Interest rate cuts have been unable to shake the US economy out of
its slump. The Japanese economy is experiencing a downturn, as is
the European economy—which has wanted to replace the US in its role
as center of the world economy—especially with the influence of the
recession in Germany.
The recession in the US, Europe and Japan is influencing world
economy, leading to a worldwide decline for the first time in the
past decade. The combined GDP of these three core economies
accounts for 80 percent of the world total. Hence, economic
problems in these core economies affect the rest of the world, thus
placing the world economy at the crossroads.
The UN
Economic and Social Council (ESOSOC) predicted that the world
economic growth rate would fall to 2.5 percent this year. In
addition, some research institutes predicted a world economic
growth rate of 2.4 percent, or even less than 2 percent, thus
indicating a declining world economy.
The Slowdown of the US, European and Japanese Economies
Although economic growth was unbalanced in the US, Europe and
Japan, which helped minimized adverse impact on the world economy
during the 1980s and 90s, at least one of the economies was
booming. But all of them are now undergoing a recession. The US
Federal Reserve Board (FRB) issued an economic investigation report
on August 8, stating that the US economy continued to suffer a slow
growth, or even a standstill in the past two months because the
slump in retail and manufacturing industries had affected other
industries.
The weak US economy is also evident from the decline in business
and consumer demand for loans, the raising of loan standards by
banking institutions, and a drop in the quality of current loans.
As globalization is intensifying the connection between various
economies, the recession in the US affects the rest of the
world.
Since economic indicators of Japan during the first half of this
year show a worsening economy, the
International Monetary Fund (IMF) has adjusted its forecast to
a negative growth rate of 0.2 percent from a 0.6 percent growth.
The Japanese minister of finance recently predicted that Japan’s
economy will have a low growth rate in the next two to three years,
and suggested that Japan should strive for a growth rate of zero,
so as to avoid contraction.
During the last half of 2000, the EU’s economic growth exceeded
that of the US However, it has been slowing down this year, thus
reducing Europe’s chances of replacing the US as the driving force
behind the global economy. The European central bank has adjusted
its prediction of the euro area’s economic growth from 2.6
percent-3.0 percent to between 2.2-2.8 percent, and finally to 2.8
percent. The downturn in Europe’s economy resulted from the
economic recession of the USand that of Germany, its own economic
power.
Since countries of the Commonwealth of Independent States (CIS),
including Russia, and the Eastern European countries, do not have
close trade relations with the US and Japan, the recovery of
Russia’s economy will not be greatly affected by the conditions of
these economies, provided there is no abrupt drop in energy prices.
Statistics for the first half of this year, issued by the Russian
Ministry of Economy, indicated a 5.4 percent increase in Russia’s
GDP, a 5.5 percent rise in its industrial production and a 4.2
percent increase in its agricultural production. In addition, the
number of employed rose to 65 million, up 1 million.
Russia’s average salary reached 3,300 roubles in June, an increase
of 18 percent over last year’s same period, while real cash income
of residents increased by 4.4 percent. However, the surplus of
foreign trade decreased by US$27.3 billion in the first half of
this year. As other CIS countries and Eastern Europe maintain close
trade relations with Russia and the EU countries, the world
recession may not affect their economies, as long as the Russian
economic situation continues to improve and the EU economy stops
worsening.
The Russian National Statistics Bureau indicated an 18 percent
increase in Ukraine’s industrial output value, a 13.5 percent
increase in that of Tajikistan, an 11.6 percent increase in that of
Kazakhstan, a 9.9 percent increase in that of Moldova, and a 6.8
percent increase in that of Kyrgyzstan during the first five months
of this year. Georgia was the only country that suffered a 6.2
percent decrease in its industrial output value. The ESOSOC
predicted that countries undergoing economic transition would
witness a 3.6 percent of growth this year, and the trend will
hopefully continue.
Varying Impact on Latin America and Africa
The simultaneous recessions in the US, Europe and Japan have a
varying impact on the economies of developing countries and
regions. Latin America, for instance, is known as the backyard of
the US Its exports to the US account for 60 percent of its total
exports, while Mexico’s exports to the US account for 88 percent of
its total. Hence, the decline in the US economy and a drop in its
imports have greatly affected Latin American economies, thus
leading to a constantly rising debt—a serious problem plaguing
Latin American countries.
