Last year, economic forecasters predicted the world would see the dawn of a "new economy": A global economy free from business cycles, powered by the efficiencies of online commerce and firmly rooted in international trade and deregulated markets.
But 2001 turned out to be a year of global economic crisis. The United States, home base for the new economy and most of the technological innovations that spurred its growth, plunged into recession. Europe, too, saw economic growth within the 12-nation "Euro-zone" slump 1.75 percent in 2001 and the decline could dip below 0.5 percent if American business fails to recover this year.
Then came Sept. 11. The economic fallout from the terrorist attacks dealt a terrible blow to economic prospects almost all over the world. Consumer confidence suffered almost everywhere.
While forecasters remain uncertain if the global economy will fully recover in 2002, there are encouraged that the US economy — always a leading indicator of the world economic outlook — appears likely to rebound sooner than expected.
For 2002, the Washington-based International Monetary Fund (IMF) now expects an overall growth in the world economy of 2.4 percent. The IMF sees Euro-zone growth in 2002 at 1.2 percent, down from 1.5 percent EU countries in 2001. That would be Europe’s weakest economic showing since 1996.
The IMF says the current economic woes of Europe and Japan are a result of their failure to undertake needed reforms. If these reforms had been implemented in time, says the IMF, these economies would not have suffered when the US expansion ended in March 2001. The IMF believes European countries should be more flexible on fiscal policy, allowing governments to continue spending despite lower revenues.
However, experts see a brighter economic future for the US: Last month, the Conference Board, a private, New York-based economic research group, said its consumer confidence index in December posted the biggest increase in nearly four years and landed at a level associated with expansion rather than recession. The Conference Board believes the more upbeat mood among US consumers was spurred by small improvements in the job market and a big increase in optimism that the economy will recover in 2002.
Economists note that an increase in confidence among consumers, who fuel two-thirds of US economic activity, can be self-fulfilling because it spurs Americans to spend more on homes, cars and other items. Their increased spending, in turn, causes a pickup in economic growth, both in the US and aboard.
But analysts caution that the economic improvements seen in recent weeks are only tentative and could be reversed easily.
New claims for unemployment benefits, for example, have declined to levels of about 400,000 in recent weeks after shooting up to more than 500,000 in the wake of the Sep. 11 terrorist attacks. But companies have continued to issue layoff notices at a rate that points to further increases in unemployment in 2002.
Also, new jobs remain hard to find. A measure of help-wanted advertising, published by the Conference Board, has fallen by half in 2001 to the lowest levels in decades and employment counselors report that laid-off workers are finding that it takes five months on average to get a job.
While American consumers appear on the verge of recovering from what would be one of the briefest consumer recessions in history, the nation’s manufacturers also are enjoying a rare rebound from a yearlong recession that has been among the most severe in decades.
A report from the US Department of Commerce last month found a second straight monthly increase in orders for big-ticket manufactured goods such as machinery, computer equipment, electrical equipment, autos and other non-defense goods.
