Academic journal article The Journal of Business Forecasting Methods & Systems

International Economic Outlook

Academic journal article The Journal of Business Forecasting Methods & Systems

International Economic Outlook

Article excerpt

THE WORLD ECONOMY IN 2010

I. The Long-Term Global Outlook

The baseline long-term forecast for the world economy through 2010 points to continuation of growth with a risk of a short-lived recession over the next three quarters and a cyclical global slowdown in the fifth year of the forecast horizon. The world's output is expected to grow at an average annual rate of 3.0% during the forecast period, 2001-10, which is below the thirty-year trend rate of 3.7% and one half percent lower than the long-term projection published last year. The downward change in the projected overall growth in the world economy reflects the economic fallout of the tragic terror events in the United States and the cyclical downswing of the technology sector that has weakened growth in the industrial countries. The stimulated by the "new economy" growth in the United States and other industrial countries with its positive effects on productivity, wages and inflation will follow a global life cycle moving to the developing world during this decade, particularly in Latin America and in the countries in transition. Consequently, the long-term outlook is for greater convergence in both economic growth and, especially, in inflation across regions and economic areas, which are at different levels of development.

The long-term projections of the baseline forecast for selected global economic, business, and financial key indicators to the year 2010 are presented in Tables 4 and 5. The countries are classified according to the International Monetary Fund' guidelines. The newly industrialized Asian economies of Hong Kong, Korea, Singapore and Taiwan, as well as Israel are now considered together with the group of countries traditionally known as industrial countries. The expanded group is labeled the "advanced economies" in recognition of the declining share of employment in manufacturing, common to all of these economies. The long-term scenario is based on the following developments regarding policies as well as trends in structural and supply factors in the global economy:

Fiscal Policy. The consolidation of fiscal policy in the United States and in Europe has ended and fiscal policies will be expansionary over the forecast horizon. In the nineties, political pressures in the United States for a balanced budget, combined with the requirement of convergence to low debt-income and deficit-income ratios for monetary unification in Europe, resulted in growth rates of government expenditures below those of potential output. As taxes rose in line with income growth driven by employment and productivity gains, government deficits as a percent of GDP declined substantially and changed to surpluses in many cases. Compared to 1994, the 2000 government budgets as a percent of GDP changed as follows in the major industrial countries: In the United States, from a deficit of -3.8% to a surplus of 2.4%; in Germany, from a -2.5% deficit to a surplus of 1.3%; in France, from a -5.5% deficit to a - 1.4% deficit; in Italy, from a 9.1% deficit to a -0.3% deficit; in the United Kingdom, from -6.8% deficit to a 1,8% surplus; and in Canada from a -6.7% deficit to 1.8% surplus.

Because of the recent weakening in their economies, fiscal policies in the United States and Europe will be expansionary with an emphasis on tax cuts. Their first round of tax cuts has been already in place this year to help struggling businesses to get back on their growth path. After the shock of September 11, a new round of tax-cuts is expected in both Europe and the United States to move their economies quickly out of an expected recession.

Japan's fiscal policy has not been synchronized with the other industrial countries. As the economy has been in a growth-recession phase of its business cycle in the last decade, Japanese fiscal policy was aimed to stimulate domestic demand and resulted in increased deficits and a level of national debt above 100 percent of the national income. …

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