The World Economic Outlook for 1999

By Kemme, David M. | Business Perspectives, January 1999 | Go to article overview

The World Economic Outlook for 1999


Kemme, David M., Business Perspectives


The year 1998 has been tumultuous for the world economy. Currency crises in Southeast Asia, Russia, and Latin America led to massive movements of capital around the globe and the near collapse of the banking systems in South Korea, Indonesia, Malaysia, and Thailand. The stock market in Russia plummeted and spread shock waves through equity markets around the world. The crises in the smaller Southeast Asian economies coupled with a protracted recession in Japan, the world's second largest economy, and a significant slowdown in growth in the People's Republic of China have more or less brought the Asian miracle to a screeching halt. International Monetary Fund (IMF) rescue packages being implemented in Russia and Southeast Asia are designed to stabilize the domestic economies and build a base for recovery. In Brazil, a preemptive rescue plan was implemented to prevent a crisis. What does this portend for 1999, and what will be the impact on the U.S. economy?

Despite the around-the-world rush of hot capital and the resulting gyrations of the U.S. stock market, the U.S. economy is closing out another solid year of economic performance. Fortunately, all was not gloom and doom in the rest of the world last year either. There was no global economic crisis at all, just lots of little ones. Asia, China, India, and Taiwan will close 1998 with positive growth in Gross Domestic Product (GDP) at just over 7.5%, 5.0%, and 5.2%, respectively, and growth in these economies is expected to continue next year. Japan has suffered a decline in GDP of nearly 2%, and unemployment is reaching historic highs of over 4%. Japan is the only industrialized nation in the world now facing the losing end of the business cycle. Negative growth is still forecast for next year even though the Japanese government is enacting a massive government stimulus package and the fiscal deficit is expected to be huge at more than 10% of GDP. While the Japanese recession continued last year, it was the smaller, emerging economies that really hit the skids. Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, and Thailand are deep in the red, with a protracted recovery, at best, expected in 1999. For the moment, though, inflation is under control, averaging less than 10%, with the exception of Indonesia where prices skyrocketed over 80% this past year. The overall outlook for Asia depends upon whether growth in China can be maintained and the Japanese stimulus package is sufficient to pull the rest of Asia along. With lots of available manufacturing capacity, look for strong exports from this region to flow to the United States and Europe.

Overall, Latin American economies - Argentina, Brazil, Chile, Columbia, Mexico, and Venezuela, in particular - will close the year with relatively strong growth, from a low of about 1.5% for Brazil to nearly 7% for Argentina. On the negative side are the high inflation rates in Columbia (17.

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