Abstract

The International Monetary Fund (IMF), in its annual meetings in Dubai on 23-24 September, 2003, predicted that world economic growth would increase from 3.8% in 2002 and 3.2% in 2003 to 4.1% in 2004. Strong demand in the USA, rapid growth in China, increasing business confidence in Europe and signs of recovery in Japan have led to this optimistic prediction. But even as the outlook for the global economy has improved, some structural issues need to be addressed. Ex-cessive reliance on America is one of the biggest problems facing the global economy. Since 1995, almost 60% of the cumulative growth in world output has come from America. If American demand drops significantly, the world may tumble into recession. At the same time, many economists believe that the scope for sustaining American demand is limited. Americans are spending far beyond their means, with their budget and trade deficit seemingly out of control. Mean-while, Europe is having problems of its own. The big economies like Germany, France and Italy are yet to come to grips with structural problems like unemployment and pension reforms. Despite the resurgence of the euro, the long-term outlook for Europe does not present a completely rosy picture. Germany, Europe’s economic engine is going through a major economic crisis. And Japan, the second largest economy in the world, despite the signs of a slow recovery, has not shown the political will to go ahead with serious economic reform. The case discusses the prospects for the world economy in early 2004.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

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Keywords

The world economy, USA economy, Dubai, International Monetary Fund (IMF), Growth rate of 4.1%, US Bureau of Economic Analysis, Federal Reserve, Japan economy, Great Depression, Budget deficit, German economy, Europan Union economy, France economy, Asian, Central banks, global trade