Transcript

Transcript of the September 2003 World Economic Outlook Press Conference
Dubai International Convention Centre
Deira Meeting Room
September 18, 2003, 10:07 a.m.

View this press briefing using Media Player.

MR. HACCHE: Good morning and welcome to this first press briefing of the IMF-World Bank 2003 Annual Meetings in Dubai, which is the press briefing on the IMF latest Report on the World Economic Outlook.

Simultaneous interpretation is available through the headsets provided, with Arabic on Channel 1, French on Channel 2, Spanish on Channel 3, English on Channel 4, Chinese on Channel 5, Japanese on Channel 6, German on Channel 7, Russian on Channel 8, and Portuguese on Channel 9.

I am Graham Hacche, Deputy Director of the External Relations Department of the IMF, and to my right, to answer your questions, are Kenneth Rogoff, Economic Counselor of the IMF and Director of the Research Department, and David Robinson, Deputy Director of the Research Department.

As you know, Ken Rogoff will be leaving the IMF at the end of this month to return to Harvard University, so, sadly, this is his last World Economic Outlook Press Conference.

Before turning to Ken for his introductory remarks, I'll remind you that this afternoon at 3 o'clock there will be a briefing here on the outlook for the Middle East and North Africa Region, which will be partly in Arabic, by George Abed, the Director of the IMF's Middle Eastern Department, and David Robinson.

Also, tomorrow afternoon, at 5:45, there will be a briefing by Horst Kohler, Managing Director of the IMF, following a briefing at 4:30 by Mr. Wolfensohn.

I will now turn to Ken for his opening remarks before asking for questions.

Ken?

MR. ROGOFF: Thank you very much, Graham. And, ladies and gentlemen, greetings and thank you for coming.

I'm here today, with my colleague David Robinson, to present the latest issue of the International Monetary Fund's twice yearly publication, "The World Economic Outlook: Prospects and Policy Issues." This publication will form the basis for a significant part of the Ministers' discussions at the IMFC on Sunday.

For the first time in a very long time we are reasonably optimistic about seeing a return to normal growth in the global economy, or perhaps even better. Immediate geopolitical uncertainties have receded, aftershocks from the equity price bubble are dissipating and the massive policy stimulus put in place after the downturn is starting to bear fruit.

It won't be balanced growth: in the United States and emerging Asia, the only question now really is how long the rebound can be sustained,whereas, Europe is struggling to turn the corner. Japan's situation, though clearly improving, remains clouded. And looking further down the road, to the second half of 2004 and beyond, there are still many risks, as of course there always are. These include the disturbing pattern of global current account imbalances, which is likely to get worse before it gets better, with the United States continuing to absorb a large share of world savings, and Asia providing much of it. The fact the recovery has not produced jobs poses some risk to consumption; and even greater risks are probably posed by the significant possibility of a housing price bust in some countries, especially as historically low interest rates rise as the global economy picks up. Another cloud on the horizon is the high and growing level of public indebtedness throughout the world. Indeed, this issue of the World Economic Outlook contains a clarion call to the potential default problems looming in emerging markets that do not take advantage of the relatively benign conditions at present to adjust.

Still, given how long it has taken to get a sustained pickup underway since the 2001 recession, an unbalanced recovery is far preferable to none at all.

Now, given the optimistic way in which I've described our outlook, it is notable that our baseline for global growth in 2003 and 2004 has actually not changed since the last time we released forecasts in April: 3.2 percent for global growth for 2003 and 4.1 percent, just a little bit above normal, for 2004. The difference, however, is that now we see at least as much upside potential as downside risk over the next 9 to 12 months. In the United States, much of the incoming data is strong, not least the all-important productivity numbers that we follow closely to gauge long-term potential growth (currently estimated to be about 3.2 percent). Our U.S. forecasts for 2003 growth of 2.6 percent and 3.9 percent in 2004 seem very realistic. In fact, short-term risks for the United States until, say, late 2004, are probably tilted to the upside. After that, however, while the U.S. productivity numbers continue to be encouraging, one has to be concerned about the twin deficits, the fiscal and the current account, which eventually have to be reined in.

