1997-1998: IMPROVED ECONOMIC SITUATION
IN THE UN/ECE REGION
MAJOR UNCERTAINTIES FOR THE FUTURE
15 April 1998
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.
* * *
- 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
E-mail: [email protected]