In September, the International Monetary Fund (IMF) published its World Economic Outlook (WEO), which assesses the current state of world economy and the prospects for economic growth in the coming year.  According to the IMF document, the world economy is enjoying the strongest growth in more than a decade this year.  Despite recent oil price increases, which have led to significant price pressures in most countries, inflation remains well contained in the world economy.

Favourable world economic outlook and ...  On 5 December, the World Bank released its annual publication, Global Economic Prospects and the Developing Countries, which this year focuses on trade.  According to the publication, the global economy is likely to approach a cyclical high in 2000, boosted by a further acceleration of growth in the United States, the recovery in Europe and Japan, and the sharp rebound in countries affected by the global financial crisis.  As a consequence, world economic activity during 2000 is proceeding at the fastest pace in over a decade.  However, global growth is likely to dwindle in 2001 and 2002, despite an envisioned soft landing in the United States, which World Bank economists see expanding by 3.2% and 2.9% over the next two years.  In the Euro Area, a higher interest rate environment and a slowdown from exceptionally rapid expansion in some smaller countries has prompted a slight moderation in World Bank growth estimates now at 3.2% in 2001 and 2.8% in 2002.  Growth in Japan, on the other hand, is expected to accelerate driven by increased household demand, which could boost consumer confidence and help maintain the momentum of recovery.

According to the World Bank report, the prospects for economic recovery in Latin America are broadly favourable, with the region’s GDP expected to rise by 4.0% in 2000.  Despite the threat that volatility in financial markets and primary commodity prices poses to growth, the World Bank expects regional economic growth to actually increase to 4.1% in 2001 and to add a further 0.2 percentage points in the year thereafter.  The LatinFocus Consensus Forecast, sees growth declining, as some countries in the region, particularly Mexico, will suffer from the consequences of a U.S. slowdown and political jitters, as in Peru, which are likely to suffocate growth.
 

… continued strong increases in trade.  In 2000, world trade volumes are likely to increase by 12.5% over 1999, the highest growth rate since the early 1970s.  This robust growth is supported by strong demand growth in industrial countries and the recovering East Asian economies, where industrial production and demand for foreign durable and intermediate goods surged as firms sought to replenish inventories and stocks.  In Latin America, where trade volume jumped by almost 20% this year (for the seven surveyed countries), real exchange rate depreciation continued to fuel export volumes in Brazil, Colombia and Peru in 2000.  Mexico, on the other hand, profited from strong links to the United States despite an appreciating real exchange rate.  The World Bank expects world trade to continue to grow strongly, albeit somewhat below the current pace as world industrial production slows.  According to the Consensus Forecast, Latin America will continue to outgrow world trade volume in the coming two years although at a lower margin than in 2000.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing for Latin America.  For more details please click here.

For five-year forecasts, please click here.