EXPERT GROUP REVIEWS DEVELOPED ECONOMIES, ECONOMIES IN TRANSITION
Press Release
DEV/2141
EXPERT GROUP REVIEWS DEVELOPED ECONOMIES, ECONOMIES IN TRANSITION
19970326 NEW YORK, 25 March (DESIPA) -- The economic situation and prospects for Europe, North America, Japan and the ecomonies in transition were reviewed by the Ad Hoc Expert Group on the Short- and Medium-term Prospects of the World Economy (Project LINK) at its Headquarters meeting on Tuesday.Project LINK, whose meeting is being sponsored by the Department for Economic and Social Infomration and Policy Analysis (DESIPA), is an international economic research network of more than 70 economists led by Nobel Laureate Lawrence R. Klein of the Univeristy of Pennsylvania.
Forecasts of economic growth and budget deficits for western European countries presented at the meeting indicate that expected stronger growth will allow a majority of countries to meet the Maastricht criteria for monetary union in 1997, the judgment year for entering the single European currency area at the start of 1999. The main exceptions are Germany, which is projected to meet the criteria in 1998, and Italy, which is projected to have a fiscal deficit in 1998 slightly in excess of the stated Maastricht standard of 3 per cent of a country's gross domestic product.
Participants in Tuesday's meeting noted, however, that despite a progressive recovery in the area, at a rate of about 2.5 per cent a year, and despite progress towards meeting the Maastricht Treaty criteria, continued fiscal retrenchment constrains the economic outlook and the employment situation in many European countries. Looking to the longer term, the participants also noted: unemployment rates well above 10 per cent in some countries; the difficulties raised by an ageing population for government budgets; and the need to encourage more labour force participation in the region.
According to data presented at the meeting, growth in the American economy is expected to pick up slightly this year, from 2.4 per cent in 1996 to 2.6 per cent in 1997, amid low inflation, steady interest rates and stable labour market conditions. Continued progress is seen in reducing the central government budget deficit over the next few years. However, the external trade deficit remains large and is trending in an unfavourable direction.
It was pointed out that, over the longer term, income inequality in the United States has been increasing. However, participants were encouraged that those trends might have recently begun to reverse, and they stressed the need
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to follow policies that would further reduce income disparities. In Canada, output is expected to rise significantly this year and next, but the unemployment rate is likely to remain high and the economy to produce at a level less than its full potential. A reduction in inflation to less than 2 per cent annually and efforts to restructure Canadian manufacturing have improved the competitiveness of Canada in world markets.
Economic growth in Japan is expected to slow significantly in 1997 from 3.5 per cent in 1996 to about 1 per cent, with some rebound in growth in 1998, as exports lead an expected recovery. It was also noted that the government wants to use additional public funds to restore stability in the financial system, but the country's fiscal deficit has increased rapidly, causing the government to introduce a fiscal retrenchment by raising taxes and cutting expenditures.
Economic growth in economies in transition is expected to accelerate slightly in the next 2 years with investment rising and private consumption expenditures buoyant, according to forecasts presented at the meeting. Higher growth in the European Union and an expected recovery in Russia will spur export demand. Access to international capital markets is improving, but foreign direct investment flows are still concentrated on only a few countries. Several economies in the region remain weak, and will have to improve their international competitiveness if they are to participate in the regions overall growth.
On Wednesday, 26 March. the Expert Group will turn to economic conditions and prospects in developing countries.
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