Three Major Economies Expected to Grow at a Similar Pace

Financial framework conditions for the expansion of world trade are set to improve over the coming years. Nominal dollar interest rates may head downwards, for two reasons: deceleration of U.S. growth, and a lowering of international credit costs required to stabilize the fragile debt situation of many developing countries (the strong rise in dollar interest rates during 1994 has largely contributed towards the breaking of the Mexico crisis). The dollar may remain undervalued, thereby alleviating the debt burden not only of the U.S. but also of developing countries. Export buoyancy is expected to further shift towards the rising economies in South-East Asia and Latin America; reform countries in eastern Europe should also gain international market shares, while industrialized countries should see their aggregate market share fall. World trade growth is projected to accelerate from the pace obtaining since the mid-1980s, to an average 6½ percent p.a. until 1999. The three major economies – the U.S., Japan, and Germany – are expected to grow at a similar pace. U.S. output growth should attain around 2½ percent p.a., with falling dollar interest rates and a low exchange rate supporting both investment and exports. Fiscal consolidation may dampen growth only to a limited extent, as it is brought about primarily via higher taxes for top income earners who may accommodate the income squeeze by lowering their savings. Western European countries stand to benefit from the implementation of the single market and from EU enlargement, but the strive for convergence towards the Maastricht criteria will require severe measures of budget consolidation in many countries. In all, GDP in OECD-Europe is projected to rise at an annual average 2¼ percent, with the German economy expanding at a faster pace of 2¼ percent, due mainly to the ongoing catching-up process in the new Länder. In Japan, rapid growth of investment and exports is unlikely to continue, if only because of the largely overvalued Yen. Annual GDP growth up to 1999 is projected at 2½ percent.