Turning to Japan, we have seen a remarkable up-tick in the GDP numbers lately. We have, correspondingly, upped our forecast for 2003 to 2 percent and, for 2004, to 1.4 percent. However, it would be premature, to say the least, to declare that Japan is out of the woods. Trade, with booming emerging Asia, including China, has helped fuel short-term growth, and so too has investment. But underlying problems with corporate and bank balance sheets, a soaring government debt, and entrenched deflationary expectations are all still major roadblocks to sustain strong growth.

As for Europe, the most concrete positive recent news seems to be the good news elsewhere. Germany, Italy, and the Netherlands have all been in recession in the first half of the year, and French GNP declined in the second quarter, as did GDP for the euro area as a whole. Weak consumer confidence and fragile corporate balance sheets are leading problems. For the moment, most Europeans who want to see an economic recovery will have to watch it on TV. But if our forecasts are right, things are going to get gradually better, with euro area growth picking up from 0.5 percent in 2003 to 1.9 percent in 2004. Our tepid optimism is based on projections of higher exports to the rest of the world, but also simply on the fact that there's considerable synchronization between Europe's economy and that of the United States, due to many common factors, common shocks, and these include technology, oil prices, and certainly confidence. Last, but certainly not least, recent months have seen a number of promising initiatives on the structural reform front, including the German government's plans to reform labor markets, and the French government's attempts to deal with the politically sensitive pension time bomb.

China and India's strong growth portends an inevitable changing of the guard in Asia. We project China's growth a 7.5 percent for both 2003 and 2004, and the risks are quite possibly tilted to the upside there. India is also growing strongly, 5.6 percent in 2003 and 5.9 percent in 2004. In Latin America, a tentative recovery seems to be emerging on the back of strong exports, though domestic demand is still weak. Growth in sub-Saharan Africa remains resilient at 3.6 percent in 2003 and 5.9 percent in 2004, but this is still not nearly enough to meet the Millennium Development Goals.

We foresee growth in the Middle East and North Africa region of 5.2 percent in 2003 and 4.5 percent in 2004, though longer-term growth depends on tackling some of the structural issues discussed in the World Economic Outlook. Our baseline forecast for oil in 2004 is $25 a barrel, though to describe oil prices as difficult to forecast would be quite an understatement.

In conclusion, there is now good cause to be reasonably optimistic that the global economy is finally digging its way out of a very deep hole, but it's certainly no time for complacency. The recent collapse of trade negotiations in Cancun is a tragedy not least because without stronger trade global growth will eventually slow significantly and global poverty will rise.

Thank you, and I'll let Graham field your questions.

MR. HACCHE: Thank you. When I turn to you for questions, please state your name and the publication to which you are affiliated in the usual way. Can we go to the second row there, please, and please wait for the microphone to come to you?

QUESTION: China is running a bilateral surplus, trade surplus, with the United States and the EU of around over 150 billion and 50 billion respectively. To what degree do you think those trade surpluses are due to an undervalued exchange rate?

MR. ROGOFF: Well, first of all, when we look at the exchange rate, we have to talk about the exchange rate across the whole world and we have to look at the current account across the whole world and not just across any two countries. For instance, China imports significantly from the rest of Asia.

I think the factors underlying China's current account surpluses are really many, as are the factors underlying China's cost advantage in world trade. In fact, trying to determine how much of what's going on has to do with the exchange rate is a complicated question. I'm not trying to be evasive, but it really is because there are many controls in China's economy. They have controls on capital outflows, and many prices are subject to regulation. Given that, it is very difficult to isolate the impact of the exchange rate per se on the current account.

It is true that given the current constellation of controls and the conjunctural situation, the fact that China is accumulating reserves at a rapid rate suggests that everything else equal, there is significant pressure for appreciation. But let's not forget that the world was having the same debates over 15, 20 years ago in the case of Japan--the more the currency appreciated, the bigger the trade balance surplus it seemed to run at times. This just underlines the fact that there's not such a simple direct correlation.

MR. HACCHE: Question here on the front row on this side.

QUESTION: Two questions. On Cancun, you said it was a tragedy, but could you tell us if there was a macroeconomic implication of the failure in Cancun as opposed to just a tragedy in world trade terms, and secondly, could you speak a little bit more in detail about where you see euroland going and what the pluses and minuses over the next few months and what they need to do more about the structural reforms? Thanks.

