Global Expansion Likely To Continue

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The news from the October 1996 World Economic Outlook is encouraging-for both the short term and the medium term. The IMF's biannual survey of global economic prospects and policies envisages satisfactory growth or recovery for most countries-industrial, developing, and transition-all over the globe. At the same time, many countries will need to address persistent or potential weaknesses and imbalances to share fully in the current expansion.

World output growth slowed slightly to 3 1/2 percent in 1995 from 3/4 percent in 1994 (see chart). The slight faltering of growth in 1995 reflected a significant weakening in many industrial countries in western Europe as well as in the developing countries of the Western Hemisphere. Elsewhere in the developing world, growth was generally well maintained, notably in Africa. In Asia, growth, though remaining rapid, has moderated somewhat since 1994, allaying concerns about overheating. Among many countries in transition to market-based systems, output declines abated further, while others, having successfully turned the corner, grew vigorously.

Short and Medium-Term Prospects

Notwithstanding the disappointing performance in western Europe in 1995, the World Economic Outlook sees the global economic expansion continuing at a satisfactory pace in 1996-97 and over the medium term. The near-term outlook is for a slight pickup to 3 3/4 percent in 1996 and a further strengthening to about 4 percent in 1997. These projections are based on expectations that the United States will grow at or near potential and that activity in much of Europe will strengthen in the second half of 1996 and in 1997. Among the Western Hemisphere developing countries, the recovery from the Mexican financial crisis of late 1994 is projected to gain momentum. Economic conditions in other developing countries, in Africa, the Middle East, and Europe are also expected to improve-although growth will remain uneven across countries. Growth in the Asian developing countries is expected to moderate but remain high. For the countries in transition, aggregate output is projected to stabilize in 1996 and grow significantly in 1997 for the first time since the process of transition began.

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Scanning the medium-term horizon, the World Economic Outlook predicts reasonably encouraging prospects for the world economy. Assuming that established policies of national authorities remain unchanged, IMF staff projections call for a strengthening of world growth to an average annual rate ofPage 2 Many countries in the European Union (EU) have yet to share fully in the current expansion. These countries need to address deep-seated structural and macroeconomic weaknesses, including, in some cases, difficulties in their banking systems. In much of continental Europe, the policy mix has shifted toward tighter budgetary policies and easier monetary conditions- in response to the faltering of growth in the second half of 1995 and in view of the approaching deadline for bringing budget deficits to 3 percent of GDP (1997 is the test year for deciding which EU...