Summary by Maitland MacFarlan and Torsten Sløk
The October 2000 World Economic Outlook (WEO) states that global growth in 2000 is expected to be the strongest it has been in over a decade, with robust or strengthening economic activity in almost all regions of the world. In 2001, although slowing, world growth is expected to remain at a high level. Some important risks are mentioned too in the outlook, including persistent imbalances in growth rates and current account positions among the major currency areas, currency misalignments, generous stock market valuations, and increases in oil prices.
The WEO presents a more detailed look at recent productivity improvements in the United States and in other countries in Chapter II, focusing on the linkages with “new economy” features, stock market developments, and the recovery of capital flows to emerging markets. The chapter highlights the growing importance of the information technology sector and its association with historically high price-earnings ratios in global stock markets, greater volatility of equity prices, and stronger international linkages of stock prices. Most signs of a new economy are in the United States, but new economy features will almost certainly spread to other industrial countries—albeit with uncertain speed and scope. Uncertainties of a new economy also present challenges to policymakers, notably the difficulties in identifying economic shocks and determining appropriate policy responses when the productivity growth rate is both uncertain and changing. Included in Chapter II is a review of recent developments in commodity prices, noting the negative terms of trade shocks faced by many nonfuel-commodity-exporting countries, and the particular difficulties these shocks have created for poverty-stricken countries in Africa.
Two other chapters of the WEO focus on the countries that have been moving from centrally planned to more marketbased economic systems over the past decade or so. Chapter III assesses the overall transition process to date and the key policy lessons, including the experiences of China and some other east Asian economies, while Chapter IV focuses on the prospective enlargement of the European Union (EU) to include countries of Central and Eastern Europe and the Baltics. Considering the transition process as a whole, the WEO observes that many countries have made substantial progress in achieving greater macroeconomic stability and introducing essential structural and institutional reforms. Nevertheless, significant differences are still apparent. Particularly striking is the much stronger output growth among some Asian economies—China, Cambodia, the Lao PDR, and Vietnam—compared with other transition economies in Eastern Europe and the former Soviet Union. The WEO concludes that the rapid growth in east Asia largely reflected more favorable initial conditions such as the relatively smaller role played by big, state-owned industrial enterprises and a large agricultural sector, which boosted output and provided a pool of surplus labor for new business. In other transition economies, large state enterprises needed rapid reform and agricultural sectors tended to be smaller.
In general, the transition process outside of east Asia has proved to be more difficult than expected, with output initially falling rapidly, poverty increasing, and vested interests often slowing the implementation of structural and institutional reforms. The overall better performance of the EU accession countries reflects not just their more favorable starting conditions, but also their stronger commitment to reforms—the latter probably supported by accession requirements.
A number of background studies were prepared by the IMF staff for the October 2000 WEO: Tamim Bayoumi and Benjamin Hunt, “New Economy or Not: What Should the Monetary Policymaker Believe?”; Beatrice Weder, “Institutional Reform in Transition Economies; How Far Have They Come?”; Erik Berglof and Gerard Roland, “From ‘Regatta’ to ‘Big Bang’?: The Impact of the EU Accession Strategy on Reform in Central and Eastern Europe”; and Mark de Broeck and Torsten Sløk, “Interpreting Real Exchange Rate Movements in Transition Countries.”
These papers are or soon will be available on the Research at the IMF website at http://www.imf.org/research. The October WEO can be found in full-text format at http://www.imf.org/external/pubs/ft/weo/2000/02/index.htm. The next issue of the WEO will be available on this website at the end of April 2001 and the published version will be available in May.