WORLD ECONOMIC GROWTH EXPECTED TO PICK UP THIS YEAR
Press Release
DEV/2205
WORLD ECONOMIC GROWTH EXPECTED TO PICK UP THIS YEAR
19990503 NEW YORK, 3 May (DESA) -- World economic growth is expected to pick up modestly this year and continue to strengthen into the next century, according to forecasts discussed at the Expert Group Meeting on the World Economic Outlook that began this morning at United Nations Headquarters.The main set of forecasts reviewed were prepared by Project LINK, an international economic research network of more than 60 economists from all over the world led by Nobel Laureate Lawrence R. Klein of the University of Pennsylvania. Representatives of the World Bank, the International Monetary Fund, the World Trade Organization, the Organisation for Economic Cooperation and Development (OECD) and the National Institute for Economic and Social Research of the United Kingdom also pointed to an upturn in world growth over the short term.
A sense of cautious optimism about the prospects for overcoming the traumatic shocks that have dominated world economic performance during the past two years can be seen in the assessment of world economic growth and international trade presented to the Expert Group. World financial markets have shown signs of stabilization and strengthened confidence as better performance has been reported by some of the countries most seriously affected by turmoil in world capital and foreign exchange markets.
Given these positive developments, according to forecasts of Project LINK, a gradual pick-up in world growth may be expected in 1999 to a rate of about 2 per cent for the year with some further strengthening in 2000 and 2001. This represents a reversal of the decline recorded in 1998, when world growth fell to a rate less than 1 3/4 per cent, half its earlier pace, and when international trade slowed sharply, prices of oil and other commodities plummeted and many countries fell into recession.
However, the modest upturn reflects considerable disparities in the performance of different world regions. Continued strong growth is expected in North America, for example, especially the United States, where output is forecasted to expand by 3 1/2 per cent, and some recovery is forecasted for developing countries, where real gross domestic product (GDP) per capita is expected to rise in 1999 after falling 1/2 per cent last year.
In the case of the developed market economies, slower growth in Europe and a continuing decline in the production performance of Japan are seen as
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reducing the average rate of expansion in this group of countries to only 1.8 per cent in 1999, a slight decline from the average recorded for 1998. A recovery in both Europe and Japan in 2000 and 2001 should strengthen these economies, and help support faster world growth forecasted for the early years of the next century.
The outlook for growth in the transition countries as a group remains pessimistic. Russia is expected to remain in recession in 1999 and 2000 and growth in some Central and East Europe countries is forecasted to slow, with a recession continuing in the Czech Republic and Romania, and slower rates of increase in Bulgaria and Poland. In addition to incalculable human suffering, the ongoing violence and hostilities in Yugoslavia have had a major impact on the economy of the country, and any prolonged conflict may be expected to lead to a marked economic decline in the entire region, not just in the short term but for many years. LINK projections for this area must be seen as conjectural at this time.
All main developing country areas found their rates of economic growth significantly reduced in 1998 by turmoil in capital and exchange rate markets. The decline was particularly deep in South and East Asia, where the financial crisis first appeared and where its impact was greatest. LINK forecasts anticipate a strengthening recovery in this region during 1999, and a further improvement in economic growth in 2000 and 2001. The rapid rate of increase in output in China in recent years is also expected to continue, although at a slightly lower pace than previously.
Economic activity in Latin American and the Caribbean, however, is forecasted to decline in 1999, affected by recessions in Argentina, Brazil and Venezuela. A moderate recovery to a pace of 3.3 per cent is forecast for this region in 2000. In contrast, economic growth in sub-Saharan Africa is expected to rise slightly in both 1999 and 2000, but some deceleration is expected in North Africa. In West Asia, following continued negative growth in 1999, some recovery from the deflationary oil price declines of 1997 and 1998 is expected in 2000 as oil prices strengthen.
The outlook for world trade growth reflects the slow rate of expansion of the world economy. World trade growth slowed in 1998 to a rate of 4 1/2 per cent for the year and this reduced pace is expected to fall to only 2 1/2 per cent in 1999. It was noted during the discussion, however, that the benefits of a supportive international economy are not automatic and require active policies on the part of governments.
In their review of the global outlook, participants emphasized that unemployment is likely to remain a major problem in Europe and many developing countries. Only a modest decline in the unemployment rate is foreseen in Europe in 1999 and 2000, but it is expected to rise significantly in Japan. In this regard, it was noted that unemployment in many developing countries -- particularly those in South and East Asia -- has risen significantly under the
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impact of the financial crisis and remain extremely high and a potential for social disruption in other countries.
A review of the outlook for economic growth and international trade in different world regions will be the focus of meetings on Tuesday and Wednesday. Lectures on the global financial crisis, European Union enlargement and problems of economic modelling are also scheduled for the rest of the week.
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