file2 - CHAPTER 1 The Setting: World Economic Developments...

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G lobal economic and financial conditions improved during the financial year, 1 as the world econ- omy proved more resilient to the financial crises that erupted in 1997–98 than initially believed (Table 1.1 and Figure 1.1). On average, output growth picked up or remained strong in the advanced economies, the developing countries in Asia, and the countries in tran- sition, but slowed in Africa, the Middle East, and the Western Hemisphere. Core inflation was broadly stable or fell in most regions, but fiscal and external imbal- ances remained problematic in some countries. Finan- cial flows to emerging markets picked up in 1999 and the cost of finance eased somewhat, but the situation was fragile and impeded recovery in many countries. At the same time, buoyant demand in North America and growing demand in Europe and parts of Asia provided needed export markets for countries emerging from recession. Other key developments during 1999 and early 2000 included the rise in world oil prices to their high- est levels since 1991, with a bottoming out of many other commodity prices; a firming of interest rates in advanced economies, except in Japan; and gains in most equity markets, driven especially by share prices of technology-related firms. Systemic economic or finan- cial problems related to the year 2000 (“Y2K”) com- puter bug failed to materialize, in part because of the planning and remediation efforts undertaken by the private sector, governments, and international institutions. The pace of economic activity rebounded in the developing countries as a group in 1999/2000, largely because of the gains made in the crisis-affected coun- tries in Asia, and to a lesser extent in Russia. In Latin America, by contrast, economic output was unchanged on average, but did not decline sharply as was initially feared when a financial crisis struck the region in late 1998 and early 1999. Indeed, industrial production began to recover in the larger countries in the region by mid-1999. Among the advanced economies, diver- gent output trends remained evident. The expansion continued apace in North America, the United King- dom, Australia, and some smaller European countries, but slowed modestly in Europe for the year as a whole. The largest countries in the euro area, however, showed increasing momentum in the second half of 1999 and into 2000. The Japanese economy remained weak in 1999, with wide demand fluctuations through the year. This global environment of strong demand and recovery in some areas but weak conditions in oth- ers helped to set the stage for developments in com- modity and financial markets and a pickup in world trade. Global Environment In commodity markets , world oil prices nearly tripled from low levels of about $10 a barrel in late 1998 and early 1999; prices remained in the $25–$30 range through the end of the financial year. This price rise was attributed in part to voluntary supply restraints by some of the major oil producers and to the unexpect-
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file2 - CHAPTER 1 The Setting: World Economic Developments...

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