Global economic developments, 1999

Executive Summary World economic growth gained momentum in 1999 increasing by 3.3 per cent, impelled by vibrant activity in the United States and Asia. The robust United States expansion continued with real Gross Domestic Product (GDP) growing by 4.2 per cent. The European Area with growth of 2.3 per cent experienced similar dynamism. In both of these economies strong GDP growth was matched by firm gains in employment. Growth was also more robust in developing countries, as a whole, but showed important disparity by region. Buoyed by competitive exchange rates and strong demand in the United States and the European Area, growth rebounded strongly in the Asia-Pacific region. This contrasted with declining growth performance in Africa, the Middle East and Europe and Latin America and the Caribbean. Economic growth in Sub-Saharan Africa continued to be imperiled by declining commodity prices, poor investor confidence and disruptions occasioned by war and adverse weather. Meanwhile, growth slipped in Latin America and the Caribbean, as the impetus in Mexico, Central America and a few Caribbean countries was dampened by sluggish output growth and export performance in the Southern Cone Common Market (MERCOSUR) subregion. Growth rates of 0.5 per cent in Brazil and a decline of 3.5 per cent in Argentina, contrasted with 3.5 per cent growth in Mexico. Caribbean countries' growth performance was strongly influenced by the export multiplier. Growth in the Dominican Republic (8.2 per cent), Belize (6.2 per cent) and Trinidad and Tobago (4.2 per cent) was stimulated by their ability to take advantage of the booming United States market, while Jamaica (-0.4 per cent), the Organisation of Eastern Caribbean States (OECS) and Suriname, whose exports were relatively uncompetitive, recorded weaker growth. OECS banana exports were hard hit, contracting by almost 8 per cent in 1999. Inflation was also subdued in most regions, except the Countries in Transition, where bottlenecks led to a doubling of the rate. World trade rebounded in 1999, and was indeed the main engine of growth. The impetus for the improvement in trade was largely provided by the Asian economies that staged v-shaped recoveries. Merchandise trade also picked up in Latin America and the Caribbean, bolstered by the competitive strength of Mexico and Central America. By contrast, merchandise exports declined in Africa and the Transition economies by 15.5 per cent and 1.5 per cent, respectively, precipitated by weakened commodity demand and prices. In the services sector, tourism gained momentum, growing by 4.1 per cent, up from 3.1 per cent in 1998. The United States continued to garner the lion's share of tourism receipts. This suggests that developing countries, such as those in the Caribbean, need to diversify and revitalize their tourism product and service to improve their market share in the sector. There was a flurry of activity on the institutional and trade negotiation fronts in 1999, aimed mainly at promoting regionalism and financial regulation. The World Trade Organization (WTO) held its Third Ministerial Meeting in Seattle, Washington, to advance the millennium round of trade negotiations, with the main focus on the liberalisation of agriculture and services, the unfinished agenda from the Uruguay Round and also new issues. However, the meeting was largely unsuccessful due to disagreements among developing and developed countries over the vital issues for focus and disruptive protests by labour and environmental lobby groups. A crowning achievement of European integration, the euro, was launched as the future currency of the integration bloc. Notably, the groundwork for the African Caribbean Pacific-European Union (ACP-EU) Partnership Agreement, the successor to the Lomé ‰V Agreement, was laid in 1999, and the agreement was signed in June of 2000. The agreement provides for a strengthened partnership based on poverty reduction and structured integration of the ACP countries into the world economy. In addition, the preferential access to the United States market was extended to the Caribbean through the Caribbean Basin Trade Pact (CBTPA) that was passed by the United States Congress in May 2000. This should provide important market access for competitive textile, apparel, fish and other products from the Caribbean. Financial reforms centred on strengthening financial institutions and regulatory arrangements to limit the prospect of future crises. The Financial Stability Forum was mandated to undertake work in this area. Financial conditions also improved, buttressed by strengthened investor confidence and equity prices. However, net private capital flows seem still to be affected by some investor uncertainty and, probably, better discrimination between countries with high and low risk profiles. World saving was stable at roughly 23.2 per cent of GDP in 1999. Saving in advanced economies declined slightly to 22.1 per cent of GDP influenced by robust spending in the United States, the EU and, to a lesser extent, Japan. Developing countries' savings also fell marginally to 25.4 per cent of GDP, as the increase in the rate in the Middle East and Africa was offset by the decline in Asia and Latin America and the Caribbean. Developed countries' investment was up slightly, while in developing countries, investment declined marginally. Reflecting in part saving, investment and exports, the current account deficit of developing countries narrowed substantially by 63 per cent. Capital flows to developing countries slipped by almost 9.0 per cent in 1999. Net resource flows to Latin America and the Caribbean contracted by about 30 per cent, and could not be compensated for by higher flows to Asia and Sub-Saharan Africa. The welcome increase in flows to Sub-Saharan Africa, however, was unevenly distributed, with the lion's share going to South Africa, attracted by its privatisation programmes and other reforms. Growth in the external debt of developing countries slowed to 1.6 per cent in 1999. The carry over from declining oil prices in 1998, led to the fastest growth in debt in the Middle East and Europe (3.9 per cent). Africa's debt grew by 2.3 per cent, largely on account of higher debt accumulation in North Africa to counter the effects of sluggish oil prices early in the year. External debt in Latin America and the Caribbean was up, by only 0.5 per cent. Private debt declined in line with lower payments commitments as a result of sluggish MERCOSUR trade. The debt relief initiative for Heavily Indebted Poor Countries (HIPCs) was extended in 1999. Countries such as Bolivia, Guyana, Mali and Mozambique benefited under the programme of debt write-offs. Debt reduction in Guyana, for instance, has enabled higher social spending.