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Economic global outlook.

Economic Global Outlook

Global report issued by UNIDO forecast that industrialistion slow down which began in 1989 will continue through 1990 before growth again picks up in 1991. From 4.4 per cent growth in 1988, growth fell to 3.3 per cent in 1989 and is forecast to fall to 3.1 per cent in 1990, before climbing back to 3.7 in 1991. Developing countries are forecast to grow by 3.9 per cent in 1990 and 4.1 per cent in 1991 which is slightly faster than the expected growth in developed countries.

For developed countries UN agency report forecasts slower growth for 1990 at 2.8 per cent, followed by 3.5 per cent growth in 1991. Western Europe and Japan are expected to outperform North America substantially in both period, and Japan is forecast to maintain its growth leadover Western Europe. These projections take into account the dynamic conditions in Europe as the EEC approaches the goal of achieving a unified market in 1992, as rapid progress is made towards the unification of Germany, as the countries of Eastern Europe, including the USSR, restructure their economic systems to a greater or lesser degree along the lines of traditional market economies and as the cold war comes to an end. Such conditions, however, do increase the uncertainty surrounding this year's forecast.

The monetary authorities in the USA have at least so far succeeded in their attempt to slow economic growth without bringing on a recession. Interest rates have remained fairly high, the dollar stands higher than most forecasters had predicted and unemployment is low, at least by recent standards. Inflation has not been beaten back much, but it has not increased either. Wage gains in real terms remain low, a testimony perhaps to the successes over 10 years in eroding structural impediments to labour market competition. In forecasting 2.5 per cent growth for 1990 and 3.2 per cent for 1991 in the USA. Report is not assuming that the twin budget and trade deficit problems will be corrected, but that they no longer carry a significant threat to short-term economic stability. It assumes that a "soft landing" has been achieved and the conditions have been established for a gradual renewal of economic growth.

In Western Europe, GDP growth, after slowing a tenth of a percentage point to 3.3 in 1990, is forecast to reach 3.8 per cent in 1991, the highest rate in over 15 years. The main factors will be an acceleration of final preparations for the unification of the European market in 1992 and development in Eastern Europe. In the Federal Republic of Germany a continuing influx of workers from the German Democratic Republic will help to hold down wage pressures and allow the economy to achieve the very high growth rates that report is forecasting without unacceptably increasing inflation. It is forecasting that the rapid growth experienced in North America and Japan following recovery from the 1982-1983 recession is at last coming to Europe.

Japan will continue rapid grow at 5 per cent in 1990, but is forecast to spurt to 6.1 per cent in 1991. This is the highest growth rate in Japan since 1973. As GDP growth continues throughout 1991, the boom which will already be nearly 50 months old at the beginning of the year will exceed the previous record of 57 months by the third quarter of 1991. It is believed that the present high investment levels, stranger domestic consumption and high exports will continue to fuel growth throughout 1991.

While it is believed that in the medium term economic and political changes taking place in the centrally planned economies of Europe will result in a renewal of growth, the short term forecast is not very optimistic. The far-reaching changes will disrupt economic activity in the short run and reduce growth to near zero levels during 1990-91. The region as a whole is forecast to grow at 0.4 per cent in 1990 and 0.6 per cent in 1991. A decline of MVA of 0.3 per cent is forecast for 1991. The USSR is forecast to have zero growth in the next two years and the manufacturing sector is forecast to stagnate in 1990 and decline by 1.5 per cent in 1991. Growth in the neighbourhood of 3 per cent is foreseen only for the German Democratic Republic and Hungary. Unification of the economies of the Federal Republic of Germany and the German Democratic Republic, while it will lead eventually to rapid growth in the former, will also result in a disruption of existing production facilities. The growth in 1990 is forecast at 2.5 per cent increased and 3.3 per cent in 1991. Wage differentials will lead to a significant amount of migration from East to West which will hold down growth in wages but will allow per capita GDP to increase. The forecast growth rate of German Democratic Republic is slighter over half the growth rate of Federal Republic of Germany during the same period. The Hungarian, economy has been in the process of decentralizing its economy longer than other economies in the region, and despite Hungary's serious debt problem, the report forecast that Hungary is leader in growth both in 1990 and 1991. The willingness of the developed market economies to assist in the economic revitalization of these countries will be a factor in determining the extent and pace of their economic growth. Trade, direct investment and technology transfer are the main areas where assistance from the developed market economies could make the greatest contribution to economic growth.

The forecast for Latin America is for growth of 2.4 per cent in 1990 rising to 2.9 per cent in 1991. Manufacturing value added (MVA) is forecast to grow at about the same rate. Slow growth in the USA over the period and continued high interest rate will have a negative impact on the region. Brazil, having registered 3 per cent GDP growth in 1989, will experience a fall in growth over the next two years as efforts to reduce inflation continue. The manufacturing sector is forecast to remain torpid at growth rate of 0.5 and 0.8 per cent over 1990 and 1991, respectively. The sharpest fall is forecast for Chile, where it is expected that GDP growth will fall from 10 per cent in 1989 to 5.2 per cent in 1990, and slip further to 4.1 per cent in 1991. MVA growth is forecast to follow approximately the same declining trajectory.

