Global Economy on the Upswing – Is Europe about to Overtake the USA?

The world economy is experiencing a vigorous upswing. Having overcome their financial crises, the countries of Asia and Latin America are contributing most strongly to economic growth. At the same time, the economies of Central and Eastern Europe have again started to expand. For the world as a whole, a growth rate of about 4 percent has been forecast for both this year and 2001, up from just above 3 percent in 1999. This production boom will result in a doubling of the growth rates of world trade to about 10 percent this year. A slight decline is being forecast for the coming year. The prolonged cyclical upturn of the American economy is continuing almost unabated. Nevertheless, the USA (GDP +3 percent) may well be overtaken by Europe (above all the euro zone with 3¼ percent growth of GDP) due to the weakness of the euro. This estimate is based on the scenario of a soft landing for the USA. The Japanese economy is unlikely to return to the high growth rates of the period before the recession in the coming year. Overall, the current upswing of the world economy will be accompanied by low inflation rates (around 2 percent in the EU both this and next year). For the first time, employment growth is accelerating substantially in Europe and will reach the U.S. level in the coming year. Thus, unemployment is expected to fall noticeably within the European Union for the first time in years (from around 10 percent in 1998 to 8 percent in 2001). Since its start on January 1, 1999, Economic and Monetary Union (EMU) has already had a major impact on the economic policy positions adopted by the economies of Western Europe. This applies not only to the members of the euro zone, but also to the other EU countries not participating in EMU. The asymmetrical economic policy structure – centralised monetary policy of the ECB and decentralised fiscal policies of the member states – has ultimately resulted in a culture of high stability. On the one hand, inflation rates have reached their lowest level in many years. On the other hand, the pressure for budget consolidation exercised within the framework of the Stability and Growth Pact has generated a surprising degree of fiscal discipline, with a number of EU countries expected to report a budget surplus in the coming years. The active and co-ordinated approach to employment policy is also bearing fruit in the form of growing employment and falling unemployment rates. The weakness of the euro is partly accounted for by the negative interest differential to the USA, but can also be attributed to the lack of confidence in the euro prior to its introduction as legal tender in 2002.