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UN report on world economy.

The UN is forecasting that world trade will grow by 4.5 per cent anaemic growth rates in developed market economies (Japan 2.6 per cent, United States, 2.3 per cent, Europe, 1 per cent), and that a strong sustained economic upswing is unlikely. It says that there will be no overall improvement unemployment of inflation rate.

Although the slow recovery of the world economy is expected to continue in 1993, the projected output rise of two per cent has been revised downwards by the United Nations for the second time, according to a UN report. Christian Ossa, director of the Development Policy and Analysis Division of the Department of Economic and Social Development (DESD), said that downward revisions of performance of industrial countries and also of their short-term outlook had been a feature of the 1990s.

He said virtually all other international institutions, including the International Monetary Fund (IMF) and the Organisation for economic Cooperation and Development (OECD), had been too optimistic about the possible strength of the recovery.

Ossa expected a very modest acceleration of growth in developed market economies. However, for the first time in the 1990's expansion in the United States economy was expected to be faster than that in the European Community and even Japan. Nothing that for the third consecutive year, per capita incomes in developing countries as a group would grow faster than those incomes in developed market economies, he said overall output for developing countries might expand at a rate of 5 per cent in 1993. It would be the highest rate in the last 13 years, and was well above population growth.

But, rapid growth would remain concentrated in a dozen countries in Asia and a few Latin American economies, he said. In Asia, according to the report, significant trade liberalisation measures have been taken by Pakistan, India and Indonesia among others. Elaborating, Ossa said if religious conflicts in India proved to be transitory, as seemed likely, the subcontinent might achieve a rate of increase in overall output significantly exceeding the rate of growth of population.

Other highlights of the report on the world economy at the end of 1992 included; 1.5 per cent growth of developed market economies as a whole, transition economies output down by 18 per cent, and developing countries up by 4.5 per cent (Latin America and Caribbean, 2 per cent, Africa, 23 per cent, West Asia 5 per cent, South and East Asia, 5.5 per cent.)

The UN is forecasting that world trade will grow by 4.5 per cent anaemic growth rates in developed market economies (Japan 2.6 per cent, United States, 2.3 per cent, Europe, 1 per cent), and that a strong sustained economic upswing is unlikely. It says that there will be no overall improvement in unemployment or inflation rate.

However developing countries will grow at the fastest overall rate since 1970s, especially in Asia, many Latin American economies could be facing a slowdown, while a marginal improvement in the African growth rate is expected.

The report recommends that industrial countries should have contingency plans in case the economic strengthening doesn't continue and they should also strengthen policy coordination among themselves. For Latin America specially, the initial optimism of 1992 faded as the year progressed. Output in Brazil declined and 1993 was expected to be a lack lustre year for the region.

Ossa said that large domestic investments and the cumulative effects of increasing regional trade and foreign investment would maintain comparatively high economic growth in China and Southeast Asia.

He said that, while many former socialist countries would continue to struggle with economic reforms and declines in output. Czechoslavakia. Hungary and Poland were likely to experience a turn-around with positive growth next year.

A pervasive drought and political conflicts in many countries restricted economic expansion in Africa. The fall in price of primary commodities, particularly of tropical products had aggravated the situation even further.

The real price of several commodities exported by African countries in the last 12 months had been the lowest since the great depression of the 1930s.

Commodity Prices

Asked for an explanation of the falling commodity prices, Ossa said it was a long-term trend that had become evident in the second half of the 1970s due to miniaturization, energy savings of materials and changes in patterns of consumption. Also, he said, the former socialist republics had been large absorbers of raw materials.

The unusual configuration of economic and financial forces called for contingent policies in the major industrial countries.

Little anti-cyclical action would be required if confidence were restored and banks, after a period of retrenchment increased their loans to corporations and consumers and aggregate demand gathered momentum.

However, he said, more active government intervention would be necessary if the pervasive sluggishness of development market economies persisted. Western Europe could not afford rates of unemployment hovering around 10 per cent much longer.

Contingency assistance and international cooperation policies to support the reform process and increase investment in developing countries and transition economies were also required.

Many developing economies remained extremely fragile, especially in Africa and particularly after the pervasive drought and political conflicts of 1992.

Asked what impact the grim news contained in the report would have on foreign aid budgets for developing countries, he said there would be more resistance to any increase in assistance.

Furthermore, even though there was a serious commitment by many countries to contribute 0.7 per cent of gross domestic product (GDP), international development aid would inevitably stagnate if there was sluggishness in the economies of the donor countries. The Asian Development Bank (ADB) published the table projections for percentage growth in Asian merchandise trade for developing countries:
Asian Trade Projections
 Imports Exports
 1991 1992 1991 1992
Newly Industrialising Economies 14.1 16.7 16.1 16.7
Hong Kong 17.0 21.1 17.7 20.8
South Korea 12.2 14.5 18.0 15.5
Singapore 14.0 15.0 14.0 12.4
Taiwan 12.5 14.3 13.5 16.0
Southeast Asia 14.3 16.4 18.6 14.9
Indonesia 11.5 12.0 18.3 9.0
Malaysia 14.0 18.5 26.8 20.0
Philippines 7.31 1.5 1.2 9.0
Thailand 20.5 20.4 18.3 16.1
South Asia 10.9 14.5 6.1 9.3
Bangladesh 12.0 12.5 1.1 10.6
India 7.8 16.0 4.8 9.5
Nepal 20.9 12.0 6.5 8.0
Pakistan 23.0 12.2 12.0 7.8
Sri Lanka 6.4 9.5 7.4 10.3
China 18.0 14.0 19.0 17.0
Regional Average 14.4 16.2 16.0 15.7

Japan Sets 3.3pc Growth Target

Japan, faced with scant evidence of economic recovery, set itself a tough challenge when the cabinet endorsed a 3.3 per cent real economic growth forecast for the coming year. The Economic Planning Agency's (EPA's) forecast of Gross National Product (GNP) for fiscal 1993 starting April 1 was a hefty increase from the projected 1.6 per cent growth in the current fiscal year and was higher than forecasts by private economists. Explaining the sharp downward revision for the current year, Yoseki Nagase, Director-General of the EPA's coordination bureau, told a news conference: "We could not fully foresee the impact that asset deflation and protracted adjustment of capital stocks would have on the economy". The bursting of the economic bubble of the late 1980s has pushed down property prices to the level where unrealised losses have squeezed corporate profits and consumer spending. Car and consumer electronics makers are feeling the pinch now that Japanese households are flooded with durable goods after extravagance in the economic boom. Another EPA official said the government's 3.3 per cent GNP forecast was higher than those by private economists because the figure "has an aspect of a target for us to achieve."
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Publication:Economic Review
Date:Feb 1, 1993
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