|
Highlights
- World Economic
Climate considerably improved
- Economic expectations
for the next six months are highly optimistic, current economic situation
satisfactory
- Inflation will
remain moderate
- Interest rates:
Begin of tightening cycle expected
- Growing overvaluation
of the euro
- Fear of terrorism
has affected business prospects for 2004 in several regions
Regions
World economy: Global economy gains strength
Western Europe: Returning
confidence
Eastern Europe: Stabilizing
markets
North America: Growth
will continue
CIS: Strong growth
in Russia
Asia: Economic expansion
continues
Oceania: Boom continues
Latin America: Continuing
recovery
Near East: Sound economy
Africa: Economic conditions
improve
The survey is jointly conducted by the Ifo Institute and the Paris-based
International Chamber of Commerce (ICC)
Notes
The World Economic
Survey (WES) assesses worldwide economic trends by polling transnational
as well as national organizations worldwide on current economic developments
in their respective countries. This allows for a rapid up-to-date assessment
of the economic situation prevailing around the world. In January 2004
some 1,114 economic experts in 92 countries were polled.
WES is conducted in co-operation with the International Chamber of Commerce
(ICC) in Paris and receives financial support from the European Commission.
Methodology and
evaluation technique
The survey questionnaire
focuses on qualitative information: assessments of a country's general
economic situation and expectations regarding important economic indicators.
It has proved to be a useful tool, since it reveals economic changes earlier
than traditional business statistics.
The individual replies
are combined for each country without weighting. The grading procedure
consists in giving a grade of 9 to positive replies (+), a grade of 5
to indifferent replies (=) and a grade of 1 to negative (-) replies. Overall
grades within the range of 5 to 9 indicate that positive answers prevail
or that a majority expects trends to increase, whereas grades within the
range of 1 to 5 reveal predominantly negative replies or expectations
of decreasing trends.
The survey results
are published as aggregated data. The aggregation procedure is based on
country classifications. Within each country group or region, the country
results are weighted according to the share of the specific country's
exports and imports in total world trade.
CES - Center for Economic
Studies - is an institute within the department of economics of Ludwig
Maximilians University in Munich. Its research, concentrating on public
finance includes many diverse areas of economics.
Ifo Institute for Economic Research is one of the largest economic research
institutes in Germany with a three-fold orientation: to conduct economic
research, to offer advice to economic policy-makers and to provide services
for the research and business communities. The Ifo Institute is internationally
renowned for its business surveys.
CESifo is the name under which the international service products and
research results of both organizations are published.
World Economy: Global economy gains strength
In January 2004 the World Economic Climate continued the upward trend
that set in at the beginning of 2003 (see Figure 1). After the third improvement
in succession the overall climate indicator is at 111.0 (1995=100), considerable
higher than its long-term average (1990 - 2003: 92.97) and is now approaching
its all-time high reached in the beginning of 2000 (117.2 in January and
April 2000). As in the October survey, the improvement resulted from both
more favourable assessments of the current economic situation as well
as from highly positive expectations for the coming six months.
World economy: Sustained economic growth ahead
The overall climate
indicator continued its upturn in January 2004. On the world average,
the economic expectations for the coming six months are - with a rating
of 7.3 on the WES grading scale (which goes from 1 to 9) - at the highest
level since 1985, pointing to a pronounced upswing of the world economy.
Also the assessments of the present economic situation improved considerably
and have now surpassed the "satisfactory" level. However, though
the climate indicator is approaching the past boom level reached in 2000,
the pattern of its components is quite different (see Figure 2): The appraisals
of the current state of the economy are significantly less positive than
in 2000 and the high level of the climate index results mainly from very
optimistic economic expectations. Nevertheless, the data provided by the
new World Economic Survey point to continuing economic upswing in all
surveyed regions of the world. The favorable global conditions are also
expected to have beneficial effect on export/import performance worldwide
and thus on the world trade. In most countries it is expected that in
the course of the next half year the recovery in the hard hit capital
expenditure sector will be more pronounced than in private consumption.
