World Economic Outlook, May 2001

• Author: Maitland MacFarlan
• Pages: 10-

Page 10

In its global overview, the May 2001 World Economic Outlook (WEO) discusses the significant weakening in prospects for world growth, led by a marked slowdown in the United States, the stalling recovery in Japan, and moderating growth in Europe and in a number of emerging market countries. The WEO noted that some slowing in the recently rapid rates of global growth is desirable, especially in countries most advanced in the cycle, but that the current deceleration is steeper than expected. The overview also emphasizes the considerable uncertainty in the outlook: while some pickup in activity is expected later in 2001, supported by lower interest rates and, in some countries, an easing of fiscal policy, a deeper and more prolonged downturn is also possible. Contributing to the latter concerns are the substantial imbalances that arose in the United States during the expansion-including the large current account deficit, the apparent overvaluation of the U.S. dollar, the negative household savings rate, and highly valued equity markets-developments that could unwind in a disorderly manner.

The latest WEO looks at different aspects of globalization in three essays. The first essay examines the impact of the global stock market correction on consumption and investment. It presents new evidence suggesting that the impact of changes in technology stocks on real activity may be more comparable across countries than the impact of changes in nontechnology stocks, possibly reflecting the more widespread holdings of the former types of shares. Recent exchange rate movements among the major currencies are assessed in the second essay. Noting the significant increase over recent years in portfolio equity flows to the United States, particularly from Europe, this essay provides empirical evidence suggesting that the strength of the dollar may be due, in part, to market expectations of a relatively strong U.S. growth outlook compared to other regions. The third essay looks at the growth in regional trade initiatives, focusing on sub-Saharan Africa. The essay assesses the success of these initiatives and suggests policy approaches for increasing the momentum of African trade, including through further lowering of trade barriers in advanced economies.

Two background chapters are included in the publication-one assesses recent improvements in fiscal positions in advanced economies, and the other analyzes the decline in inflation in emerging markets...