The recovery in the global economy is "fragile" and a sustained upturn could yet be delayed. So said the World Bank in its latest commentary on the international outlook. The tentative recovery evident in the first quarter of this year has quickly petered out, it said, and the outlook for next year is for a tentative recovery, at best.
A lack of confidence is at the heart of the current malaise in the world economy. Just yesterday, the difficulties facing Germany, in particular, were further underlined by the latest IFO index, which showed another decline in business confidence in the euro zone's biggest economy. In the US, meanwhile, firms are slow to invest, nervous about the implications of the possible war in Iraq and the possibility of further financial market turmoil.
There is no magic button which policymakers can push to energise their economies. In the US, President Bush has changed his economic team, appointing a new treasury secretary, Mr John Snow. This may signal some further reduction in taxes, but US monetary and fiscal policy has already done much to try to boost growth. What is needed now for the US economy is first a resolution to the situation in Iraq and second some stability in financial markets, which have been damaged this year not only by falling share values but also by serious questions over accounting policy and over the corporate governance of the major Wall Street financial houses.
The economic problems in Germany appear deeper, with a growing lack of confidence due to rising unemployment, corporate insolvencies and a spiralling budget deficit. Recent publications by leading researchers estimate that the economy grew hardly at all this year, with a similar outlook for 2003. The Schröder government faces conflicting advice from different sectors as to how to address the crisis, but has so far been unable to set a clear policy direction.
There is one way international governments can support long-term growth. It is by taking a positive view on the latest round of world trade talks, due to get under way in earnest next year. As ever, the world trade agenda requires give and take on all sides, not least, as the World Bank points out, in a way which gives the developing countries a fairer system. One of the key issues - and one of major interest to this State - is farm subsidies. At a time of fragile confidence, a lurch back to protectionism is the last thing required.