Western Europe: Returning confidence
According to the panel's
responses, confidence in economic recovery is returning in Western Europe
(see Figures 3 and 4). Though the current situation is not yet seen to
be satisfactory, the panel's assessments have followed a positive trend
since July 2003. An improvement of the current economic state has been
reported from all Western European countries, except Denmark, where it
remained unchanged at a highly satisfactory level, and Portugal, where
the still far below satisfactory assessments of the present economic situation
deteriorated somewhat more. The economic expectations have been upgraded
significantly in all Western European countries and are, among all WES
regions, the most optimistic. Both growth of capital expenditures as well
as increasing private consumption are expected to support economic recovery
in the coming year. In the United Kingdom, growth of private consumption
- after strong performance in the recent past - is expected to slow down
somewhat in the course of the next six months. Owing to the region's economic
recovery, imports are expected to strengthen. As the export sector should
recover as well, the trade balance will remain mostly unchanged in all
countries of the region, except Greece and United Kingdom, where WES experts
expect an increasing trade balance deficit.
In the euro area,
Austria, Belgium, Finland, Greece, Ireland and Spain appear to be faring
significantly better economically than the other countries, in particular
France, Germany, Italy, the Netherlands and Portugal, where the present
economic situation is still assessed as far below the satisfactory level.
Among the non-euro
countries, only in Sweden, Switzerland and Cyprus have the assessments
of the current economic situation not yet reached the positive territory,
but they are on the right track, while in Denmark, Iceland, Norway and
the United Kingdom the present economic situation remained good or further
improved.
North America: Growth will continue
The latest survey
results indicate that the economy in North America will remain strong
(see Figures 3 and 4). The economic climate indicator reached an all-time
high of 1985. In particular, the US economy demonstrated, according to
WES experts, a strong performance in January. Given the high level of
consumption and corporate investments, which are foreseen to underpin
further growth, the foundations for further improvement remain favourable.
Exports are expected to grow stronger than imports in the coming six months.
However, given the huge gap between the volume of exports and imports
this will only have a very limited impact on trade-deficit reduction.
In Canada, as a result of strong import growth and decline in exports,
the trade balance is likely to deteriorate. The assessments of the present
economic situation received from Canadian WES participants show some improvement
in January, after having been slightly downgraded in the second half of
2003. The economic prospects for the coming months remain encouraging;
in particular investment activity is expected to be resilient, though
to a slightly lesser degree than in the US.
Eastern Europe: Stabilizing markets
Since the beginning
of 2000 the markets in Eastern Europe have been on a stabilizing course
(see Figure 4). Business sentiments in the region were almost untouched
by the world-wide economic slow-down of the recent years and demonstrated
remarkable robustness against external shocks. Nevertheless, diverging
economic trends were observed in the Eastern European countries polled
by WES (see Figure 8).
The assessments of
the present economic situation in the ten EU accession countries - Czech
Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia
and Slovakia - rated above the satisfactory level in January, on average.
The forecasts for the coming six months point to further economic improvement
in all new EU member states, except Hungary, where also the present economic
situation has been rated below the satisfactory level. The Baltic States
(Estonia, Latvia and Lithuania) remained the strongest economies of the
region, according to WES participants. However, since 2000 also Slovakia
is steadily approaching a high level of business confidence. In all ten
countries, experts expect marked increases in corporate investments for
the first half of 2004.
In the other Eastern
European countries, economic trends observed in January strongly differ.
In Bosnia Herzegovina and Serbia-Montenegro the overall economic climate
is still signaling recessionary trends. The near-term prospects remain
cloudy. In contrast, in Albania and Bulgaria the overall economic trend
points to recovery. In Croatia and Romania, the present economic performance
was rated below "satisfactory", by the WES panel, but the outlook
for the next six months raises hope for an economic revival.
The export sector
is expected to stimulate economic growth in all Eastern European countries
without exception, but also imports will continue to grow strongly. Private
consumption, which markedly increased in the recent past, will expand
somewhat less dynamically in coming months, particularly in Czech Republic
and Hungary, to a lesser degree also in Albania and Croatia. On the other
hand, growth of capital expenditures is generally expected to pick up
in the next six months, laying the groundwork for more growth in the future.
CIS: Strong growth in Russia
The economic upturn
in Russia is gathering momentum, according to the recent WES results.
