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                             PRESS RELEASE
                                                         25 August 1997

          The contents of this Report must not be quoted or
          summarized in the press, on radio, or on television,
                      before 15 September 1997
                           22:00 hrs. GMT


     Growth in the world economy this year will again continue to be 
too slow to make a significant dent in poverty in the South and 
unemployment in the North, UNCTAD forecasts in its annual Trade and 
Development Report 1997 (1) (216 pages). Despite  success in reducing 
inflation almost everywhere, expectations of faster growth have so far 
not been fulfilled. Since 1990, the world economy has been growing 
slower than in the previous decade, and the outlook is for a 
continuation of slow growth. Meanwhile, global trade imbalances similar
to those of the 1980s have reappeared.

     Output growth picked up slightly in 1996, reaching 2.8 per cent. 
The improvement was achieved despite a sharp reduction in the growth of
world trade (from 8.5 per cent in 1995 to 4 per cent in 1996). 
Developing countries again led the way, posting an overall growth rate
of 5.6 per cent. 

     The slight acceleration over the 2.4 per cent figure achieved in 
1995 was largely due to recoveries in Japan and Latin America. However, 
these were partly offset by slower growth in Asia and in the European
Union.  Prospects for 1997 suggest little change in performance
in either developed or developing countries.   

Growth in the South - sufficient and sustainable?

     Despite somewhat slower growth, to 6.9 per cent compared with 
7.3 per cent in 1995, Asia continued to perform well in 1996. Although 
little change is expected for the region in 1997, restrictive policies 
intended to safeguard external balances in a number of these countries 
have introduced an element of uncertainty into short-term regional 

     Growth was affected last year by a sharp drop in exports from the 
first-tier newly industrialized economies (NIEs) (Hong Kong Special 
Administrative Region of China, Republic of Korea, Singapore and 
Taiwan Province of China), as well as from Malaysia, Thailand and China.  
In some countries, export expansion has been difficult to sustain now
that the relatively easy stages of labour-intensive production for export
have been completed.  To maintain momentum, technological upgrading and 
productivity growth are now required.

     China, which continued to grow at an impressive rate of close to 
10 per cent,  is expected to sustain high rates of growth in 1997. It 
appears headed for a soft landing, as inflation has been brought down 
to a single-digit rate. This should allow policy-makers to focus 
attention on structural economic deficiencies in agriculture and 

     Unlike East and South-East Asia, West Asia saw faster growth in 
1996, largely due to favourable movements in oil prices.  Growth also 
remained robust in South Asia.

     The economic recovery continued in Africa in 1996. It also became 
more widespread, extending to a number of least developed countries. 
At 3.9 per cent, the overall growth rate was the second fastest in the 
world economy, lagging only behind Asia. And the trend is expected to 
continue in 1997. 

     In 11 countries, growth reached, or surpassed, 6 per cent and, in 
a further 28, it ranged from 3 to 6 per cent. This should be seen 
against the target of an average real growth rate of at least 6 per cent 
per annum for the decade, set in 1991 by  the United Nations in its
New Agenda for the Development of Africa (UN-NADAF).  Helped by 
favourable commodity price movements, strong agricultural growth   
at 5.2 per cent in 1996 led the way. Spirited industrial growth, 
meanwhile, helped a number of North African countries to build up
momentum last year. 

     Latin America has recovered from the depressed conditions of 
the post-Mexican crisis, but its growth remained at a modest 3.3 
per cent in 1996. Output growth is expected to accelerate further 
in 1997.
     The Latin American recovery has primarily been due to the upturn 
in Argentina and Mexico, in both cases driven by strong export growth. 
Elsewhere in the region (notably in Brazil, Costa Rica, Paraguay, Peru)
trade has also played an important role, on account of both unilateral 
trade liberalization and the strengthening of regional trade.

     However, in many countries the recovery has sucked in imports at an
even faster pace than in 1995; the growth of import volume for the region
in 1996 was 9.5 per cent, almost double that in the previous year.  
As a consequence, the region's dependence on capital inflows is unabated. 
Reconciling external equilibrium and competitive exchange rates with
growth and price stability still remains the main challenge for most 
Latin American countries, UNCTAD says.

     Improvements in overall economic performance have thus been 
recorded in many parts of the developing world. But the verdict over 
whether more sustained growth will take hold remains unclear. 
Vulnerability to swings in capital flows remains high in a number of
countries with large external deficits. Moreover, UNCTAD argues that, 
for many developing countries, a speedy and flexible implementation of 
the IMF/World Bank Debt Initiative for Highly Indebted Poor Countries 
could play a significant role in ensuring sustainable growth. 
"One of the lessons of the debt crisis of the 1980s", it warns, 
"is that muddling through raises costs to both debtors and creditors".

Uncertainty in Central and Eastern Europe  

     Inflation has been contained in most of the transition economies. 
But while some have enjoyed recoveries in recent years, others are still 
searching for economic stability and balance. For the near future, 
monetary and fiscal austerity is likely to keep a tight lid on
growth prospects in most transition economies.