MR. ROGOFF: Okay. First on your question on Cancun: I see the steady expansion that we've had in global trade over the entire post-World War II period as having been an enormous engine of global growth. Indeed, it has been a major factor in raising world incomes and reducing world poverty. It is of considerable concern that trade has been slowing over the last decade. There are many factors underlying this. Cyclical factors are part of it, but it was also slowing even during the tail end of the boom.

Having continued trade growth is important to maintaining these high levels of productivity growth that we have seen in recent years, and which many people take for granted. Trade is a big piece of that. Now, trying to parse it out into a few different areas that might have come up in Cancun, I think, is difficult,especially when we take into account the pullback of the global peace dividend of the '90s due to more geopolitical uncertainties in this decade than we had in the last. The rollback of the peace dividend has unquestionably held back global growth and I think will unquestionably hold back trend income growth to some extent over the coming decades. We need something to counterbalance that. That reinforces the need for continued progress on trade. It's very hard to come up with numbers quantifying exactly how important it is. But it is of considerable concern to look at how the numbers on trade have come down.

On the euro area: As far as structural reforms are concerned, the biggest area has to be labor market inflexibilities in Europe. Labor market reform is a big piece of it. There are many other elements, and, in fact, I think a really welcome development in recent months has been the Schroeder government's attempt to try to tackle this.

There are also broader policy issues at play. Certainly there's a lot of discussion in Europe about the Stability and Growth Pact and what role that plays in dealing with the downturn. Maybe I should say a few things about that. First as a once and future academic economist, I see only a very thin connection between being in a monetary union and the need for a pact to limit deficits.

In fact, in today's global capital markets, what the United States does with its deficits arguably has a much bigger impact on say, Germany, than what Ireland does with its deficits. In fact, if all the countries in Europe ran their deficits up to the Maastricht limit, they still wouldn't be borrowing as much as the United States is right now.

On the other hand, as a practitioner, I firmly believe that if Europe hadn't adopted the SGP, we would almost surely have seen one or two European countries -- maybe more -- knocking at the IMF's doorstep over the last decade, much as Britain did in the mid-'70s and France and Italy almost did in the early 1980s.

But much as I applaud the SGP's past success, its interpretation and implementation need to be modified going forward if Europe is to conquer the problems of the present century as well as it dealt with the problems of the past one. Countries, especially the large core countries, need stronger incentives to save in good times, so as to be ready for the downturns. That has really been the fundamental problem with the operating of the SGP has been so far. The problem is not simply that it doesn't give enough flexibility in the downturns.

And finally, I'll say as someone who sits at the IMF, I can have some sympathy for the European Commission, because when one of your very large member states runs a very big deficit, it's hard to bring too much moral suasion to bear.

MR. HACCHE: Thank you. Could we go over there, please?

QUESTION: Sir, how much is America's war on terrorism affecting the global economy? Do you see that hindering growth? Thank you.

MR. ROGOFF: The deterioration of the geopolitical situation in this decade, compared to what it seemed to have been in the 1990s, clearly does impact global growth. It impacts global growth now. It's going to impact global growth into the decades to come. If we were to try to put a number on it, I don't think that it would be of the same order of magnitude as for productivity growth, it would be less: amounting perhaps to a reduction of quarter percent in global trend growth over the next 20 years.

So the fundamental question is that we have this rise in underlying geopolitical uncertainties and everybody loses by that. And, of course, as in everything, finding a cooperative solution to dealing with it leads to the best growth.

MR. HACCHE: Gentleman in the middle of the front row.

QUESTION: Do you think Brazil should renew its agreement with the IMF and what do you mean by the risk of fiscal slippage which is mentioned in the global economic outlook?

MR. ROGOFF: First on the question of whether Brazil should renew its agreement with the IMF: I really think this is a question for Brazil to decide what they want to do. The performance of Brazil since the election has really been exemplary. They have had outstanding management of central bank policy. President Lula has taken a number of bold steps towards trying to achieve deep-seated reforms.

But, then, really to get to your second question, Brazil still has very high debt levels, both public debt and external debt. The debt that is issued domestically is large, something on the order of 65-plus percent of GDP. Its external debt is very high, I think roughly in the 50 percent of GDP range. And these problems are something that don't go away overnight. It is going to take sustained growth to shrink them down as a share of output, at least absent, more radical measures.