Domestic demand is already performing highly satisfactorily, and its growth
is expected to continue. Following this trend, imports are expected to
increase stronger than exports in the coming six months, resulting in
a moderate deterioration of the trade balance. Corporate investment performance
is expected to remain solid.
Also in Kazakhstan
the recovery is picking up. The current situation is already judged as
above satisfactory, and the economy should gain momentum during the next
six months. Exports are likely to remain the main driving force. The favorable
general economic outlook also implies further growth of corporate activity.
A much better economic
climate than in the previous October poll has been reported from Georgia.
Both the assessments of the current situation and the outlook for the
first half of 2004 have been revised upward. The overall improvement of
business confidence is probably related to the fact that the new president
of Georgia, Mikhail Saakashvili, has assumed office. Though the main economic
aggregates - capital expenditures and private consumption - are still
judged below the satisfactory level, Georgian participants are fairly
optimistic concerning the near future. Also the export sector is expected
to show resilience.
Positive signals have
also been reported from the Ukraine. The present economic situation has
been described by WES experts as at the satisfactory level; the prospects
for the coming six month - are considered as relatively bright. Foreign
trade performance - both exports and imports - is expected to revive,
as well as capital expenditures and private consumption.
Asia: Economic expansion continues
According to the January
survey results, economic expansion in Asia will likely soon achieve an
all-time high (see Figure 3). The overall economic climate improved due
to a better assessment of the current economic situation, on an Asian
average. The expectations concerning the economic development in the coming
six months remained very optimistic. Domestic demand is forecast to strengthen
in almost all countries. Thus, the improved global and regional environment
is expected to have further positive impacts on exports of all Asian countries.
Bird flu has devastated the region's poultry industry, but the region's
overall economy appears not to have been noticeably affected.
Among the Asian countries
surveyed by WES, India has become the "shining star" economically.
The recovery course taken already in the beginning of 2002 was undisturbed
by the conflict in Iraq or the economic weakness in Western countries
and has escaped the outbreak of SARS in Asia. The present economic performance
has been assessed unanimously with the highest possible marks on the WES
rating scale by all 14 surveyed economists. The conditions for acceleration
of the upswing are considered favorable as well. China, though, has lost
the leading position in Asia concerning business confidence, but remains
amongst the strongest economies in the region. The marks for the present
economic situation are at the highest possible level here too. Alongside
with the export sector, the import sector is also expected to pick up
further, as the growing economy has an enormous demand for row materials
and fuel. Buoyant household earnings do also serve as growth stimulant
in China. However, according to experts' expectations, a moderate slow
down is possible in the coming six months.
The economy in Hong
Kong has obviously recovered from the severe crisis of 2003 faster than
initially expected. Assessments of the present economic state climbed
above the satisfactory level. With regard to the future economic development
the participants are fairly confident. The economic climate index in Japan
also demonstrated a sharp upturn. Capital expenditures as well as private
consumption are expected to strengthen in both countries.
The economic situation
in South Korea and Mongolia remained unstable, but WES experts forecast
improvement resulting mainly from a revival of investment and private
consumption in the coming months. In South Korea exports are expected
to continue to serve as a growth engine.
The bird flu crisis
has damaged Thailand's poultry exports and has had some negative impact
on the tourism industry. However, according to the January survey results
WES experts see no risk of damage for the entire economy. The present
economic situation has been assessed highly positively, and for the near
future the market prospects still look good.
The other Asian economies
- Singapore, Taiwan, Malaysia and the Philippines - continued to demonstrate
fundamental health, according to WES participants. These countries belong
economically to the midfield of the region. The present economic state
is already considered more than satisfactory and is expected to improve
further. Among all Asian countries only experts in Indonesia and Sri Lanka
became somewhat skeptical concerning the near-term economic rebound.
Oceania: Buoyant economy
After a period of
cautious expectations, business confidence in Oceania is likely to benefit
from the worldwide economic rebound. The marks for the present economic
state have been for more than two years highly positive. The downturn
feared in 2003 has not materialized, and business confidence has returned
particularly in Australia, driving the climate indicator to the highest
level since 1995. WES experts forecast stabilization of capital expenditures
and private consumption at the currently high level.
