Wang Huijiong & Li Shantong

I. Introduction

In the year 2001, all three leading developed economies in the world, the United States, the Eurozone and Japan, experienced recession or severe downturn. At the same time, the economic growth of the developing countries and the countries in economic transition, with the exception of those in Africa, was all affected in varying degrees. The three leading developed economies accounted for a significant proportion of the global economy, and their economic downturn had a considerable impact on trade and investment across the world. For example, the United States accounted for 22 percent of the world’s gross domestic product (GDP) and in particular 14 percent of global export. The 15-nation European Union1 accounted for 20 percent of the world’s GDP and 36 percent of global export. Japan’s GDP accounted for 7.5 percent of the world total and its export accounted for 7 percent of the global amount. While Japan’s economic downturn produced certain global repercussions, its impact on the Asian economy was all the more striking. In the 1970s and 1980s, Japan established extensive relations with the developing countries and the emerging economies in the East Asia in the areas of trade, bank loans and direct investments. During the 1990-1996 period, Japan’s loans to the Far East Asia accounted for 4.4 percent of the region’s GDP and its loans to Thailand accounted for as high as 21 percent of Thailand’s GDP. These percentages declined somewhat after the 1997 Asian financial crisis. The above facts indicate that in the course of economic globalization, economic inter-dependence worldwide has been intensifying. As a result, global economic developments have received growing attention. In the past 20 years, some international institutions have been trying to improve their global economic forecasts and issue regular forecast figures and policy options for decision-making reference by various countries. In 2001, China ranked sixth in the world in terms of GDP and became a member of the World Trade Organization. Therefore, it has to pay greater attention to the developments and outlook of the world economy. However, forecasting world economic developments requires the accumulation of large amounts of data, techniques, theories and experience. In China, we have many scholars engaged in the forecast and analysis of the domestic economy, and some researchers have been engaged in the economic forecast activities of various international institutions for a long time. Still, China lacks sufficient manpower to carry out scientific forecast of the world economy. This obvious weakness is yet to be overcome. Part II and part III of this article are mainly based on the summary and analysis of the data from foreign research institutions. The purpose is to present their experience and practice for the reference of their Chinese counterparts. The article also details the world economic outlook in 2002 for the decision-making reference by the relevant economic departments of the Chinese government.

II. Overview of World Economic Forecast

(I) Overview of World Economic Forecast Institutions

The institutions engaged in the analysis and forecast of the world economic developments can be classified into two major categories. The first category is the governmental institutions. They include the International Monetary Fund (IMF), the World Bank (W.B), the Organization of Economic Cooperation and Development (OECD) and the Asian Development Bank (ADB). Their forecasts are mainly designed to serve as the decision-making reference by the government departments of their member countries. Their main publications on the analysis and forecast of the world economic developments are the IMF World Economic Outlook (biannual), the WB Global Economic Prospects and the Developing Countries (annual), the OECD Economic Outlook (biannual) and the ADB Asian Economic Outlook. The relevant departments and the Asian-Pacific Economic and Social Council of the United Nations also publish annual reports such as the World Economic and Social Review and the Asia-Pacific Economic and Social Review. The second category is non-governmental (private) institutions. They include investment banks such as Morgan Stanley, American Express and some global economic weekly such as the Economist and the Business Week. They mainly serve the business sector. Their forecasts are focused on the development trends of bonds, stocks and exchange rates on the financial markets. At the same time, they also conduct some macroeconomic forecasts so as to study macro-micro interaction. In recent years, the Consensus Economics Inc., a London-based forecast company, has been summarizing the forecasts of non-governmental institutions on a monthly basis. Based on its study of the forecast results of more than 240 private companies and government institutions, it takes the mean value of the forecasts of all private institutions as its forecast results. At the same time, it also offers the forecast data of government institutions for comparison. The above two categories of forecast institutions have their unique features. The forecasts of governmental institutions are generally more cautious and their reliability is relatively higher. As the non-governmental institutions have to issue analyses and forecasts on a monthly or weekly basis with less restraint, their forecasts are sometimes of higher warning values. The two categories can complement each other. (II) Methods of World Economic Forecast There are three methods for world economic forecast 1. Mathematic model After World War II, many developed countries in the world established their own national models and accumulated nearly 50 years of experience in compiling, operating and improving their models. With the participation of many developed countries, Professor Lawrence R. Klein of Pennsylvania, U.S., worked as the coordinator and developed the Link Model for world economic forecast in 1968. Later on, this model incorporated the national models of the developing countries, Russia, the East European countries and China. The relevant departments of the United Nations mainly use this model as the basis for their annual global social and economic review. 2. Expert forecasts as the main, supplemented with mathematic models and policy simulations Because of the complexity of the world economy and their possession of large numbers of experts, leading international economic institutions mainly rely on the forecasts of their experts, supplemented with models. Take the compilation of the annual IMF World Economic Outlook for example. The forecast data are worked out on the basis of the surveys and assessments made by its regional and country experts and then are presented to the research departments to establish base situations. Then consistency checks are carried out on the data in accordance with the multi-country macroeconomic computing model (Multimode) established by the IMF in 1988. At the same time, analyses of the changes in monetary and financial policies are conducted to establish inter-country economic impact. If the data provided are not considered ideal, they are returned to the regional or country experts for re-evaluation and re-forecast. Only after several intercourses between them can a final annual report be completed. The regional or country experts generally work out their data in keeping with their experience. In some countries such as Britain and the United States where there are already mature and reliable models, the relevant country experts work out their forecast data according to these national models. After its establishment in 1988, the IMF Multimode has been constantly improved, and now it is called Multimode Mark III after the 1998 modification. The forecast methods of other major international organizations are more or less the same. They all adopted the methods integrating qualitative and quantitative data. The global modeling system of the World Bank was established by Armintion and other experts. OECD uses the Interlink model established by Richardson in 1988 for its situation analyses. OECD publishes spring and autumn forecast reports each year. First, the OECD economists present a forecast and policy analysis report. Then short-term forecast meetings (STEP) are held, at which economists from member countries discuss the report. Then OECD revises the forecast report in keeping with the results of discussions at the meetings and works out the final version of the economic outlook report. OECD emphasizes the method of situation analysis. For example, this year’s OECD Economic Outlook offered five hypothetic situation simulations of the world economy on the basis of the base situation. The five hypotheses are a sagging domestic demand in OECD member countries, a sagging import demand of non-OECD countries, an oil price hike of 10 U.S. dollars, a 10 percent devaluation of the U.S. dollar, and a 100-basis-point decline in interest rate. ...

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May 2002