The world economy is set for a powerful and sustained recovery in 2004, says José-María Aznar. But, to create and maintain the necessary global confidence, governments around the world must strengthen their commitment to policies aimed at reducing poverty and at boosting trade, employment and growth
The past few years have been a difficult time for all the world’s economies. The early 21st century has seen an economic slowdown virtually throughout the world.
But there were clear signs of economic revival in 2003. Business seems to have recovered from the lowest point of the cycle and growth is beginning to emerge again.
In the United States, all the indicators suggest that 2004 will be a great year. Although the US economy suffered the effect of several major shocks just a few months ago, it is now enjoying a period of sustained growth coupled with low inflation.
This is confirmed by the economic data in recent months and the even better forecasts for 2004 – of around 4% GDP growth.
The macroeconomic policies undertaken in recent years and the extraordinary potential of the US economy are beginning to produce effects. The confidence of those predicting an economic recovery now seems to be fully confirmed.
Latin America has also experienced some difficult years. But 2004 should mark the final breakthrough for its economies, following signs of incipient recovery in 2003.
The latest forecasts indicate that the Latin American economy as a whole will grow by more than 3.5%. For the first time since 1997, it is forecast that no country in the area will experience negative growth in 2004.
This is good for everyone, especially for the citizens of Latin American countries, who see their opportunities for employment and prosperity growing. But it is also good news for domestic and foreign investment.
At the moment, Spain is the second largest investor in this part of the world, after the United States. Our companies have been making enormous and permanent investments in Latin America – increasing their inflows even during the most difficult years.
There are now signs of hope for the region. The costs of external financing fell last year to levels below those seen during the Asian crisis of 1997. The Latin American foreign sector has been the most dynamic sector of the economy, with generally beneficial effects. The favourable balance of trade will contribute towards Latin America achieving the first current account surplus for 50 years.
Recovery in Latin America is a fact, but the weaknesses that still exist must be overcome. The region’s economies must intensify the reforms that are needed to make themselves more resistant to economic disturbances. In bad years, we must not lose the benefits reaped in the years of prosperity.
Several countries in the area recently received praise from the International Monetary Fund for the way they have conducted their economic policies, underlining the discipline of the fiscal and monetary policies and the structural reforms undertaken.
I do not know any better way of regaining the confidence of institutions, investors and citizens. A recovery in growth should be based on this confidence, on expanding export capacity and on attracting foreign investment.
I firmly believe that international trade is the key weapon in reducing poverty, and creating employment and economic growth. In the past, we have seen how those countries that have penetrated the major international markets through trade, and have intensified their relations with the global economy, have grown more than those that have not done so.
This is an important recipe for all developing countries, and also for those of Latin America. It is the key to success in the fight against lack of growth, poverty, unemployment and insufficient resources for productive investment.
The round of commercial negotiations that began in Doha in November 2001 marked the first opportunity for the interests of the developing countries to be placed at the centre of multilateral commercial negotiations.
In this connection, the result in Cancún was not good news for anyone, and was particularly bad for the developing countries. A new agreement needs to be reached, within the framework of the World Trade Organization, for the liberalization of international trade. Only then will we be able to generate the confidence that the international economy needs and fully integrate the developing economies into the global agenda.
In the European Union, for its part, signs of recovery also appeared during the second half of 2003. All the forecasts indicate that growth in the euro area will take place in the next few years.
Both the European Commission and the OECD estimate growth in Europe at 1.8% in 2004, and in 2005 it will easily exceed 2%. Europe had a problem of low growth in the 1990s. For this reason, the heads of state and government of the European Union agreed in Lisbon, in 2001, to initiate an ambitious agenda of economic reforms – compatible with maintaining the macroeconomic stability that has characterized the European economy.
Today, more than ever, there is consensus for economic reforms in Europe. This is evident from the initiatives positively launched by several countries and the Europe-wide initiatives for a flexible, competitive economy, capable of developing its full economic potential.
Finally, I would like to refer to Spain. Over the past eight years, we have developed a long-term economic project based on two pillars.
The first is macroeconomic stability, which is essential if we are to create a suitable framework in which economic activity can develop. And the second is the commencement of major structural reforms.
Taken together, the culture of economic stability and the reforms have made a decisive contribution to increasing the dynamism of the Spanish economy, which recently became the eighth-largest in the world.
Spain has been producing good results within Europe’s Economic and Monetary Union with regards to growth and the creation of employment – growing by a rate 2% above average in the euro area in 2003 and maintaining high rates in the creation of employment, despite the global economic slowdown.
These results are no accident. They are the result of a well-planned and efficient economic policy – a policy that has generated confidence, which is essential for the consolidation of economic recovery in the years ahead.
The challenge is clear – not just in the European Union, but in other areas as well. Efficient economic policies are needed, based on openness, flexibility and macroeconomic stability.
This will promote confidence, which is the key to the achievement of the new global stage of growth and prosperity that we all aim for.
José-María Aznar is the prime minister of Spain