In New Zealand, however,
economic expectations remained subdued, while the current economic situation
has been assessed here very positively too. The economic development in
the country is twofold. On the one hand, bolstered by the strong New Zealand
dollar, the export sector continues to suffer. Consequently, WES experts
forecast further deterioration of the trade balance. On the other hand,
branches not affected by the appreciation of the currency can benefit
from the increased domestic demand in the coming months.
Latin America: Continuing recovery
The latest survey
results confirm economic recovery in Latin America. Both, the current
economic situation as well as economic expectations have been upgraded,
though to a slightly lesser degree than in other WES regions.
Increasing confidence
was reported by Brazilian experts. The assessments of the present economic
situation are above satisfactory, and the prospects for the next six months
point to further economic growth. Government's economic policy is succeeding
in restoring investors' confidence; thus, WES experts reckon on increasing
corporate investments. An even brighter picture of the economic climate
has been drawn by experts in Chile. The economic performance in the country
is remarkably strong, since all demand aggregates are performing satisfactorily
and are expected to gather further speed in the first half of this year.
Colombia and Costa Rica also count among the group of buoyant economies.
The present economic performance is already seen to be satisfactory and
is expected to remain on the upward trend.
Although there were
no further improvements of the economic climate in El Salvador in January,
experts questioned in the survey basically confirmed the favorable results
of the October survey. No remarkable improvement of the less favorable
economic conditions has been reported by experts in Mexico. However, the
economic expectations have been slightly upgraded, promising increasing
dynamics in the corporate investment sector for the coming months.
In Argentina, both
the current economic situation as well as the near-term expectations have
been upgraded, but the economic recovery remains sluggish, indicating
that the economy is not yet out of the woods. The shaky economic state
relates to the fact that private consumption and corporate expenditures
are still weak, however, some strengthening is expected in the course
of coming months.
The economic situation
deteriorated in Peru slightly, but is likely to recover in the foreseeable
future, with exports being the driving economic engine. In Venezuela,
Paraguay and Uruguay the assessments of the current economic situation
also deteriorated or remained unchanged negative since the October poll.
The prospects in these countries, however, are optimistic, as in Latin
America in general. Only in Bolivia, Panama and Ecuador do participants
still not see clear signs of a marked economic upturn in the near future.
Near East: Sound economy
Considering the survey
results, the economic climate continues to be highly favourable for countries
covered by WES in the Near East region, on average. The improvement of
the climate indicator is due to both more favorable assessments of the
current economic situation as well as of the near-term expectations (sees
Figure 11).
According to WES indicators,
the economy in Turkey has overcome the recession and has been on a continuous
recovery course for almost two years. Already in October 2003 the assessments
of the current economic situation reached a satisfactory level. Though
neither the assessments of the present economic state, nor economic expectations
for the coming six months were upgraded in January, the overall economic
climate remains favourable for the coming months. Also experts in Saudi
Arabia see no cooling down of the highly favorable economic climate, though
the export volume is expected to decline slightly in the near term. In
the United Arab Emirates the current overall situation as well as private
consumption and capital expenditures have once again reached the highest
possible marks, and in Iran the same economic indicators follow closely
behind. Thus, optimism for the first half of 2004 seems to be fairly justified.
A satisfactory economic
state has been reported from Bahrain and Jordan, but not so in Israel
and Lebanon: Though the assessments of the current economic situation
improved in both countries, the recovery remains sluggish. However, in
Israel particularly positive expectations were expressed by WES experts
concerning the development of the export sector; improvement of private
and corporate spending is also expected to continue.
Africa: Economic conditions improve
After a period of
weak confidence Africa is likely to profit from the global economic rebound.
The improvement of the climate indicator is due to both significantly
better assessments of the present economic performance and more optimistic
expectations for the next six months. However, the major part of the regional
improvement can be attributed to the increase of the climate index in
South Africa, the largest economy on the continent (see Figure 11).
According to the panel's
opinion, the current economic performance in Egypt has shifted downward
slightly. The confidence in the coming recovery, however, strengthened.