At
the end of 2000, the total cumulative foreign debt of Latin
American countries increased to US$750.86 billion from US$9.3
billion in 1974, of which debts of Mexico, Brazil and Argentina
combined to total US$545.2 billion, accounting for 72.6 percent of
Latin America’s total foreign debt. Since this March, American
banks offered loans worth US$12 billion, US$24 billion and US$18
billion to Argentina, Brazil and Mexico, respectively. In addition,
the IMF provided loans worth US$ 14 billion to Argentina last year,
and will offer loans worth US$6-9 billion to Argentina this
year.
However, these loans cannot extricate these countries from their
debt and financial crises. Although Argentina is the most developed
country in South America, it is trapped in a more severe recession
than Mexico and Brazil, and had a growth rate of zero last year. In
fact, financial aid from the US and the IMF is out of concern over
possible problems the debt and financial crises in these centuries
may create for the Latin American countries, and for the US
itself.
Africa has a population of more than 700 million, accounting for 11
percent of the world total. While its GDP accounts for only 1
percent of the world GDP, its foreign trade makes up only two
percent of the world total. In 2000, Africa introduced US$10
billion in foreign direct investment—less than one percent of
global total transnational direct investment.
To
rejuvenate their economies and prevent a recession, African
countries need to realize peace and stability, and strengthen
regional cooperation. In addition, the creditor nations should
reduce or remit African debt, and aid to African countries should
be increased.
Negative Impact on Asia
The US and Japan are the two largest markets for Asian exports, and
also hold the largest investment amounts in Asia. Therefore, Asian
economies are deeply affected by the US and Japanese economic
development trends and policy adjustment. Besides internal causes,
the fall in the exchange rate between the yen and the US dollar,
and the decrease in imports of electronic products in both
countries were causes of the 1997 Asian financial crisis.
In
1999, the economies of some Asian countries recovered rapidly,
which, to a great extent, was influenced by the high economic
growth and increased imports of the US However, a recession in both
the US and Japan is putting the economies of Asian countries
through the fire again.
Asia depends heavily on the US and Japanese markets, particularly
the East Asian countries. In 2000, the IT products export of East
Asian countries and regions to the US contributed 40 percent to
their respective GDP growth.
From 1996 to 2000, Thailand’s dependence on exports rose from 39
percent to 66 percent, with a sharp increase in electronic product
exports. However, from January to May this year, new US orders for
electronic products decreased by one-third, greatly affecting the
exports of East Asian countries and regions. In the first half of
last year, the exports of East Asia—excluding China—rose sharply by
30 percent, compared to the previous year, while exports fell by 10
percent in the first half of this year. It is estimated that
semiconductor chip exports of the Republic of Korea (ROK) will
decrease 30-40 percent this year, compared with last year’s US$26
billion worth of exports. A decrease in exports has resulted in a
general downturn in the economic growth of the East Asian countries
and regions. The economic growth of the ROK will fall from 9
percent of last year to 2 percent, that of Singapore will fall to
0.5-1.5 percent and that of the Chin’s Taiwan will be reduced to
1.1 percent—the lowest level in 30 years.
Despite an 8.8 increase in the first half of this year, China’s
exports, compared to last June, decreased by 0.6 percent—the first
downward trend this year. This indicates that the joint effects of
the weak US, European and Japanese economies, as well as shrinking
world markets, are adversely affecting China’s exports. However,
continued improvement in the investment environment and
implementation of western development strategy have led to a
considerable increase in foreign investment.
New foreign-funded businesses numbered 11,973 in the first half of
this year, up 18.5 percent from last year; contractual foreign
capital reached US$33.41 billion, up 28.2 percent, and foreign
capital actually used amounted to US$20.99 billion, up 20.5
percent. It is estimated that China’s GDP grows by 0.3-0.4
percentage points on average for every 1 percent increase of
foreign direct investment. While its GDP increased by 7.9 percent
in the first half of this year, it may slow down in the second
half.
Related international institutions and varied states are adopting
active measures to strengthen coordination and cooperation to
cushion negative effects of the recession in the US, Japan and
Europe on the rest of the world.
(Beijing
Review 09/20/2001)