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UN Not Sure If World Economic Growth Can Last
The immediate prospects for this year have improved with growth expected to exceed three percent, but much depends on whether the economy in the United States can land safely and whether the fitful performances of Europe and Japan can be converted into something more dependable, the United Nations said in a report released here Tuesday.
"Despite healthy signs in the world economy this year, large imbalances in growth, external payments and capital flows remain," said the United Nations Conference on Trade and Development (UNCTAD). "With adjustment of these imbalances falling on monetary policy alone, a smooth correction is not guaranteed."
In its trade and development report, 2000, UNCTAD said that the world economy pulled itself back from the brink last year, largely due to unexpected events, including the continued strength of the US economy.
The United States continued its longest period of expansion in modern history, helped both by massive capital inflows, short and long, and by new technologies, according to the UN agency. But economic growth above four percent and imports rising by 12 percent are now unsustainable. Events of the 1970s and 1980s showed how abruptly the willingness of overseas investors to hold dollar-denominated assets can disappear.
UNCTAD said that Europe stumbled last year as differential growth performance inside Euroland complicated the search for a common monetary stance and the European Central Bank (ECB) struggled to find an independent policy position against the backdrop of closely integrated global financial markets.
In Asia, Japan picked up in 1999, helped by recovery in East Asia. However, UNCTAD cautioned, private spending remains fragile, leaving a lot hanging on exports and public spending although prospects look healthier still this year.
"Growth in both Europe and Japan is vulnerable to any hike in US interest rates and a sharp slowdown in that economy," UNCTAD said in the report. "Recent US experience holds important policy lessons for reducing unemployment in Europe and managing the budget deficit in Japan."
As for developing countries, UNCTAD said that Asia was the big success in 1999 with growth exceeding five percent. The big economies of India and China, where growth was around seven percent, performed above average. Policy makers across the region will be following China's WTO accession talks very closely.
Conditions deteriorated in Latin America in 1999, with per capita income contracting for the first time since 1990, according to the UNCTAD report. However, Mexico, with close links to the US economy, bucked this trend, and some of the smaller Caribbean economies posted healthy growth.
Africa also saw growth stagnate in 1999, UNCTAD said. Weak prices for some commodities, political conflicts and the weather proved too much of a burden across many parts of the continent. But UNCTAD noted some positive signs in north and east Africa, where growth was above the regional trend, and the worst appears to be over in Nigeria and South Africa.
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