|
 |
 |
|||||||||||||||||||||||||||||||||||||||
|
|
|
Economic Outlook for 2004 I. Global Economy - Good news and bad news. The Economist reports that the world Gross Domestic Product (GDP) will grow at a healthy rate of 5% in 2004 - and is predicting a rate of 4.3% for 2005, almost as good as this year. This is good news for both developing and advanced countries as it means that there will be more possibilities for aid from the OECD countries to the less-developed ones and there will be a better opportunity for exports from the poorer countries to the others. The cautionary side of this report is that the growth depends on four factors, any one or more of which could turn negative in the fairly near future. 1. Oil prices have exceeded $50 per barrel for the first time and do not look to be retreating. Demand has increased significantly, mostly because of developments in China and the U.S. continuing requirements for gasoline. If oil prices rise higher, corporate profits and household real incomes will be affected and this could slow growth in all countries. 2. American consumer spending continues to be a vital part - 2/3 - of the U.S. economy. We have been very good at keeping our consumption levels up but real wages and salaries are rising at a very slow pace compared with the past. If consumer spending drops off, it would be bad for the U.S. and the world economies. 3. The Economist notes that "never before have house prices been rising so fast in so many countries." It is hard to imagine that the current pace of increases can continue and there might even be a global fall off in prices. If house prices were to collapse, there would be a significant negative effect on the economies of many countries. 4. China 's economy could be a problem for the rest of the world as well as itself. China 's GDP grew at a rate of 10% in the second quarter of 2004 but the government is reluctant to use accepted macroeconomic tools - such as allowing the exchange rate of the Yuan to rise - to keep this under control. This could lead to an economic slump in China which would at the least cause problems in the rest of Asia . The bottom line is that the outlook for the world economy is "scary" according to The Economist and other economic experts. II. Debt Relief for Poor Countries - more talk. In advance of the fall meetings of the World Bank and the IMF, talk again is turning to the problem of the Heavily Indebted Poor Countries (HIPC). Despite all the work of Jubilee 2000, the debt problem persists. The U.S. and the UK are touting different plans to deal with the part of the debt owed to international financial institutions (IFI's) and governments. The U.S. proposes writing off all official debt and turning in future to grants only for very poor countries but has not offered new funds for the IFI's so that plan would severely restrict the ability of the latter to help in future. The UK proposes help for all countries with official debts and has offered to contribute funds to help with debt servicing but has not received much support from other wealthy nations. The bottom line is that proponents of debt relief are encouraged by the discussions but in fact have little hope that there will be much progress at the fall meetings of finance ministers in November. Author: The Honorable C. Edward Dillery
|
|
||||||||||||||||||||||||||||||||||||
