The international outlook.

• Author: Hauskrecht, Andreas
• Position: Economy - Statistical Data Included

Economic growth in the world in 2001 was projected at 2.6 percent (measured in terms of real GDP), compared to growth rates of 3.6 percent in 1999 and 4.7 percent in 2000. The International Monetary Fund in Washington forecasts world economic growth for 2002 at an optimistic 3.5 percent (1) without, or incompletely considering, the economic consequences of September 11th's tragic events. The Organization for Economic Co-Operation and Development in Paris predicts a modest growth rate of around 1.2 percent for the 30 most developed countries in 2002. (2)

In contrast to the past decade, the world currently lacks a growth locomotive. One has to go back almost three decades, to the year 1973, to find the coincidence of recession in the world's three largest economic areas, the U.S., Europe, and Japan. Events of September 11th contribute to the gloomy economic outlook, but are not the primary force of the worldwide economic slowdown.

The developing countries, especially those in Asia, face a sharp decline of economic growth rates for this and the following year, in particular due to sluggish demand for imports in the industrial centers. South America has been negatively affected by the sudden drop of capital imports from the United States and Europe.

Forecast by Region

The core European countries have recently cut back their growth estimates for 2001 and 2002. Germany expects a mere 0.7 percent growth for this year and a modestly higher 1.0 percent growth rate for the coming year. France, Italy and the UK expect only slightly higher economic growth, between 2.1 to 2.3 percent for 2002. These moderate growth rates and the slow pace of necessary reforms, above all labor market reforms, will keep unemployment rates at existing high levels of around 12 percent for Spain and around 8 percent for the three big continental European countries, France, Germany and Italy (see Table 1).

The main causes for the continued growth weakness of Europe is its dependence on export growth and sluggish internal demand (investment as well as consumption expenditures). Despite these facts, neither national governments nor the European Central Bank (ECB) seem to be implementing appropriate counter cyclical policy measures. National governments see their hands tied by their commitment to reduce domestic debt, thereby limiting the scope for fiscal expansion. The ECB, still an untested institution, is fighting for its reputation and the future strength of the euro. This...