So, although Brazil is doing extremely well and its performance is to be lauded, there is still a long road ahead. The debt stock is not something that is going to change overnight. I think it is going to take a long time. We see this if we look at the experiences of Chile, if we look at the experiences of Mexico, or if we go back a little further and look at Greece, Portugal and Spain. Let's not forget that Spain has defaulted thirteen times in its history but is doing pretty well today, so a country can in principle eventually grow out of debt. But it is certainly not something where you can really relax

MR. HACCHE: In the third row here in the--the gentleman in the third row.

QUESTION: Another question on China. I know that you reiterate the Fund's longstanding position that China and other emerging Asian countries should move towards greater exchange-rate flexibility but, just in terms of the current conjuncture, can you tell us how important you think that would be in reducing the imbalances that you see in the global recovery?

MR. ROGOFF: -First, we view the current account imbalances as a medium-term problem, meaning not the next two months, not the next ten years, somewhere in between, say--think of medium term as two to four years, three to five years.

It is a very serious problem overhanging the global economy. It is probably getting worse with the unbalanced recovery. Some day, the U.S. current account deficit--which now runs over 5 percent of GDP and we don't see it coming down to 4 percent of GDP until, perhaps, as late as 2008--some day, that has to unwind and, when it does, there will be a sharp drop in the dollar.

Now, when the dollar falls, the question is, where is the burden of adjustment going to be? It is going to be a serious problem regardless of how the fall in the dollar is distributed although the more slowly it happens, the better. But, clearly, if the euro has to bear the lion's share of the adjustment in the dollar that is going to create a lot more difficulties than if it is more evenly distributed, than if the Asian currencies--not just China but all the Asian currencies--also appreciate, allowing themselves to appreciate significantly against the dollar.

I guess I would sum it up by saying it is bad enough that the global economy has been flying on one engine. But it is going to be a lot worse if it has to land on one wheel.

MR. HACCHE: The lady here in the second row.

QUESTION: You mentioned some concerns over personal borrowing and you have also mentioned house prices. I know you don't necessary want to talk at length about the stock markets. It is not really your job. But there is a whiff, is there not, of this bubble that we saw prior to this fall-back in economic growth? People do seem, still, in some cases, to be fairly gung ho. We have got really high property prices in the U.K. and also the U.S. We have seen the stock markets rally substantially since March and there is a serious question as to whether all of that is justified. And we have got--at a domestic or personal level, we have got a lot of over-borrowing again in the U.K. and the U.S. Is there a concern, in your mind, that this is all, at some point, once again, going to unravel and undermine the economic--the uptake in economic performance that we have seen in some parts of the world? And that is the longest question in broadcasting history, I think.

MR. ROGOFF: Congratulations. I think housing prices are a much greater concern than equity prices, for two reasons. One is that part of the equity price bubble has deflated. Stock-price indices are still well below where they were at their peak whereas housing prices in many areas continue to rise.

Also, housing prices are very sensitive to interest rates. Regardless of what, say, the Federal Reserve does to its short-term policy interest rates, as we have a recovery of long-term interest rates, mortgage rates are going to rise. There is going to be a steepening of the yield curve as the recovery takes place.

This is potentially a risk to housing. It is a much bigger risk to housing if interest rates start rising because of growing government debt and there isn't anything good to offset it.

On the equity markets, that is a tough call. One could clearly say that, in some places, equity markets are running a little ahead of the concrete numbers, but I wouldn't put too strong an emphasis on that because we are fundamentally fairly positive.

I have one further thing to add, but I think I will turn to David first to see if he wants--

MR. ROBINSON: No--

MR. ROGOFF: I will just say one thing on your question about private saving because I want to relate it back to the earlier question about the global imbalances. And I pause on this because I just think this is what we view as one of the central risks in the global economy.

One of the concerns that has happened with the U.S. current account deficit over the past couple of years has been the shrinking of private savings. It has gone up a bit again, but if we go through the end of the 1990s, the big borrowing by the United States from the rest of the world, one could say, with a straight face, anyway, that this was financing high investment that would lead to growth. The United States was investing very, very heavily--after the fact, maybe too much--but it was investing very heavily. And, in fact, the government was saving and was being helpful in this regard.

Since then, investment, of course, collapsed after the equity price bubble burst and the current account deficit has increasingly come to represent dissaving, with both the private sector and the government borrowing from the rest of the world. And more and more, in fact, it is just reflecting the government dissaving from the rest of the world.

