The contagion effects of the crisis on other emerging markets have so far been contained as these countries have responded quickly to sustain market confidence by adapting economic policies and strengthening financial systems. A temporary slowdown in growth is expected in light of reduced capital inflows and the impact of economic policy adjustments. Nevertheless, most countries should continue to perform well in the years ahead, as the economic stabilization and reform efforts of recent years bear fruit. Resolution of the Asian crisis requires that the major industrial countries pursue policies to sustain open, growing economies. In the United States, growth is expected to continue at a sustained pace consistent with the productive potential of the economy.
Inflation remains subdued, and cost pressures well-contained.
The budget will be in surplus this year for the first time in nearly 30 years, with further substantial surpluses over the next five years. However, a global expansion concentrated in only a few countries experiencing increased domestic demand would quickly become unbalanced and contain the seeds of future difficulties. How successful Europe is in this regard will have a lot to do with the success of EMU itself and its contribution to international monetary stability. We are beginning to see signs that the current recovery is becoming wider and deeper. However, unemployment remains at extremely high levels, and a significant reduction will necessitate implementation of labor market reforms and greater openness of product and financial markets.