Whereas the weak investment performance and private consumption are not
expected to strengthen, exports should take on a faster pace. In the other
North African countries - Algeria, Morocco and Tunisia - the overall economic
climate brightened, and the marks of the present economic state have reached
or surpassed the "satisfactory" level. Particularly Algeria
is seeking to expand its markets for oil and gas exports and has launched
drastic reforms of its once state-managed economy. Slight improvement
has been also reported from Kenya. According to the panel's responses,
in the coming six months the country will be on course for sustained recovery.
The still sluggish investment performance and the exports are not expected
to improve, but the private consumption should get moderately better.
In Nigeria the assessments of the current economy have not been upgraded;
the outlook, however, remains relatively optimistic. The situation in
Zimbabwe has been bleak for more than six years.
Inflation will remain moderate
An average 2.7% increase
in consumer prices is expected for the world economy in 2004, which is
slightly lower than the latest estimate for 2003 (2.9%) and much lower
than the estimate at the beginning of last year (3.2%). In the euro area,
inflation for 2004 is seen to remain close to the 2% mark (1.9%). The
range of inflation estimates in the euro area is expected to shrink; in
Ireland, where inflation was highest within the euro area in 2003 (3.6%),
a rate of 2.6 is expected for 2004. The lowest inflation rate within the
euro area will still prevail in Germany with an expected rate of 1.3%
after 1.1% in 2003. The low German inflation rate will in Western Europe
again only be beaten by Switzerland with a rate of 0.8% after 0.7% in
2003, according to the WES experts (see Table 1).
In the United States no change of the inflation rate is expected (2.2%
in 2004 and 2003). Thus, the expected inflation rate in the US remains
clearly under the 2.5% mark that the Federal Reserve (Fed) would still
consider acceptable. From this side there is no need for the Fed to start
the monetary tightening process soon. Of all surveyed country blocs, Asia
again displays the highest price stability. However, in comparison with
last year a somewhat higher inflation rate is expected now (1.6% instead
of 1.3%). This slight increase of the Asian average is broadly based;
in China inflation is expected to stand at 2.0% in 2004 after 1.6% in
2003 and in South Korea at 3.4% after 3.1% in 2003. Japan is gradually
leaving the deflationary phase with an expected decline of consumer prices
of only 0.2% after a minus of about 0.4% in 2003 and -0.8% in 2002.
Inflation in Central
and Eastern Europe is expected to increase from 4.2% in 2003 to 4.9% in
2004. The likely pickup of prices, according to WES experts, is particularly
strong in Hungary, with a presumable rate of 6.9% in 2004 after 5.3% in
2003. On the other hand, a slowdown of the relatively high inflation appears
likely in Romania (from 13.8% in 2003 to 10.8% in 2004) and in Serbia-Montenegro
(from 9.0% to 5.8% in 2004).
In Central and Latin
America the still strong inflation trend is likely to decrease further,
with an average of 6.6% in 2004 after 7.8% in 2003. The highest inflation
rate persists in Venezuela, but the curve is flattening here too (29.4%
after 31.9% in 2004). In Africa - starting from a still high inflation
level - a further weakening in the rate of price increases is recognisable
(12.7% after 16.9% in 2003). However, the average for Africa is still
distorted by the persisting hyperinflation in Zimbabwe (550%); without
Zimbabwe the average inflation rate for Africa would be slightly below
7%. In South Africa, the inflation estimate declined from 6.3% in 2003
to 4.6% in 2004.
Growing overvaluation of the Euro
More than in the previous
survey the euro was assessed as overvalued on average of all 92 included
countries (see Figure 6). To a lesser degree this judgement holds true
for the British pound. On the other hand, the US dollar was seen by even
more WES experts than in the previous two surveys as undervalued. A similar
result was last observed at the end of 1996. The Japanese yen appeared
to be close to its fair value. This overall pattern of currency assessments
also characterises Western Europe. It was remarkable, however, that the
US dollar and the yen were seen more often as undervalued by Western Europe
experts than on the world average. In the United States the exchange rates
of the euro, the British pound and also the yen are seen as overvalued.
In Australia the own currency appears to WES experts as slightly undervalued
vis-à-vis the British pound and the yen; the euro and also the
US dollar were seen as fairly valued. WES experts in South Africa continue
to assess the rand as overvalued, in general. In the Asian countries,
on average, the dollar is seen as undervalued, the euro and the British
pound as somewhat overvalued and the exchange rate of the yen as largely
appropriate.
