2001- Slow economic growth in the United States and weaker prospects for Europe
The short-term economic outlook for the Western market does not look very favourable. The main factor behind this is the unexpectedly sharp slowdown in economic growth in the United States since the second half of 2000, the stalled recovery in Japan and the weakening of growth in Western Europe itself, according to the Economic Survey of Europe 2001 published by ECE.
In the United States, real GDP is now expected to increase by only some 1¾ per cent in 2001, a very abrupt deceleration from an average growth rate of 5 per cent in 1999. In Japan, economic growth is expected to slightly exceed 1 per cent in 2001, and even that is uncertain given disagreements over economic policy and delays in introducing another economic emergency programme. Growth forces are seen to hold up somewhat better in Western Europe. In the euro area, real GDP is currently forecast to increase by some 2.5 per cent in 2001, down from 3.4 per cent in 1999 and half a percentage point less than what was being forecast last autumn. For the industrialized economies in aggregate, the average rate of economic growth is likely to be around 2 per cent in 2001, down from 3.8 per cent in 2000 and the smallest annual increase since 1993.
However, the current consensus of forecasts is that this will be followed by a strengthening of growth in 2002. But this could well turn out to be too optimistic and the cyclical downturn could well be more protected. Much will depend on the extent to which private households desire, or are forced, to adjust their expenditures (and savings) in response to the deterioration in economic conditions and the loss of financial wealth implied by the marked decline in equity prices (a fall which had still not bottomed out at the time of writing). Also the response of business investment to the cyclical downturn is currently difficult to gauge. Relatively large margins of excess capacity in the manufacturing sector will tend to weaken the accelerator principle which links net investment to changes in output. (This will add to the dampening effects of falling profits, higher financing costs associated with lower share prices and the need to reduce high levels of corporate debt.)
Strengthened performance in 2000 following impressive recovery in 1999
Following the impressive recovery in 1999, the economic performance of the region strengthened further in 2000. As in 1999, higher gross domestic product growth was achieved in a lower inflationary environment, despite higher energy prices. However, prospects for 2001 are mixed primarily on account of a less favourable external environment. Overall growth is likely to decelerate somewhat and inflationary pressures are likely to increase slightly during 2001. Needless to say, the performance of individual economies will vary.
For the long term, there is a need for population-related policies to minimize the adverse impacts of demographic changes on economic and social development. Countries suffering from population pressure and having relatively high fertility rates need to enhance their efforts to stabilize their populations. Countries with low fertility rates need to evaluate the implications of slower labour force growth on development.
Financing for development has acquired a new urgency in view of the difficulties faced by governments in raising sufficient domestic resources for investment in the backdrop of the increasing mobility of both capital and labour, the decline in official development assistance (ODA) and its highly uneven distribution, as well as the volatility of foreign private resources. The trends and issues related to financing for development are examined in Part II of the Economic and Social Survey of Asia and the Pacific 2001 and policy recommendations are made in the areas of domestic resource mobilization, external private re-sources, ODA and international systemic issues.
Latin America and the Caribbean's Exports rose 20%, in value, during 2000
Latin America and the Caribbean's exports rose 20%, by value, and 11%, by volume in 2000, the highest rate in a decade. Commodities, particularly oil, enjoyed a price increase. Large hydrocarbon exporters (Colombia, Mexico and Venezuela) headed sales, along with Chile. Imports of goods also rose, although less. With some exceptions, this brought down trade deficits or led to significant surpluses. In its Panorama of Latin America and the Caribbean's International Participation 1999-2000, ECLAC provides an analysis of four major issues: the international economy; trade, trade policy and market access; regional integration; and selected multilateral negotiation issues.
The report warns that the process of creating global markets is far from complete and that only financial markets come anywhere close to meeting the parameters required to qualify them as truly global. The free movement of labour faces all kinds of barriers, and markets of interest to the region remain subject to protectionist measures. Financial globalization has had a positive influence on national economies by allowing access to international financing and foreign direct investment, the report states. However, the impact of recent financial crises on some developing economies has been of such magnitude that financial instability can become one of the less promising aspects of the functioning of the world economy, the report notes.
Transnational companies' share of foreign trade grew significantly: from 18% in 1995 to just over 31% in 1999. In the case of Argentina, Chile, Mexico and Peru, these exports reached over 30%. In 2000, reactivation in Latin America and the Caribbean stimulated intra regional trade, which recovered the dynamic performance lost during the previous two years. Trade within the Andean Community rose 35%, within Mercosur 20%, and within the Central American Common Market 4%, although it remained below levels achieved in 1998.
Africa's fragile recovery
Africa made significant economic progress in the 1990s, with several countries sustaining double-digit growth. The climate became more conducive to domestic and foreign investment. Capital markets broadened and deepened. Demand for African manufactured goods increased in Europe and the United States. And in the second half of the 1990s real GDP growth in Africa averaged 4% a year, exceeding the continents high population growth rate of 2.8% a year. Export growth nearly doubled, to 8% a year. Real GDP grew by 3.2% in 1999, up from 3.1% in 1998, and in a clear departure from the past, no country in Africa experienced negative GDP in 1999. However, the good news masks some disturbing trends including increasing poverty and income disparity, and economic fragility due in part to low savings and natural disasters. Poverty in Africa is widespread and severe. In Sub-Saharan Africa 52% of people live on less than $1 a day (in 1995 dollars adjusted for purchasing price parity). In 1998 the average monthly expenditure was only $14 a person by the rural poor and $27 by the urban poor. That leaves 59% of rural poor below the poverty line, and 43% of the urban poor.
The recent economic recovery is reason for renewed optimism. But Africas recovery is fragile because its strong domestic savings do not underpin it, and its economies remain vulnerable to outside shocks. Indeed, economic growth for the decade averaged only 2.1% a year, less than population growth of 2.8% and considerably less than 7% growth needed to reduce by half the share of Africans in poverty by 2015, the internationally agreed target.
Despite substantial progress in reformmacroeconomic stabilization, deregulation, privatisation, trade, and exchange ratesstructural constraints and institutional weaknesses continue to inhibit a vigorous supply response. Most African economies still depend on primary products, exhibiting a high export concentration. Inadequate infrastructure increases the cost of doing business, making it difficult for Africa to fully tap its resources and to compete effectively in the global economy. The external debt overhang severely limits the capacity for sustained policy reform. Drought, disease, civil conflict, and poor governance make the situation worse.
Region experiences growth with low inflation
The real GDP growth rates varied significantly between countries as well as between the Gulf Cooperation Council (GCC) countries and the ESCWA members with more diversified economies. Estimates indicate that in 2000 the combined real GDP growth rate for the GCC countries as a group was 5 per cent, while in the more diversified economies, excluding Iraq, it was 3.7 per cent.
For most of the members with more diversified economies, labour market conditions in the year 2000 remained generally unfavourable for job seekers. Economic growth was not sufficiently high to provide job opportunities for the unemployed and accommodate the rising number of new entrants to the labour market. In the GCC countries, however, employment opportunities for nationals improved in 2000, owing to an acceleration in economic growth and the continued application of labour indigenization policies.
Inflation rates reminaed low in the region, as both the GCC countries and the members with more diversified economies were able to keep inflation under control. Preliminary estimates indicate that most members had inflation rates of less than 3 in 2000.
One of the most important issues for regional cooperation and integration is the facilitation of transport and trade between ESCWA member states. In 1999, the share of ESCWA member countries of their total exports did not exceed 5.5 per cent and their share of total imports was 9.3 per cent. Among the main reasons for this weak intra regional trade have been the complexity of border procedures, formalities and tariffs between ESCWA countries.