The economic recession in the US economy in 2001 was downplayed and a surge in inventories has not proven sufficient to lead the economy on a sustained path of investment recovery. More so, growth in the US economy seems to be driven by increased consumer spending on consumer goods such as cars and electronic appliances. Although tax cuts and other measures have provided a temporary stimulus for higher disposable incomes, employment levels have actually been falling and with decline in equity rates and a general rise in international oil prices, the USA is perceived by many to be heading to a second plunge for recession in the new millennium.
As with the case of Europe, Germany’s private consumption and demand are failing to take-off and, with the appreciation of the Euro, their exports have also been hit hard. Labour market inflexibility and lack of sound demand management policies have created growth in domestic demand of only 3.9% in UK, 1.5% in Germany and 2.3% in France between 1996 and 2000. Japan, the only developed economy of Asia, has experienced a rapid growth in its industrial production and that has also been reflected in the positive growth of its exports. But domestic demand being low remains its problem growing only at 1.2% in the period between 1996 and 2000. Japan suffers from a problem of deflation and although there has been no real fall in real income levels, consumers live in uncertainty and postpone purchases which bring about further deflation.
In terms of investment flows and movement of capital, Asian exporters have benefited from the stability in US markets whereas restrictive fiscal policies for the Latin American economies have resulted in reduced investment flows to the country as also a decline in earnings from the countries’ exports. African economies have by and large been uninfluenced by world capital markets. But the net private capital inflows are said to reduce for the developing economies as whole, falling by 11.3% between 2001 and 2002.
Latin American countries as described above are going through a recession with prices of the country’s exports falling by 10 to 30 percent. Coupled with reduced investment flows, South America is at present reeling under severe depression. Argentina and Brazil remain the only bright spots with procyclical fiscal policies like increase in interest rates being adopted to restore investment flows into the region.
Grouping the world into the developed and the developing nations we find that:
The share of agriculture as a part of the economic activity fell to about 2% in developed countries compared to 11% in the developing nations from 1970 to 2001. But the percent of labour engaged in agriculture in the developed countries was the highest at about 55% in 2001. But the problems of low agricultural productivity and surplus labour persist which explain the minimal contribution of agriculture to the total output. China has 45% of its population working in the agricultural sector producing only 12% of the GDP.
Poverty still remains the most difficult to tackle with 14.5% of the population of East Asia and the Pacific living on less than $1 a day. The corresponding figure for Europe and Central Asia is 4.2% and that for Sub-Saharan Africa is at a staggering 49%. Following lay figures and diagrams for output growth for the period 2002-2003 for the respective countries (based on IMF model using country weights in terms of Purchasing Power Parity (PPP) )
United States 2.6%
Developing Economies 5.2%
Net Private Capital Inflows (forecasted) for 2002 according to IMF estimates(in billions of dollars) were:
Net Direct Investment 11.8
Net Portfolio Investment -1.0
Other Net Flows -2.0
Net Direct Investment 58.7
Net Portfolio Investment 0.7
Other Net Flows -27.8