If world economics is a jungle, nations are out for big game.
Over the last few years, they have tracked down and largely tamed
the inflation tiger. Now, another beast is attracting their
attention: budget deficits.
After two decades of running up debts, many of the world's
nations are making headway cutting annual deficits. If this
continues, it will help buoy the growth that is already occurring
in most corners of the world.
The latest evidence comes from the International Monetary Fund
(IMF). "World economic and financial conditions remain generally
encouraging ... and the global economic expansion is expected to
continue at a satisfactory pace in 1996-97 and over the medium
term," it said in its latest world outlook, released yesterday. It
forecast world output would grow 3.8 percent this year and 4.1
percent next year.
The expansion is taking place across the board. In the
industrialized countries, output is expected to edge up this year
and next, the IMF forecasts, thanks in part to the continued robust
growth of the US and a beginning recovery in Japan. Developing
nations can expect to see continued growth around 6 percent
annually, partly because of recovery in Mexico and Argentina and
some surprising strength in several African nations.
Even former communist nations are making progress, having
reigned in inflation that spiraled out of control as the new
democracies introduced market reforms.
There are several reasons for the continued growth, economists
say. One of them is that countries are beginning to get serious
about controlling deficits. For example:
*For all the hand-wringing about its budget mess, the United
States is doing quite well by international standards, economists
say. Of the 19 industrialized nations counted by the Organization
for Economic Cooperation and Development in 1994, only Norway had a
smaller relative deficit than the US (0.7 percent of gross domestic
product, the nation's output of goods and services, versus
America's 2 percent of GDP). By the end of this year, according to
the IMF, the US deficit should be down to 1.3 percent of GDP, the
lowest since 1979.
*Between 1992 and 1995, the average industrialized country saw
its deficit fall from 3.5 percent of gross domestic product to 2.5
percent. (A nation's deficits are often measured against the size
of its economy because, just like a family, the more it earns, the
more debt it can afford to hold.)
Some of the biggest laggards, the IMF says, are the nations of
the European Union. They are under pressure to get their deficits
down to 3 percent of GDP by next year to meet the targets necessary
for creating a single European currency. Today, only three European
nations meet the criteria. By the end of next year, the IMF
estimates, another six will have done so and the rest will have
made substantial progress. …