The Global Overview: It was good to see the pessimists proved so wrong
Friday 31 December 1999
Wrong, wrong, wrong. The surge in economic activity in the new industries, mostly but not entirely Internet-related, overwhelmed the forecasts of a year ago. Those countries where the new economy was allowed to run ahead accordingly did much better than expected, while those which inhibited its growth lagged behind.
So from a British perspective, and even more from an American perspective, if 1999 has been a year of surprises, those surprises have been markedly favourable.
The UK economy had a slow first quarter but at no stage did growth halt. Then in the second half, itstormed ahead again, driven not only by strong consumer demand here but also, surprise, surprise, by very strong exports. For the year as a whole, growth looks like being close to 2 per cent, not far below the 2.2 per cent the year before.
The export recovery was not supposed to happen until sterling weakened against the euro. But of course that did not happen either: sterling continued to stick around $1.60 and as the dollar rose against the euro, it pulled the pound along with it. I could not find one single forecast last year which suggested that the euro would hit parity with the dollar during 1999.
The principal reason for the euro's weakness has been the relatively slow growth of the eurozone. In the last three months the French economy has taken off smartly and, at 2.6 per cent, will be the fastest growing of the large European countries in 1999. But growth in both Germany and Italy has disappointed, at around 1.2 per cent, and coupled with uncertainty about German economic policy, this has helped the euro lose 15 per cent of its value during the year.
The US, by contrast, stormed on. The final growth tally may even be above 4 per cent, though since so much of the growth is coming from hi-tech industries, measuring what is happening is especially difficult.
This US experience was matched in other English-speaking economies like Australia and Canada, both of which grew at around 4 per cent. It is almost as though there was a conspiracy that English-speaking countries would grow swiftly, while non-English-speaking would not. This works even in the eurozone. The fastest growing countries were either English-speaking (like the fastest growing of all, Ireland), or ones where the language is widely spoken, like Sweden and the Netherlands.
Elsewhere, the tally was mixed. Japan continued to disappoint: it will, thanks to a large injection of public money, show a little growth this year. But that has been at the cost of a fiscal deficit of more than 10 per cent of GDP, something that is clearly not sustainable for very long. The latest figures even suggest that the country may be heading back into recession yet again.
But elsewhere in east Asia the picture has brightened. With the exception of Indonesia, most of the region's economies staged a decent recovery from what had, for most people, been their first experience of recession in living memory. China seems so far to have avoided the recession that many people outside had predicted for 1999.
So two related features - the hi-tech economy and speaking English - turned out to be more important factors in driving growth than the forecasters expected. They are related in the sense that the Internet is still largely an English-language phenomenon, so countries where English is widely spoken tended to create more economic activity, and hence created more commercial winners. The clearest winners were, of course, the Internet stocks, but many of the other firms in the telecommunications area also shot ahead. In December, Nokia, the world's largest maker of mobile phones, became Europe's most valuable company.
If there were clear winners in the corporate world there were also clear losers. Any commercial activity that could be challenged by the Net found itself under pressure. In Britain the most notable casualty has been High Street retailers like Marks & Spencer.
In Continental Europe sectors like motor manufacturing have been squeezed as the ability to compare prices across national boundaries has been transformed by the twin impact of the Internet and the euro. The structural response to such pressure (except that it was presented as a response to opportunity) was a boom in Continental take-overs and mergers.
In the US, any company in an "old" industry that has not established a credible Internet strategy finds itself in danger of seeing its business run away to competitors it did not know existed.
The unexpected scale of the success of the world economy during the last year - and in particular that of the English-speaking part of it - inevitably leads to concerns that such success might prove to be ephemeral. Several of the dogs that might have barked a warning did not do so. For example, there was no general resurgence of inflation anywhere in the developed world, despite falling unemployment rolls in the US and here.
The US was able to finance its widening current account deficit, now approaching 4 per cent of GDP, and US families were prepared to become net dis-savers. In Britain similar pressures emerged, though in more muted form. The current account went back into modest deficit and household savings rates halved. But it proved easy to finance the external deficit and people were happy enough to pare back savings, particularly since they saw their house prices moving up.
So 1999 was a year of success for most of the world economy - a year that in general turned out better than most of us has expected. Most of the dangers were successfully avoided, while the opportunities were seized with great vigour. It is good to be proved wrong in such an encouraging way.
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