years according to IMF figures.

The range for next year was 2.8 to 4.5 percent. IMF currently forecasts 4.4 percent growth in 2005.

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