World economic prospects are bright

Economics Department

World economic prospects are brighter than they have been for some time. OECD-wide output is projected to grow by 4% this year, the fastest pace in more than a decade, before slowing to 3% in 2001.

A tightening of monetary policy is expected to keep inflation low nearly everywhere, although a modest upward drift in consumer prices will be apparent in many countries. OECD-wide unemployment should decline by more than 2 million between 1999 and 2001 – mainly in the euro area – falling to 6% of the OECD labour force. With the strong and widespread rebound of economic activity outside the OECD, world output may rise by some 4% this year and next.

This is a welcome trend. Except in Japan, where prospects are improving but remain uncertain, there are even some upside risks to watch out for. International linkages, including through global trade, could reinforce growth beyond the OECD’s central projections. This could affect inflation. Moreover, the surge in growth across countries could also stimulate further rises in commodity prices, including oil.

Overall, the emergence of simultaneous rapid growth in many OECD countries has coincided with the absence of marked stabilising forces in global financial markets. Monetary authorities should take care not to underestimate the global strength of demand nor its potential effect on prices. If they do, the result could ultimately be a stronger monetary policy reaction and a substantially more pronounced cycle than envisaged in the OECD projections. This would lead to turbulence in equity markets and, given projected large external imbalances, a loss of confidence in the dollar.

In the United States, there is a real possibility that new technology and structural change have raised the economy’s non-inflationary potential. Nevertheless, the recent strength of demand is not sustainable and inflationary pressures are beginning to show. A further tightening of monetary policy may soon be needed, with the federal funds rate possibly having to rise to above 7% by August 2000, to ensure a soft landing.

In the euro area, the critical question now is how long the expansion can last without running into inflationary bottlenecks. The European Central Bank should continue shifting monetary policy towards a neutral stance, raising interest rates only gradually, while taking account of possible supply side improvements. Improved cyclical conditions have generated unexpectedly strong budgetary revenue growth in a number of euro area countries. Some have already announced plans to use the revenue gains to reduce tax burdens and increase government spending. To the extent that tax reductions can help boost the economies’ supply potential, they are welcome. However, given the current economic buoyancy and limited spare capacity, any major easing of fiscal policy by euro area governments would be ill-advised.

In Japan, recovery now appears to be in place, although consumer spending remains sluggish. Policy should aim to sustain the recovery in the short run, while encouraging the speedy implementation of reforms in product and labour markets as well as continuing restructuring in the corporate and financial sectors.

©OECD Observer No 219, December 1999

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2017