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Posted on: Monday, January 1, 2001

Global outlook for 2001 upbeat

Associated Press

NEW YORK - Some economic predictions for 2001: Asia’s economies will keep recovering, U.S. growth will slow but still outpace Europe, and certain Latin American countries will thrive.

"The overall outlook remains relatively favorable: Inflation should remain subdued and economic expansion should continue," the Organization for Economic Cooperation and Development said in a November report .

Paris-based OECD envisions a global economic growth rate of 3.2 percent next year, down from 4.2 percent this year. But it added that inflation fueled by higher oil prices remains a concern.

High oil prices, tighter monetary policies and plunging stock markets have prompted Deutsche Bank Research to scale back its growth forecasts for next year to 3.5 percent.

"All the same, our global outlook for 2001 remains relatively upbeat," the DBR said in its Economic & Financial Outlook. "As things stand today, it appears rather unlikely that the world will slide into recession."

The International Monetary Fund sees a rosier picture for the world economy in 2001 - it is projecting a healthy 4.2 percent expansion.

In the United States, an array of new forecasts predict relatively good times, despite high crude prices and fears that sliding stock prices will further slow an already slowing economy. Many economists think the Federal Reserve will soon have to cut interest rates, perhaps at its next meeting this month, to make sure that the slowdown doesn’t worsen into a recession.

An exploding trade deficit is a flaw in the otherwise remarkable U.S. economic expansion in the past decade. The IMF projects that America’s current account trade deficit, which soared to an all-time high of $339 billion in 1999, would widen further to $419 billion this year and $461 billion in 2001.

On top of that, U.S. industrial production, consumer confidence and spending all have fallen off sharply of late.

"However one looks at it, the economic data recently have been quite negative, and the possibility of a serious hard landing is rising," said Allen Sinai, chief economist at Decision Economics in New York.

U.S. analysts surveyed quarterly by the Federal Reserve Bank of Philadelphia raised their growth forecasts for next year while reducing inflation predictions. The analysts expect the U.S. economy to grow at an annual rate of 3.3 percent in 2001, far slower than the 5.2 percent growth predicted for 2000.

Asia continues rebound

Demand for Asian goods and a recovery in electronics prices are helping Asia rebound from its economic crisis with growth of 7.1 percent expected this year and 6.4 percent in 2001, according to Asian Development Bank, whose forecasts exclude Japan.

Japan, the world’s second-largest economy, is showing signs of recovery, including increased business investment, but fears about another downturn remain due to continued weak consumer spending and a surge in bankruptcies, Asian economists say.

The risks are worse for 2001 and 2002 because layoffs and other restructuring efforts may prove disruptive, especially in the real estate, construction and financial sectors. Generally, however, Japan’s GDP looks set to expand by roughly 2 percent in 2000 and 2001.

Economic growth in the 15-nation European Union peaked this year at 3.4 percent, its highest level since 1989, according to EU forecasts released last month. The European Commission said growth should remain strong next year, although higher oil prices could take a toll. The forecasts put GDP growth at 3.1 percent in 2001 and 3 percent in 2002.

The commission said the beleaguered euro currency shared by 11 EU nations should recover somewhat in 2001.

Worry about U.S. slowdown

The economies of Latin America are set to grow 4.2 percent on average in 2000 and 4.5 percent in 2001 after remaining basically flat last year, with Brazil, Mexico and Chile leading the pack. But a threat has emerged from beyond its shores: a slowdown in the United States, the region’s largest trading partner and investor.

Mexico, which has linked its economic fortunes to the United States through the North American Free Trade Agreement, is the most vulnerable Latin nation. Brazil, a larger and more inward-looking economy, is more insulated from outside influences, while Argentina is extremely sensitive to any gyrations in the global economy.

While Mexico’s economic growth is forecast at 4 to 5 percent in 2001 and Brazil’s at 3.8 percent, Argentina’s growth this year will be below 1 percent. But it will recover and grow 3 percent in 2001, predicts Deutsche Bank Research.

In other expected developments in 2001:

China is on the brink of change. Beijing hopes to join the World Trade Organization early in the year as a way to secure export markets and foreign investment. Propping up growth is a necessity for the communist government, which is troubled by bubbling unrest as unemployment levels rise.

High oil prices helped Russia continue its recovery from the devastating economic crisis of two years ago. Gross domestic product grew for the first time since the Soviet collapse. But Russia owes $148 billion in foreign debt, much of it a hangover from the Soviet years. Some $3 billion to foreign creditors comes due next year.

Economic development in the former communist countries of eastern Europe and central Asia will be higher in 2000 than at any time since the fall of the Berlin Wall in 1989. The U.N. Economic Commission for Europe predicts that the GDP for the 27 nations of the region will grow by more than 5 percent this year - matching North America - before falling back to 4.2 percent in 2001.

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