Growth in Tropical Africa will pick up modestly to 3.5 per cent in 1990, before falling of slightly to 3.1 per cent in 1991. The economic fortunes of the region are still largely tied to commodity price developments, and UN report expects little improvement in Commodity prices during 1990-91. While for many countries debt over-hang will continue to stand in the way of renewal of growth, even some of the highly in-debted countries in the region will continue to maintain growth rates sufficient to lift per Capita incomes significantly.

Growth in India is forecast to remain lower than it has been during the late 1980s, mainly as a result of the emergence of balance-of-payments problems, which have resulted in import restrictions, and the need to cope with a persistent government deficit.

UNIDO report has not taken the short-term decline in the MVA growth rate of New Industrial Countries to presage a long-term trend. Countering the trend, Taiwan province experienced a very slight increase in MVA growth in 1989 over the very low 1988 level, up from 3.6 per cent in 1988 to 4.2 per cent in 1989. However, low labour costs and a generally favourable treatment of foreign investors will result in a large increase in foreign investment in Indonesia, Malaysia and Thailand and propel them ahead of the NICs as growth leaders in the region.

Growth in China will continue over the next two years to be limited by government austerity measures. While the Government will lift some measures to allow the partial restoration of growth, it is not likely that the pace and form of economic change experienced during the 1980s, will re-emerge. Economic sanctions imposed by some developed countries will continue to have a pronounced effect, but there are signs that they may soon be partially lifted. Report forecast of a recovery to 5.2 per cent growth over the 1990-91 period is based on the assumption, of a continuation of the government austerity measures and some form of sanction.

Report forecasts for 1990 and 1991 show the developing countries share of world MVA at 13.8 per cent in 1990 increasing to 14 per cent in 1991. This 0.2 percentage point gain is just above the average over the past 15 years. The report forecast that developing countries should produce 25 per cent of total world industrial output by the year 2000. It is none the less considerably below the approximately 0.5 percentage point yearly gain over 25 years that would be required in order to achieve the 25 per cent goal.

Report further forecasts that MVA in developing countries will grow at an annual rate of 5.4 per cent during 1990-91, which will be about one half to one percentage point higher than the average for five year period 1985-90, 4.8 per cent or for the earlier 10 year period from 1975 to 1985, 4.3 per cent. While growth over the 1990-91 period is thus some-what high by recent standards, it does not approach the levels achieved in the 1960s and early 1970s, when it was often in the 7 to 10 per cent range.

According to report developing countries will have a 25 per cent share of world MVA are tobacco manufacture, leather and fur products, textiles and petroleum refineries. The share of developing countries will be over 20 per cent in beverages other non-metallic mineral products and footwear. On the basis of report, the growth for 1990 of MVA in developing countries between 1985 and 1990 will be 4.8 per cent. For the same period, it turns out that, except for the leather and fur products industry, all of the industries with larger shares will grow at less than the average rate. On the other hand, the industries that grow fastest over this period in the world as a whole turnout to be those in which developing countries account for less than 10 per cent of world MVA. These are furniture and fixtures, printing and publishing, non-electrical machinery, transport equipment and professional and scientific goods. Developing countries have lost their world share over the past 15 years in three of these industries, namely furniture and fixtures, printing and publishing and non-electrical machinery.

Over the long run, it would be expected that developing countries would tend to have a larger share of world MVA industries that are more labour-or-natural resource-intensive. Developing countries have the largest shares in certain industries where natural resources play the most important role, as in petroleum refineries or labour costs are most important as in textiles, leather and fur products and beverages. It is likely that comparative advantage will play a larger role in the future if, as expected, trade liberalization in developing countries continues, and if pending a successful out-come of the Uruguay Round of negotiations within the framework of the General Agreement on Tariff and Trade (GAATT), trade barriers facing developing countries exports to the North are reduced. It is believed that this will help to bring about a more efficient global division of labour and ultimately work to the advantage of the developing countries.

Developing countries are also expected to continue to gain larger share of the older "smoke-stack" industries, which while contributing to industrialization are also a cause of environmental pollution. Environmental controls on these industries, which are becoming stranger particularly in Europe and Japan, are one of the factors that are giving a comparative advantage to developing countries where environmental controls are less strict. While this will contribute to industrialization, it also presents a challenge to the Governments of developing countries, which often lack the expertise to evaluate the costs and benefits of industrial pollution control regulations.
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Title Annotation:United Nations Industrial Development Organization's report and forecasts on global economy
Author:Islam, Mazharul
Publication:Economic Review
Date:Jul 1, 1991
Words:2051
Previous Article:'World Bank Development Report 1991.' (Global Outlook )
Next Article:Detailed Annual Plan, 1990-91.
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