United Nations

NEW YORK, 28 December (UN Headquarters) -- The accelerating recovery from the financial shocks of 1997 to 1998 is easing off, but world economic expansion should continue at a moderate pace in 2001, according to the United Nations World Economic Situation and Prospects 2001, released today in New York.

Present evidence points towards a world gross domestic product (GDP) that will grow by 3.5 per cent in 2001, following a surprisingly strong 4 per cent in 2000, according to the report.

Large current-account imbalances in major economies, international investor nervousness, financial and foreign-exchange market instabilities and the possibility of rising petroleum prices pose threats that policy makers must contend with, the authors warn. In addition, a sudden disruption in its present large capital inflows would result in a "hard landing" for the United States, with negative consequences for the world at large.

Nevertheless, the stock market correction of 2000 has shaken many of the excesses out of equity prices, and generally high growth in 2000 provides a foundation for the prevailing lower prices. Most developing and transition countries are in better shape to withstand financial shocks than they were two or three years ago -- although continuing financial fragilities in some could be a source of vulnerability. So would a return of surging petroleum prices. In the context of decelerating economic growth in 2001, higher prices would produce an effect on inflation indicators which might cause monetary authorities to keep interest rates higher than desirable.

The United States, which led developed countries with 5 per cent growth in GDP in 2000, is projected to settle to a still-strong rate of 3.5 per cent rate in 2001. Japanese GDP growth is forecast to increase from 1.4 per cent in 2000 to

2 per cent in 2001. The European Union year-2000 total GDP rise of 3.4 per cent is likely to decrease only slightly to 3 per cent in 2001. GDP growth in all developing countries, which was 5.6 per cent in 2000, is projected to hold nearly steady, at 5.5 per cent in 2001.

Year 2000 at a Glance

-- Aggregate output in all developing regions rose at a sharply higher rate than in 1999, except in Africa, which experienced a moderate upturn. Demand for information technology products benefited South and East Asia especially, while Africa had to contend with bad weather, declining agricultural commodity prices and continued civil and political conflict.

-- Nevertheless, the increase in oil prices in 2000 has taken a toll on developing countries. The total bill for net-fuel-importing developing countries (excluding China) rose from $100 billion in 1999 to $160 billion in 2000 -- equivalent to about 1.3 per cent of the group’s GDP. Net capital flows to all developing countries decreased in 2000, so many countries had to offset higher petrol prices by expending scarce foreign reserves or cutting other imports.

-- A strong economic recovery in the Russian Federation, as well as robust Western European economic expansion, were among factors bolstering stronger-than-expected GDP growth of 5.3 per cent in the economies in transition. For the first time since the transition process began more than a decade ago, all but one of the economies in transition achieved positive growth in 2000. With the end of the drought in Moldova, all are expected to be above that threshold in 2001.

-- GDP fell in only four countries (Côte d’Ivoire, Democratic Republic of the Congo, Moldova and Zimbabwe) in 2001 -- by far the lowest number in more than a decade. Per capita GDP increased in 121 countries (73 of them developing countries), as compared to 104 (including 60 developing countries) in 1999.

-- Associated with this accelerated growth of output, there was almost a doubling in the rate of growth in the volume of international trade.

-- Globally, foreign direct investment flows reached a new record, but the share going to developing countries continued the decline that started in 1997.

-- As 2000 progressed, higher oil prices and tightening labour markets and capacity constraints raised the potential for inflation, and policy makers responded with increasingly restrictive measures. Higher interest rates, the rapid appreciation of the dollar against almost all other currencies, the growth of unsustainable fiscal and current-account imbalances in some major countries, falling corporate profits and rising debt and signs of instability in some emerging economies are seen as reasons for the slow-down in 2001

World Economic Situation and Prospects 2001 is produced jointly by the Development Policy Analysis Division of the United Nations Department of Social and Economic Affairs and the United Nations Conference on Trade and Development. It provides an update to the more comprehensive World Economic and Social Survey, which is published each July, and the World Investment Report, published each September.

World Economic Situation and Prospects 2001 is available for $15.00 (Sales No. E.01.II.C.2, ISBN 92-1-161434-1) from United Nations Publications,

Two UN Plaza, Room DC2-853, Dept. PRES, New York NY 10017 USA, Tel. 800-253-9646 or 212-963-8302, Fax. 212-963-3489, e-mail: publications@un.org; or Palais des Nations, CH-1211 Geneva 10, Switzerland, Tel. 41-22-917-2614, Fax. 41-22-917-0027, E-mail: unpubli@unog.ch; Internet: http://www.un.org/publications.

For more information, or to arrange a telephone interview, contact Tim Wall, United Nations Department of Public Information, at 212-963-5851; e-mail wallt@un.org.