Magazine article Economic Review

The World Economic Outlook and Developing Countries: A Review of 1990

Magazine article Economic Review

The World Economic Outlook and Developing Countries: A Review of 1990

Article excerpt

The World Economic Outlook and Developing Countries: A Review of 1990

Both industrial and developing countries experienced a slowdown in economic growth in 1990. Industrial countries' growth fell to 2.5 per cent, down from 4.4 and 3.4 per cent in 1988 and 1989, respectively. In developing countries the slowdown was even sharper with output growth of only 2.3 per cent in 1990, compared to 5.5 per cent in 1988, reflecting a contraction of output in Eastern Europe and some Latin American countries. In line with the global economic slowdown, the rate of expansion of world trade also declined from 7 per cent in 1989 to 5.5 per cent in 1990.

The average figure for economic growth in industrial countries conceals large differences in individual country performance. In the United States output increased by only 1.1 per cent, while in Japan it reached 6.3 per cent in 1990. In Europe, Germany also enjoyed healthy growth due to rising consumer and investment demand coming from the east. Conversely, the United Kingdom started showing signs of a recession and achieved only 1.3 per cent growth in gross domestic product.

The Gulf crisis in the second half of 1990 had a negative impact on most developing countries through higher energy prices. The growth rate in oil importing countries dropped from 2.9 per cent in 1989 to 1.7 per cent in 1990. At the same time, a substantial fall in non-oil commodity prices in 1990 reduced income to many developing country exporters. Slowing imports by the United States and the low dollar have also begun to hurt those developing countries strongly tied to the United States. On the other hand, some of the East and Southeast Asian economies such as South Korea, Malaysia, and Singapore benefited from trade expansion within their region and grew at rates of 9.2 per cent, 9.4 per cent, and 8 per cent, respectively. Prospects for 1991 and Beyond

The global economy will continue to expand in 1991, but at a lower rate than in the recent past. The forecast is for growth of 1.2 per cent in 1991, compared to 2.1 per cent in 1990, 3.3 per cent in 1989 and 4.5 per cent in 1988. The outlook for 1991 is less comforting than appears at first glance due to the higher level of uncertainty about the future that exists now compared to the same time last year. Uncertainty over the extent of current downturns in the US and parts of Europe point to the need to interpret these forecasts with caution. The remainder of this section provides more detail on each geographical region, and also describes further some of the sources of uncertainty in the outlook.

Industrial country economies are expected to grow, on average, by 1.3 per cent in 1991. This figure is down only marginally from the sluggish growth that characterized 1990 (2.5 %), but down substantially from the more vibrant years of 1989 (3.4 %) and 1988 (4.4 %). This average, however, masks considerable variation within the countries that make up the figure. The US lies at one extreme, with negative growth in the first half of the year, but with an expected rebound in the second half to produce an overall increase of 0.2 per cent. At the other extreme lie Germany, still enjoying the effects of reunification, and Japan. Both are expected to maintain strong growth (2.8 and 3.6 % respectively), albeit not as strong as in recent years. For the remainder of western Europe, except the UK which is expected to match the performance of the US, prospects are less cheerful but, in general, not gloomy.

The immediate outlook for developing countries overall is for an increase in growth to 3.1 per cent in 1991, with further expansion in 1992 to 4.3 per cent. It should be noted, however, that this optimistic forecast is dependent upon a continuation of structural adjustment policies that already are facing political difficulties in a number of highly indebted countries and upon a more impressive supply response than has hitherto occurred. …

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