1997-1998: IMPROVED ECONOMIC SITUATION IN THE UN/ECE REGION MAJOR UNCERTAINTIES FOR THE FUTURE
UN/ECE releases its latest Economic Survey of Europe in 1997-1998
- The economic situation improved significantly in much of the ECE region in 1997.
- In the western market economies (western Europe and North America) it was the best year for GDP growth - an average 3.3 per cent - since 1989.
- In the transition economies of eastern Europe, the Baltics and the CIS, it was the first time since 1989 that their average growth rate was positive (1.7 per cent), a reflection of continued steady growth in eastern Europe and, finally, the apparent end to seven consecutive years of falling GDP in Russia.
- In 1998, the average annual rate of GDP growth in western Europe is expected to remain at around 2.7 per cent. In the slow-growing countries of the last few years (France, Germany and Italy) GDP should pick up gradually (to some 2.5 to 2.8 per cent) but this will be offset by slower growth in the United Kingdom and in many of the smaller European economies.
- In the United States domestic demand is still likely to remain quite strong in 1998, but the effective exchange rate appreciation of the dollar and the spillover effects from Asia are likely to produce a significant fall in net exports. In short, GDP growth is expected to slow to about 2.5 per cent, from 3.8 per cent in 1997. That would imply an average growth rate of just over 2.5 per cent for the ECE market economies as a whole.
- In aggregate, east European GDP is expected to grow by about 42 per cent in 1998. This improvement on the 1997 performance is largely due to a return to growth B or an end to decline B in Albania, Bulgaria and Romania.
- In the faster-growing economies of 1997 (Croatia, Poland and Slovakia) there will be some deceleration as policies are tightened to check the growth of current account deficits. Even so, these three economies are still expected to grow by 5 per cent or more. High rates of growth (5 to 7 per cent) are also expected in the Baltic states, despite some slowing down in Estonia to avoid overheating.
- An important problem facing many east European economies in 1998 is how to handle their large current account deficits (many of these are 6 per cent or more of GDP and even higher in the Baltic states).
- It is difficult to see a significant strengthening of the recovery in Russia if monetary policy remains as tight as it is at present for any length of time. Moreover an important constraint on medium-term growth in Russia is the effect of a large, ten-year decline in fixed investment on productive capacities.
- One of the major uncertainties facing the world and ECE economies in 1998 is whether the Asian crisis will have much larger negative effects on real activity than is currently foreseen. On this the Survey makes a number of points:
- that the Asian crisis is complex in that it affects a large number of variables - not just merchandise trade - many of which are difficult to estimate or include in standard forecasting models;
- that the Asian economies will have to increase their net exports in order to service and repay their debts;
- that actual developments will depend on whether demand in the rest of the world increases sufficiently to absorb the increase in Asian exports;
- that a larger than expected rise in US imports from Asia could trigger a much faster downturn in the US economy than currently forecast as the highly indebted US consumer runs for cover;
- slower than expected growth in the US would weaken growth prospects in western Europe, with negative consequences for the transition economies, unless offset by stronger domestic demand in France and Germany;
- policy initiatives to offset any faltering of west European domestic demand are unlikely in the run-up to EMU.
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- Chapter 1 of the Survey which, in addition to an overview of current economic developments includes a discussion of the uncertainties surrounding the introduction of the euro and some of the difficulties of sustaining growth in the transition economies in a world of volatile international capital markets, is attached to this press notice.
- Chapter 2 reviews developments in the western market economies and discusses the Asian crisis at some length.
- Chapter 3 focuses on recent developments in the transition economies of eastern Europe, the Baltic states and the CIS. A special section looks at the similarities and differences between the Asian crisis countries and the transition economies and assesses the extent to which the latter are vulnerable to financial instability.
- Chapter 4 reviews developments in the three Caucasian economies since 1991.
For any further information and queries please contact:
Economic Analysis Division
United Nations Economic Commission for Europe (UN/ECE)
Palais des Nations,
CH - 1211 GENEVA 10, Switzerland
Tel: ++ (4122) 9172718
Fax: ++ (4122) 9170309