World Economic Outlook, October 2001

• Author: Maitland MacFarlan
• Pages: 10-

Page 10

The October World Economic Outlook (WEO) was published in the midst of a particularly difficult and uncertain time in the global economy. Growth projections for 2001-02 were already revised downward in almost all regions of the world, compared with figures in the May 2001 WEO; downside risks in the outlook were further exacerbated by the September 11 terrorist attacks in the United States. Quantitative projections were finalized prior to September 11, but implications of the attacks are discussed in the main text of the WEO and in two separate boxes-one assesses possible effects on the global outlook, the other suggests some points of comparison with the 1995 earthquake in Kobe, Japan.

The WEO notes that the vulnerability of the global economy to adverse shocks has been heightened by the fact that there is now no major region that supports global activity, and by the strong cross-border linkages that are increasingly apparent across countries. These international trade and financial linkages, across both advanced and developing economies, are explored in detail in two essays. A third essay considers international linkages from the perspective of a possible new multilateral trade round. Further risks to the global outlook arise from external financing difficulties faced by some of the major emerging market economies, and from the pressures that slower growth in some countries could place on weak financial and corporate sectors (particularly in Japan). Given these concerns, the WEO emphasizes that macroeconomic policies need to remain supportive of activity to the extent possible, although there is limited room for maneuver in a number of countries-especially as result of relatively high levels of public deficits or debts. On the positive side, the WEO mentions several factors that should, in time, support economic recovery: these include the substantial macroeconomic policy easing already in progress; stronger economic fundamentals around the globe (including lower inflation and improved fiscal positions); and, in many emerging market economies, greater exchange rate flexibility and lower external vulnerabilities.

One background chapter considers the macroeconomic impact of the information technology (IT) revolution. To date, the IT revolution has largely followed the pattern of past technological advances-notably those associated with textiles production, steam power, railroads, and electricity-...