World economy on the road to recovery

[Ulhas Joglekar]

15 December 1999
World economy on the road to recovery
NEW YORK: Asia's economic recovery seems likely to pick up steam in 2000,
propelled by South Korea. Latin America's economy is projected to grow 3.3
per cent, more than the European Union's. Even battered Russia could show
modest growth, benefiting from a steep rise in world oil prices in 1999.
Stock markets are booming almost everywhere - but especially in Brazil, Hong
Kong, India, and Mexico.
After a turbulent year in which the International Monetary Fund disbursed
record funds to help beleaguered countries cope with economic trouble, the
182-nation lending organization said the world is beginning to recover from
the worst ravages of the 1997-98 financial crisis.
"Global economic and financial conditions have improved markedly... The
world economy appears on the mend," the IMF said.
The organization forecast the global economy to expand by 3 per cent in 1999
and an even better 3.5 per cent in 2000, representing an upward revision
from IMF projections made last spring.
IMF's annual report underscored the amount of financial resources the agency
has marshaled to help devastated economies get back on their feet: a record
$30 billion in loans handed out in the fiscal year ending on April 30, with
another $4 billion disbursed over the following four months.
After operating in the shadows of the burgeoning, high-tech U.S. economic
miracle through much of the '90s, Europe is bouncing back and growth should
accelerate next year.
The U.S. economy is demonstrating astonishing resilience even though the
Asian slump has dried up demand for American exports. The U.S. unemployment
rate held steady at 4.1 per cent in November, the lowest in three decades,
and there is little evidence of wage inflation.
Oil remains key to many economies in the Middle East, where Saudi Arabia and
Iran are the region's two oil giants and the top producers in the
Organization of Petroleum Exporting Countries. They have pledged to continue
cooperation that was, in part, responsible for cutting production and
driving up prices.
"If the OPEC and non-OPEC producers who are acting in concert to control
production continue their discipline, prices are expected to remain firm
throughout next year," said Manouchehr Takin, an analyst at the London-based
Center for Global Energy Studies.
Prices per barrel "are expected to remain between $20 and $25, and if
production regulation continues, then prices could go up even higher than
$25 next autumn," Takin said.
U.S. officials have warned the United States is prepared to act to drive
down oil prices if they continue to rise, saying world prices are "drifting
into dangerously high levels."
Since the financial markets collapse in 1997, many Asian countries have
started the long process of economic reforms, including corporate and
banking restructuring. But the journey is just beginning, and problems like
high unemployment and crippled real estate markets continue. If capital and
foreign investment remain scarce, Asia could face another crunch.
For next year, the Asian Development Bank has raised its growth forecast for
the region's emerging economies, saying they would post an average Gross
Domestic Product growth rate of 5.7 per cent in 1999 and in 2000.
South Korea's economy is expected to grow 9 per cent in 1999 - a huge leap
from a 5.8 contraction in 1998 - and at least 6 per cent in 2000, according
to the central Bank of Korea, making it the fastest growing Asian economy
and among the fastest in the world. Although memories of the Asian financial
meltdown are fading, the speedy growth rate of South Korea's economy is
likely to trigger a new worry: high inflation.
Japan, the world's second-largest economy, is also expected to show positive
growth in 2000, with the IMF predicting that its GDP will grow by 1.5 per
cent. Japan's growth for the fiscal year ending in March is expected to be
around 0.5 per cent.
Japan's recovery, however, will continue at a sluggish pace as long as
monetary policy remains loose and until long-awaited structural reforms are
implemented, the Organization for Economic Development and Cooperation said.
Half a world away, the picture is even brighter.
The Federal Reserve has raised interest rates three times this year to slow
the red-hot U.S. economy and keep inflation - currently about 2.9 per cent -
under control.
The sizzling American economy, stoked by strong consumer spending, zoomed
ahead to an annual rate of 5.5 per cent in the third quarter, the best
showing since the end of 1998. Economists expect the central bank will bump
up rates again early next year, given continuing strong growth.
On the other side of the Atlantic, the 15-nation European Union's economy,
which languished behind a booming United States this year, is projected to
grow 3 per cent in 2000, up from 2.1 per cent in 1999, outstripping
forecasts for U.S. growth, the EU's executive body said.
The latest figures are even better than those recently released by the IMF,
which forecast 2.7 per cent EU growth next year.
The European Commission said the U.S. economy would dip from a 3.8 per cent
growth rate in 1999 to 2.8 per cent next year and 2.5 per cent in 2001.
However, U.S. economists have forecast economic growth in 2000 at between
3.0 per cent and 3.7 per cent.
The EU's buoyant figures are a tonic for the union in the first year since
11 of its members adopted the euro as their shared currency. (AP)
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