Year 2000 economie reports
forecast
0n December 7, Rabobank Group's chairman Hans Smits introduced our annual
year end economie forecast to leading representatives of the Dutch business and
financial establishment. The forecast, which was presented by executive board
member Wim van den Goorbergh, is the fïrst to look ahead at the economie
prospects likely to prevail at the start of the next year. It is built on the platform
of an unexpectedly robust 1999 performance both domestically and within all of
the world's main economie bloes.
Forecast 2000
Euroland challenges
MOLLE R
This outlook stands in sharp contrast
to the atmosphere that prevailed last
year, when concerns of contagion and
deflation associated with the recent finan
cial crisis were dominant themes. Next
year, the Netherlands will benefit from a
'clear recovery' on the broader European
scene; already, strong levels of Dutch
growth combined with moderate inflation
have propelled it to the top of the league
within the European Economie and Mon-
etary Union. Our year end forecasts come
in two parts. The 'Visie op 2000' report is
produced by the economie research de-
partment of Rabobank Nederland and is
orientated towards 1 lolland based clients.
The more global, English language 'Fore
cast 2000' is produced by RI's own global
economie and financial market research
teams. Introduced last year, it is aimed at
the international cliënt base. The presen-
tation of these reports attracted wide me
dia attention.
According to RI's 'Forecast 2000', global
growth is likely to accelerate from 3% to
at least 3.5% next year, with improve-
ments expected in all geographic regions
and stability in long term interest rates.
Moreover, the rate of growth in the
volume of world trade is likely to freshen
to more than 6% after having spent more
than two years caught in the doldrums,
while price inflation is likely to remain
historically low. While the powerful
performance of America's economy has
dominated headlines over the recent year,
the tempo of growth will now quicken
and spread in Europe as well, helped by
healthy consumer spending and strong
investment. The primary concerns remain
financial imbalances - particularly the
Goedvolk, Smits, Van den Goorbergh and
Möller in the forum following the presentation
high US current account deficit and issues
revolving around asset price inflation -
plus the nature of further monetary policy
responses. Reflecting the decisive impor-
tance of these points, the forecast devotes
a full article to explaining their details and
implications. In the near term, financial
markets will have to navigate the mone
tary tightening cycle that was initiated by
the Fed in June 1999. While this 'has yet
to run its course,' the forecast concludes
that the process is likely to prove 'ulti-
mately positive in sustaining the low infla-
tionary environment which has been so
beneficial to the world economy.' On the
financial markets, 'the main risk lies not
in the normal fluctuation of financial asset
prices, but in policy errors and the com-
placency of corporate managers and en
trepreneurs.'
In a related article, the forecast examines
issues surrounding the 'new era' theory
about the effects of technology on eco
nomie performance and forecasting. 'Sev-
eral centuries ago, it was the Dutch com
mercial model that was copied by other
nations; this time it will be the US' propri-
etary innovative technological model that
dominates.' This bodes well for the techno
sector of the US equity markets longer
term. The article also suggests a rise in the
Dow Jones Industrial Average to some
12,000 in the first quarter of next year.
The question of whether high growth can
coexist with low inflation is of particular
relevance to Euroland. Welcomed on the
podium were two prominent members of
the Dutch financial establishment: Victor
Goedvolk, chairman of the supervisory
board of the ASR insurance group as well
as George Möller, president of the Ams
terdam Exchanges. Goedvolk confirmed
the importance of IT in defining the scope
of economie development; Möller took
pains to underline that inflation is merely
dormant but not dead and the danger of
its revival always persists. The key chal-
lenge for European policymakers will be
to introducé greater flexibility into the un-
derlying structure of their constituent
economies, and for corporate entrepre
neurs to ensure that investment in new ca-
pacity and higher productivity is sufficiënt
to counterbalance any tendency toward
higher wage inflation.
Continued on (rage 19>-
VAN DEN GOORBERGH
