December 8, 2002  Most of the economics data for this year has been processed, and the global economy appears to have recorded a mixed macroeconomic performance.  It has been partly cloudy and partly sunny on a country by country basis for most of the year.  Many countries are slowly recovering from an economic slowdown in 2001, but few have returned to the robust growth experienced in 2000; and by the year's end most countries will have performed even more poorly this year than last year.

One economic barometer is the rate of growth in a country's real GDP.  On this basis and taken as a whole, the advanced economies will have grown by approximately 1.7% this year compared to 0.8% last year and 3.8% in 2000.  The recession in Japan is a notable exception to these early indications of mild recovery.  Elsewhere, emerging Asian economies will have grown by 5.9% this year compared to 5.0% last year and 7.0% in 2000.  Regions growing more slowly this year than last year (called a growth recession) include Western Europe, Eastern Europe, the Commonwealth of Independent States, Africa, and the Middle East.  Along with Japan, the worst economic performances recorded this year will be from economies in the Western Hemisphere, where real GDP is actually declining -- dramatically in some countries.

Slowing economies are generally accompanied by disinflation, but no so in the Western Hemisphere.  Several key countries in this region are experiencing stagflation -- a combination of recession and rising price levels.  Led largely by accelerating inflation in Argentina, Uruguay, and Venezuela, the region will experience an increase in consumer price inflation from 6.4% last year to 8.6% this year.  The rest of the world appears to be behaving more traditionally.  In many countries the rate of inflation in consumer prices has been falling steadily for the past two years or more.  This year the average inflation rate for the advanced economies will be about 1.4% compared to 2.2% last year and 2.3% in 2000.  Japan, Hong Kong, and China are experiencing deflation.

Slowing economies also generally experience rising cyclical unemployment, and this year appears to be no exception.  The average unemployment rate for the advanced economies will have increased to 6.4% this year compared to 5.9% in each of the previous two years.  The unemployment rate in the United States rose to 6.0% last month.  The combinations of frictional and high structural unemployment along with rising cyclical unemployment has brought the unemployment rate in the euro area this year to over 8.0%.  Unemployment in Germany has risen to 8.3% this year compared to 7.8% last year.  The unemployment rate in Japan has reached a contemporary record 5.9% in the wake of its on-going recession.  In contrast, rapidly growing economies generally experience declining unemployment.  Australia's unemployment rate has descended from nearly 7.0% last year to barely over 6.0% this year as its economy's real GDP rate of growth has increased from 2.6% last year to 4.0% this year.

The Sunny Economies in 2002

Australia was one of the few bright spots in the global economy in 2002.  It is the only advanced economy to experience a rate of growth faster this year than last year and faster than in the year 2000.  Other economies in the world to share this distinction include Peru, Pakistan, the Slovak Republic, Cote d'Ivore, Ghana, Kenya, Tanzania, Uganda, Iran, and Jordan.  These countries have experienced accelerating growth for two or more consecutive years.

The Partly Sunny - Partly Cloudy Economies

Many economies grew faster this year than last year but not as fast as they did in 2000.  The United States and Canada are examples of this among the advanced economies.  So are Sweden, Denmark, Finland, Norway, Korea, Taiwan, Hong Kong, Singapore, and New Zealand.  In Central America and the Caribbean the countries that accomplished more rapid growth this year than last year were the Dominican Republic, Guatemala, and Mexico.  In Asia the countries in this category include Indonesia, Malaysia, Philippines, Thailand, India, China, and Vietnam.  Two other countries are Turkey and Malta.  These countries are in the early stages of economic recovery from either a recession or slowdown last year.

The Partly Cloudy - Partly Sunny Economies

Most counties experienced a slower rate of growth this year than last year, but managed to avoid slipping into a recession (i.e., a decline in real GDP).  Among the advanced economies that fall into this category are Germany, France, Italy, United Kingdom, Spain,  Netherlands, Belgium, Austria, Greece, Portugal, Ireland, Luxembourg, and Switzerland.  In the Western Hemisphere the economies are Brazil, Chile, Colombia, and Ecuador.  Economies from other parts of the world in this category are Bangladesh, Estonia, Latvia, Lithuania, the Czech Republic, Hungary, Poland, Slovenia, Bulgaria, Cyprus, Romania, Russia, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Ukraine, Belarus, Tajikistan, Uzbekistan, Algeria, Morocco, Tunisia, Cameroon, Saudi Arabia, and Egypt.  These countries experienced a slowdown in the rate of growth in 2002, which is sometimes called a mini recession.

The Cloudy Economies in 2002

Only one economy is in a traditional recession, experiencing a decline in real GDP in 2002 along with notable disinflation or deflation.  Japan's economy shrank by -0.5% last year, while unemployment rose to 5.9% and prices fell by -1.0%.  A few unfortunate economies are in stagflation.  The real GDP declined and consumer prices rose in 2002 in Iceland, Israel, Argentina, Uruguay, Venezuela, Nigeria, and Kuwait..  These are the worst performing economies in 2002, because output is falling while unemployment and prices are both rising.  Argentina holds the unenviable distinction of being the worst performing economy in 2002.  Its real GDP fell by -16.0%, nearly one fourth of the labor force is unemployed and inflation is probably under estimated to be 29%!

The table below presents macroeconomic data in 2002 for a selection of countries representing each of the four categories discussed above.

Macroeconomic Performance: Selected Countries 2002
ment %
United States
United Kingdom
Sources: IMF. World Economic Outlook and The Economist Magazine

The image below presents the macroeconomic performance of these countries on the playing field of The Global Economics Game.  It reveals that most of the economies experienced less than 4% growth in 2002 and that many of the economies experienced a decline in their rates of growth.  Argentina, Russia, the United Kingdom, Germany, and Japan all experienced slower economic growth in 2002.  The red arrows indicate that the United States, Mexico, Australia, Canada, and China grew faster in 2002 than they did in 2001. [Editor's note: When an economy's flag moves from left to right on the playing field, it indicates accelerating growth.  When it moves from right to left on the playing field, it indicates an economic slowdown or recession.  Cyclical unemployment increases when an economy's production slows down or declines.  Moving up the playing field indicates inflation.  Moving down the playing field indicates disinflation or deflation.  The numbers in the playing field show a country's score as it attempts to balance growth, pollution, inflation, and unemployment.  Black numbers are positive; red numbers are negative.  The objective is to land in or near the center square.  The worst possible locations for an economy to be are in the corners of the playing field.   The placements of the countries on the playing field based on IMF statistics are only approximations.]

When analyzing all of the macroeconomic data for 2002, one gets the impression that the global economy is trying to bring back the sunny days of robust growth and descending unemployment that it enjoyed two years ago.  Aggregate supply continues to increase due to rising productivity driven by privatization, technological advances, freer trade and globalization; but the aggregate demand clouds of weak consumer confidence, timid investment in real capital, bearish equity markets, tardy monetary policies and anemic fiscal stimulus packages are blocking out the sun and diminishing the chances for a strong economic rebound in 2003.

What is the the global economy's forecast for next year?  That's anybody's guess.  It may rain global recession and deflation due to severe weaknesses in aggregate demand, or it may continue to be partly cloudy and partly sunny, or it may rebound on the sunshine of eternal optimism and sound macroeconomic policies.  Hint: Australia and Canada are not large enough economies to carry the global economy forward.  Watch the United States, the United Kingdom, and Germany.  They are big economies, and their trade patterns significantly affect other economies.  Japan could also make a positive difference in the aggregate numbers if it were to recover from its doldrums.   The key to economic recovery in 2003 is aggregate demand in the larger advanced economies.

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