t t mboweni : prospects for the global economy in 2002 speech by mr t t mboweni, governor of the south african reserve bank, at the nieman society of southern africa annual dinner, cape town, 9 february 2002. * 1. * * introduction ladies and gentlemen. i thank you for inviting me to speak at this, your annual dinner. i congratulate you as a group of individuals who have been recognized for your excellence. you have a responsibility to continue this pursuit of excellence. indeed, this should be a guiding characteristic for all of us. the year 2001 can appropriately be described as a depressing year. it started with the sudden cut in the us federal funds rate, which marked the first official acknowledgement of the unexpectedly sharp and sudden downturn in the us economy. the slowdown of the us growth juggernaut after almost a decade of exceptional growth had a profound effect on most countries and regions. initially there was a widespread belief that the euro area would be insulated from the fallout, given the high levels of intra - regional trade. it soon became clear that this optimism was misplaced, and that europe would not replace the us as the locomotive for world growth. not surprisingly, most emerging markets followed soon after. this was particularly the case in the technology - dependent asian countries which were badly affected by the bursting of the nasdaq bubble. the generalised slowdown was further exacerbated by the tragic events of september 11, which turned out to be the low point of a bad year. although 2002 started off with many economies either in recession or close to it, the mood is one of cautious optimism that the worst of the global downturn is behind us. growth forecasts are being continually revised by all the major fund managers and multilateral organisations. the latest forecast from the international monetary fund in december is for world growth of 2, 4 per cent, the same as for 2001. however this figure was marked down significantly from the 3, 5 per cent predicted in the october world economic outlook ( weo ). the latter forecasts had been prepared before the september 11 events. despite the significantly lower global growth forecast, these numbers do assume a recovery from the second half of the year. 2. increase synchronisation of cycles the current downturn has strongly reinforced the pivotal role of the us economy. strong us growth had been instrumental in overcoming the asian crisis of 1997 / 8. the story could have been very different had the us

one factor that could offset this is the continuing emergence of china which has to a large extent been shielded from the downturn. at the east asia regional summit of the world economic forum held in hong kong in october of 2001, developments in the chinese economy dominated the discussions. although the emergence of china was seen as positive for the region, it was also viewed with some trepidation in some of the countries, particularly hong kong. it is an irony that the most closed economies in asia i. e. china and japan, determine the future prospects of some of the most open economies in the world. growth projections for asia were also revised down by the imf, with recovery delayed into 2002. the newly industrialised economies of asian and asean were badly affected by the lower european, japanese and us growth and the collapse of the global electronics cycle, with hong kong and singapore being particularly vulnerable, and taiwan experiencing its first recession since world war ii. these countries are only expected to grow by around 1 per cent in 2002. the forecast for the asean countries for 2002 is 2, 9 per cent, although for developing asia the forecast is 5, 6 per cent, buoyed by a 6, 8 growth forecast for china. although the outlook for this region is relatively bright, particularly given the lower dependence on external capital flows, its heavy exposure to the electronics cycle make it vulnerable to developments in that industry. 8. latin america the outlook for latin america remains overshadowed by developments in argentina, but it appears that the worst of the contagion effects appear to be over. although the argentinean crisis was not caused by the general world downturn, the satisfactory resolution of the crisis in argentina does have an implication for the general ‘ risk appetite ’ in the industrial countries, and therefore for capital flows to emerging markets in general. the adjustment in argentina is likely to be painful, and drawn - out, and is likely to remain a source of economic uncertainty and instability for some time and the recession is expected to persist through 2002. latin american growth in general is forecast to be 1, 7 per cent in 2002, with mexico having the lowest growth forecast at 1, 2 per cent ( apart form argentina ). mexico ’ s membership of nafta makes it more vulnerable to economic downturn in the us, whereas other latin american countries have greater trade exposure to europe. external financing requirements are relatively large in this region, and growth prospects will therefore be affected by a resumption of ‘ normal ’ capital flows