     In Central and Eastern Europe, the strong growth performance in 
1995 has not been carried over to 1996, dropping back 1.6 percentage 
points to 4 per cent per annum. Despite quite fast growth in 1996,  
prospects in the Czech Republic have dimmed, given its serious
external imbalances and dependence on capital inflows. Economic 
conditions worsened considerably in Romania and Bulgaria. Contrary to 
earlier expectations, output continued to decline in the Ukraine and 
the Russian Federation. Poland, by contrast, continued its strong
growth performance in 1996, becoming the first transitional economy 
to exceed its 1989 output level. 

United States continues to expand, but restrictive fiscal policies 
dampen growth in Europe 

     The United States posted almost inflation-free growth in 1996 
(2.5 per cent) for the sixth consecutive year, adding 12 million jobs 
to the economy since 1992 and helping to reduce the fiscal deficit to 
around 1.5 per cent of GDP. Contrary to many predictions,  prices
remained stable, even as unemployment dipped below 5 per cent in early 
1997. This performance lends support to the proposal made in UNCTAD's 
Trade and Development Report 1995 that, in order to help solve the 
unemployment problem, central banks in the industrialized world must 
test their assumptions about potential growth rates and levels of
employment compatible with stable inflation. "The Federal Reserve 
appears to be showing such a willingness", UNCTAD says in 
its 1997 Report.

     Despite its strong performance relative to other countries in 
the North,  the United States average growth rate during the decade 
remains below that achieved in the 1980s.  Moreover, until this year, 
average wages fell in almost every year of the recovery.
Productivity gains have been captured by profits which have reached 
levels unseen since the 1960s.

     Prospects for Western Europe are currently surrounded by 
uncertainty.  The average growth rate again fell in 1996, to 
1.5 per cent.  Of  the larger economies, only the United
Kingdom maintained respectable growth although at a somewhat slower 
pace than in 1995. In some other countries, slow growth and high 
unemployment have remained a problem. Current restrictive fiscal 
policies to achieve the targets set for the third phase of European
Monetary Union render difficult the adoption of counter-cyclical 
policies capable of stimulating growth and fighting unemployment.

     UNCTAD considers that there is room for flexibility.  Monetary 
and exchange rate stability has already been achieved.  However, 
although the fiscal targets are not being met, prolonging the debate 
over these targets is  provoking volatility in financial and currency
markets, further hindering recovery. 

     Governments in the European Union are increasingly confronted by 
a major challenge: reconciling growth and employment with the 
achievement of fiscal targets. As UNCTAD has previously argued 
(in its Trade and Development Report 1994), perhaps the best solution is
to cut the Gordian knot of fiscal convergence and to proceed directly 
to monetary union as soon as possible.

     Strong export growth reinforced by a budget stimulus made Japan 
the fastest growing member of the G7 last year. Along with the 
investment recovery which began in 1995, these forces led to an overall 
expansion of 3.5 per cent. However, Japanese profits and investment
remain too centred on exports, and are thus subject to the behaviour 
of the exchange rate, which creates some uncertainty regarding the 
sustainability of the recovery.

The risks of global imbalances for developing countries

     Disparities in demand growth among the major industrial countries 
lie behind a growing trade deficit in the United States and growing 
surpluses in Western Europe and Japan. The burden of adjustment, 
UNCTAD says, must be borne by surplus countries; Europe and Japan 
should therefore expand demand if there is to be a return to a more
sustainable pattern of global demand and trade balances.

     Unless the upward pressure to the dollar can be eased, trade 
imbalances will worsen, UNCTAD warns, increasing the danger of trade 
frictions. For developing countries, the consequences of a combination 
of such frictions, dollar appreciation, and an eventual hike
in international interest rates would be more serious and widespread 
than in the 1980s, in view of their increased integration into the 
global trading and financial system, and in light of their greater 
dependence on highly liquid capital inflows.

(1) The Trade and Development Report, 1997 (Sales No. E.97.II.D.8) may 
be obtained at the price of US$48, from United Nations Publications/Sales
Section, Palais des Nations, CH-1211 Geneva 10, Switzerland, 
fax: 41 22 917 0027, e-mail:, 
Internet:;  or from 
United Nations  Publications, Two UN Plaza, Room DC2-853, 
Dept. PRES, New York, N.Y. 10017, U.S.A., 
telephone: 1 212 963 83 02 or 1 800 253 96 46, 
fax: 1 212 963 34 89, e-mail:

For more information, please contact Yilmaz AkyĆz, Chief, 
Macroeconomic Section, Division on Globalization and Development 
Strategies, UNCTAD, on telephone: 41 22 907 5841, fax: 41 22 907 0274,
or e-mail:; 
or Carine Richard-Van Maele, Senior Press Officer of UNCTAD,
on telephone: 41 22 9075816/28, fax: 41 22 9070043; 
or e-mail: