RECAP OF FORECAST OF MACROECONOMIC CONDITIONS FOR NEAR TERM IN U.S., JAPAN AND EUROPEAN UNION
In the U.S., low interest rates, rising consumer retail spending, household consumption and rising industrial production in both the auto and high-tech sectors are driving the economy forward. Real GDP growth reached two and one-third percent growth in the first half of this year, driven by personal consumption, defense spending and residential and non-residential fixed investment. The one major economic concern is over the slow reconstruction efforts in Iraq, which is decreasing consumer confidence and delaying faltering U.S. economic recovery. This could possibly result in holding back recovery in the rest of the world.Japan is seeing improved corporate profits and increased business fixed investments. Yet, persistent weakness and a continued dependency on the U.S. economic growth have allowed only marginal increases in global output. Due to the fact that acceleration in the growth rate of overseas economies is needed to jump-start an economic recovery in Japan, whom is not in a position to generate a self-sustained recovery, domestic demand is unlikely to gain momentum. According to the International Monetary Fund, unemployment in 2003 could reach a historical high of 5.6 percent. The only foreseeable means of reversing the depressing demand over the long term is two-fold: better job training in order to increase output per capita, and a significant reform to increase flexibility in the labor market.
In the European Union, personal computers replacements led to increased investments and a strengthening of consumption throughout this year. Rea GDP grew by one-tenth of a percent in the first quarter of 2003, supported by an increase in private consumption. Doubts of the sustainability of increased economic activity in the euro zone has led to projections of seven-tenths of a percent increase in real GDP, down from the two percent originally predicted. The U.S. between 1996 and 2002 has outpaced living standards in the European Union by four-tenths of a point a year, and the gap is expected to persist for the next five years. Despite structural unemployment expected to decline quite little over the near future, there is a possibility of a mild recovery in 2004, depending on the speed of the recovery of the U.S. economy and improvements in global business investments.
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