According to the responses
to the supplementary survey question on the development of currencies,
the US dollar will slip further vis-à-vis most currencies in the
course of the next six months. This conclusion holds particularly with
regard to currencies in Canada and Australia but also for those in Western
Europe, Russia and the majority of Asian countries.
Interest rates: Begin of tightening cycle expected
More than in the previous
survey short-term interest rates are expected to start rising in the course
of the next six months (see Figure 5). Central-bank interest-rate hikes
are still seen as more likely in the US than in the euro area. In the
United Kingdom and in Australia the monetary tightening course is expected
to continue. In Western Europe outside the euro area, also increasing
interest rates are expected in Denmark and Switzerland. However, in Sweden
and Norway the WES participants continue to assume that interest rates
will fall slightly. In Eastern Europe most survey participants indicated
that interest rates will remain stable in the course of the next six months,
whereas until now expectations of sinking short term rates prevailed.
However, within the Eastern European countries there remain large differences
in the likely central bank policy. In Slovenia, Slovakia, Hungary and
also Bulgaria cuts of short-term rates are expected in the course of the
next six months, whereas rising rates appear to WES experts more likely
in the other Eastern European countries like the Czech Republic, Estonia,
Croatia, Poland, Lithuania and Latvia. In Latin America sinking short-term
rates are expected in Brazil and stable central-bank interest rates in
most other countries of this region. Only in Venezuela, Peru and also
Mexico are raising central-bank on the horizon, according to WES experts.
In most Asian countries - after an extended period of falling and later
on stable interest rates - now a switch to monetary tightening appears
likely. In contrast, in the Near East and also in Africa as a whole, especially
in South Africa, the interest-rate trend continues to point downward.
Parallel to the expected
increase of short-term interest rates, an increasing trend is also reckoned
with quite clearly for capital market interest rates. The only exceptions
are South Africa, Latin America (here particularly Brazil), the CIS countries
including Russia and some Eastern European countries, particularly Slovenia,
Slovakia, Hungary and Bulgaria, where a further drop in long-term rates
is expected.
ICC Special Question: Growth of terrorism and its effect on business
According to the recent
survey results, a global economic upturn has set in. On the other hand,
as has been demonstrated by 11 September 2001 and later terrorist attacks,
terrorism not only hits the stock markets but can also cloud the business
climate and weaken growth prospects. The special question asked in the
January poll focused on the growth of terrorism and its impact on business.
The first part of the question analyzed how the fears of terrorist attacks
have affected business prospects for 2004 for the respective country.
The second part dealt with the impact of cost increases for business resulting
from government security measures implemented after the 11 September 2001
attack on the World Trade Center.
Have fears of terrorist
attacks affected business prospects for 2004?
The main objective of terrorism is to hit psychologically and to create
fear. The major negative impact on business from the terrorist attack
of September 11 derived not from the collapse of the towers but from global
uncertainty. Some sectors were particularly affected by the fear of terrorism,
such as the airline industry and tourism, as people were afraid to travel.
The majority (51%) of 1088 WES experts polled in over 90 countries see
a slight impact from the fear of terrorism on business prospects in 2004.
Worldwide 7% of all participants see a severe or very severe impact on
economic recovery (see Figure 12). In CIS and the Near East, the share
of WES participants who were concerned about a severe or very severe impact
of terrorism on the business climate in the region was particularly pronounced
(25%). But also in Asia and in North America the share of participants
expecting severe or very severe impact on business prospects in 2004 was
relatively high at 9% (in Indonesia even 38%).
How big are the cost
increases for business resulting from government security measures implemented
after the 11 September 2001 attack on the World Trade Center?
For the majority of countries, experts polled by WES reported negligible
(56%) or only moderate (39%) cost increases for business resulting from
government security measures (see Figure 13). However, the share of experts
who stated that cost increases have been heavy or very heavy is considerable,
in particular in North America (19%), the Near East (14%), in CIS (9%)
and in Oceania (8%). In general, countries are differently affected worldwide
by governments' security measures (see Table 2 for the country breakdown).
Return
to news item
|