pessimism is one of them and has permeated many economic circles and is in itself a worrying phenomenon. this is reflected in the fact that the recent recovery, instead of being compared to stronger previous cyclical recoveries, is compared to the worst phases of the cycle - the declining output towards the end of 2002 and the first half of 2003. in the same vein, a very low potential rate of growth of barely above 2 % per year for the euroarea is considered by many as a normal benchmark against which outcomes are measured. therefore, a 0, 5 % shortfall, i. e. a rate of growth in the euroarea of about 1. 5 % as is projected for 2004, is implicitly considered broadly satisfactory, despite the fact that there is still a negative output gap. given the interaction between actual gdp growth and potential growth, a sharper rebound of the euroarea, as was the case in cyclical upturns in the past, would by itself have raised the rate of growth of potential gdp. indeed, if assisted by bold structural reforms the rate of growth of potential in the euroarea could be raised to over 2. 5 %, the same rate as in the 1980s and a rate more normal for mature economies. the potential rate of growth of the us has averaged just over 3 % over the last twenty five years. if too much pessimism regarding the potential rate of growth dampens actual growth and, therefore, may to some extent be self - fulfilling, equally dangerous is over - optimism, or better ( to use the famous words ) irrational exuberance, that is quickly disproven. what is needed is a sober assessment of the situation and the introduction urgently of appropriate structural reforms, so that not only macro - but also micro economic policies are geared to supporting a stronger non - inflationary growth than today. though the cause of to - day ’ s ills in the euroarea are essentially of domestic origin, i hinted earlier that exchange rate policies followed by certain heavy weights in international trade have resulted in a real effective appreciation of the euro more than is warranted and, moreover, it seems that from a dynamic point of view the appreciation is much greater than the published figures show, which are necessarily based on past data. as a result, whereas the euroarea, one of the richest regions of the globe should have had a sizeable current account surplus so as to fulfill its natural world role as

, some 10 %, but unless it clears its foreign debt hurdle there is no guarantee that the recent performance will continue over the medium term. russia and a few transition economies also show strong growth, although, as in the case of many latin america countries, the boom in raw materials and energy prices has significantly contributed to this outcome. to a large extent, this world recovery is due to the strength of the asian economies, which have overcome the trauma of the crisis in 1997 - 98 and are now growing again at rates around 6 - 7 percent. it is not only the asian dragons and china ( the latter leading with a rate of growth of slightly above 10 % annually ), but particular mention should also go to india, which is now reaping the benefits of the liberalization it introduced after the mid - 1990s and is now growing at 7 %, a rate more than double its customary 3 percent. it should be recalled that the us is also growing rapidly and its import demand has continued to be a source of growth for the world economy. whereas some 10 years ago the e. u. was the main beneficiary of dynamic us demand, nowadays the center of gravity has moved to the pacific rim. this is reflected in a rate of growth of world trade in the pacific rim estimated at about 11 % on average in 2003 / 2004, which is more than three times the corresponding rate of growth of the overseas trade of the eu. in 2003 more than one quarter of the increase in world trade was due to china, whose international trade grew at almost 40 % last year. the east asian tigers ( korea, taiwan, thailand, malaysia ) have been dwarfed by a colossus which, however, has the vitality of a tiger. in order to better gauge the growing role of china in the world economy, assuming that its high growth rate continues, we can calculate that the annual increment of its gdp in the years to come is as if a country of almost the size of spain ( the 9th biggest market economy worldwide ) was being integrated into the world economy every year. accelerating growth is taking place in a non - inflationary climate, with price increases remaining at or below 2 percent in the developed world and in many emerging economies. we can now take comfort that we have, at least temporarily, tamed the beast of inflation that bedeviled our economies in the 1970s and 1980s, while the fears of deflationary pressures that were widespread last summer have certainly not materialized