Title: International Economic Outlook: Fiscal Constraints Lead to Recessionary Growth and Trade Stagnation
Abstract: I. Economic Outlook Following an economic expansion at an average annual growth rate of 3.2% during 1985-90, the industrialized countries have entered recessionary-growth phase in the global business cycle, which is not similar to past recoveries. Our central forecast for growth in the OECD countries shows modest expansion of 1.7% this year and 2.4% in 1994 after an anemic recovery in the last two years with growth rates of 0.6% in 1991 and 1.4% in 1992, which indicates that the current global economic upswing is expected to remain below historic levels of world-wide recoveries. Our forecast for recessionary growth in the world economy rests on two factors: First, the persistence of the structural changes that during the last three years have restrained economic growth. In most industrial countries these structural problems include restructuring and downsizing in major industries, weak labor markets and low levels of consumer confidence, uncomfortably excessive corporate and household debt levels, and finally overcapacity and asset price deflation. Second, the analysis of the effects of restrictive fiscal policies in major industrial countries. In particular, most of the deficit reduction in the United States and Canada will come from higher taxes that will dampen corporate investment and consumer spending. In Europe, the cost of unification in Germany and cyclical factors in other countries have increased budget deficits. The fiscal criteria for the European Community's economic and monetary unification (EMU) will lead to deficit reductions by increasing taxes and social security contributions. In Japan, despite the passage of several stimulus fiscal measures, implementation will be smooth in the Diet and the effects upon the economy are expected to start late in 1994 with projected modest contribution to the economy's growth rate of about 1.0%. In sum, fiscal policy in the industrial countries has been designed to improve current budgets and increase spending through new taxation. This is likely to reduce demand, restrain recovery and delay economic performance at long-term rates of growth. World trade growth is expected to stagnate, essentially world trade will not rise more rapidly than world industrial production. Increased trade resulting from the openness of China and the rapid growth in trade flows within the North America countries may not be sufficient to counterbalance movements for saving jobs, the failure to conclude the Uruguay round of multilateral trade negotiations, and the expected slowdown in the European markets. The volume of global trade is forecast to increase by an average 5.0% rate per year during 1993-95, following 3.9% growth rate last year and 4.6% rate in 1991. In the short-term, therefore, our forecast on world trade growth does not show any repeat of the peak performance achieved in 1988 when world trade rose by 10%, about twice the growth rate of industrial production in the OECD countries. In our last forecast prepared in January, we predicted for the United States economy a slowdown in economic growth in the first half of the year with high probability of declines in industrial output in the fall. The current revision of the GDP growth in the first quarter at rate of about 1% and declines in consumer confidence and business executives expectations confirm our short-term forecast for the US economy. At the same time, the administration and other forecasters continue to project growth rates between 3% and 4%. Our current forecast for the United States, derived within the global economic and financial environment, shows the economy to grow by 1.8% this year and 2.5% next year, while inflation will steadily accelerate reaching 5% in the last quarter of 1994. In Japan, the government's new budget became effective April 1st, the beginning of the 1993 fiscal year. On April 13, the government also finalized third fiscal stimulus package that will see smooth implementation to become law during the current Diet session. …
Publication Year: 1993
Publication Date: 1993-07-01
Language: en
Type: article
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot