The worst stages of the world business cycle during 1989-1993 are now over, and it can be said that the major economies of the world, both developed and developing, are in a solid recovery phase. The United States, where recovery has been dated, starting from April, 1991, is further along than other industrial countries and shows no signs of reversing course at this time. The slowdown that originated in New Zealand, Australia, Canada, UK, and USA developed into a world recession when Japan and Germany turned down, but the latter two economies have turned the corner and are now expanding -- Germany more decisively than Japan.
A new aspect of the present outlook that was not discernible at a similar meeting six months ago, when the same group met at the UN in New York, is that recovery in Western Europe, especially Germany, is quite strong. overall growth in GDP for unified Germany is now expected to exceed 2 percent in 1994 and reach higher levels in subsequent years. The UK, where recovery was more advanced than in the rest of Europe is growing in excess of 3%.
The strengthening of the European and advanced Asian economies (Japan, Australia and New Zealand) will benefit US export prospects, which have already been improving nicely. At the same time that production has been picking up, nearly worldwide, there has been an accompanying growth in world trade. The two aggregates -- trade and production -- generally move together. Trade is expanding on its own strength but is helped markedly by liberalizing tendencies in many areas. The closing of the GATT Round (the Uruguay Round) and the implementation of NAFTA hold significant promise for the future.
On the favorable side, inflation has been held at bay in this recovery phase of the cycle, not only in the industrial world, but also in one of the worst performing areas. The Brazilian participant in Salamanca was able to report two successive months of greatly reduced inflation (from 50 percent month-on-month, to just 5 percent). It is too early to determine if Brazil's latest monetary change will create lasting good performance, but the signs are encouraging. There were reports of moderate increases in world prices for a few -- not all -- basic world commodities, but it does not appear that the increases are alarming or large enough to have significant effect on inflation rates in major economies of the world.
On the unfavorable side, however, unemployment is distressingly high in Western Europe, Australia, New Zealand, and Canada. There are some signs of small decreases in a few countries but world growth is still not vigorous enough to bring down unemployment rates by significant amounts nor to alleviate poverty. Growing tendencies towards more economic inequality remain persistent.
The United States and Japan, at about 6% and 3 % unemployment rates, respectively, are still not at full employment in any meaningful sense, contrary to the views and fears of most monetary authorities and many economists.
It was fully recognized, and discussed at Salamanca, that more vigorous economic expansion, alone, would not be adequate to restore full employment. Some market inflexibilities and other structural characteristics would have to be reached through economic policy in order to restore good health to work activities.
Among developing countries, Asia and Latin America stand out, as they have for some time, as the best areas for economic performance in "emerging markets." Not every economy in these two areas is performing well, but the appearance of Peru, Brazil, and India among strong growing and reforming economies is heartening. China continues to be the fastest growing economy among large, important countries, but must pay attention to eradication of present tendencies toward higher inflation, running at annual rates between 20 and 30%.
All is not bright or promising in the economic world. Sub-Saharan Africa remains in deep economic trouble, with declining output on a per capita basis, increasing poverty, inadequate food, and military outbreaks.
Some individual countries in Africa show more promise, and South Africa is embarking on a totally new path of social, political, and economic development that could change the economic situation in the southern part of the continent. The Middle East, bridging both northern Africa and Western Asia has prospered, to an extent, from oil riches but has been held below potential by political instability and military conflict. There are some indications of progress in the peace process. This is the most positive sign for the future of the region.
Countries in transition from "plan to market" in Eastern Europe, the former Soviet Union, former Yugoslavia, and Albania present a mixed picture, but the overall outlook is more favorable for the near-term future than in central Africa. The leading economies of Eastern Europe are Poland, the Czech Republic and Hungary. They have made some progress on the side of production expansion and market reform but are still under the threat of a degree of inflation with high unemployment. Transition has definitely not been completed. Slovakia, Bulgaria, and Romania are not yet in a solid recovery phase, following the disorder of transition.
The situation is much more problematic in Russia and the states of the former Soviet Union, with the exception of the Baltic States. The latter are showing some gains, and the outlook is not bleak or very uncertain. In the rest of the former Soviet Union, we cannot expect to find significant turnabout situations before next year or possibly even a bit later. Inflation, unemployment, deficits, political instability, and falling production are all part of the present economic scene. A couple of years ago, however, the poor economic condition of the total transition area of the world pulled down the global averages. Now, the recoveries that are in place are dominant enough to make the world averages favorable, with the prospect for continuing global growth without uncontrolled inflation.
The deliberations among Project LINK participants at Salamanca suggest an evolving global economic environment, with some problems still present, in which the economy of the United States can expect to make further gains.