Some of the government spending, of course, is going into investment but I think it is safe to say that most of it is not going to rebuild the electricity grid or anything like that. There are long-term sustainability concerns, so that the position of private saving certainly is a concern feeding back into our broader worry about the global imbalances.

MR. HACCHE: Thank you. The gentleman on my left in the fourth row.

QUESTION: You have mentioned the debt problems in emerging market especially as a risk. On that note, do you think last week's decision by the IMF to roll over the debt in Argentina was a good one, and do you think that Argentina will be in a position to meet its obligations next year?

MR. ROGOFF: Fair question. I guess on Argentina, I'd like to make three points.

First, contrary to popular opinion, the growth that Argentina has experienced over the last months has not been so exciting when one compares it to other debt crisis countries we've seen in the 1980s and 1990s, and that's even if you throw out the Asian economies in the 1990s, which actually experienced very sharp rebounds, much sharper than Argentina has had.

So this is despite the fact that in these other cases the countries were typically being drained of resources by making some net repayments on their debt; whereas, Argentina has made very little.

Second, going forward, trying to assess what Argentina's growth rate is going to be in the future is going to be difficult to impossible until we see how Argentina's negotiations with its private creditors play out, for two reasons. I mean, one is simply that even if there is a significant haircut on private creditors, as many are expecting, there will still be significant net repayments by Argentina into the foreseeable future, and this is a drain on resources that can be used for other things to support the recovery and will impinge on growth going forward. It's hard to know how it will play out.

Now, on the other hand, if they don't reach an agreement with private creditors, there is a danger that Argentina's relations in the trading system with the international world will start to fray, and it may experience other problems which lead to growth slowing down. The one people often point to when countries are in sustained difficulties with their creditors has to do with the loss of trade credits.

A third point I would make is that, for Argentina to grow strongly in the future, regardless of how these negotiations play out, really depends on undertaking the kinds of structural reforms that many people, but certainly us, have talked about for a long time, and these include having more flexible labor markets, rebuilding the banking system, giving both domestic and foreign investors confidence in the rule of law, political reform to address questions such as state-federal relations in order to be able to have a more rational budgeting process. These are a broad set of issues that one has to look at in assessing the Argentine situation.

Lastly, I mentioned Spain before, on an optimistic note. On this, there really have been many other countries that have been in difficulties like this and eventually come out of it and have grown very strongly. And I'm sorry to sound like I'm already back at Harvard University, but if you look at the 1800s, countries like Germany, Austria, Greece, Portugal all defaulted four or five times. France has defaulted eight times in its history, and I mentioned Spain already. So this is something that it is possible to graduate from in time, but it is a long process. It's not something that happens overnight.

MR. HACCHE: The lady in the second row here.

QUESTION: Thank you. I wonder if I could make my question in Spanish, please.

(Interpreted from Spanish) My question is on Colombia. In your report, you stress the need and raise the alarm as to debt and high fiscal deficits. Under the agreement with the Fund, we are trying to ask for a greater deficit for this year and even for next year. Is this sustainable or what other measures would Colombia have to implement to avoid greater deficit and to be able to control this budget?

MR. ROGOFF: Let me make one or two comments and then I'm going to turn it over to David.

I'll first just observe that you've given an example, of which there are many in Fund programs, where we have significant deficits in the early part of the program in order to support growth when the economy is weak. But, of course, over the longer term, if a country is having problems obtaining credit, then this isn't something you can do indefinitely, and it does pose risk, and there is a trade-off.

Let me turn it over to David.

MR. ROBINSON: I just want to make a couple of points without getting into the details of the Colombian program, which I think you would need to ask our colleagues who work on that program about. But really two points on Colombia:

First, I think we have seen an improvement in the economic situation, in general, although the security situation, of course, remains a risk.

Second, as you've said, yes, it is the fiscal position that is a key concern. I think what the authorities have done in putting together, adopting a fiscal responsibility law is certainly welcome. The key now is to put the deficit firmly on a downward path and resist pressures for higher expenditures.

And I think one other key, of course, is the upcoming referendum in October on the fiscal reforms that the government has put forward, which is certainly important.

MR. HACCHE: Thank you.

The gentleman there, second from the aisle.

QUESTION: I will ask in Arabic, please.

(Interpreted From Arabic) My question is about the expected growth rates in the Middle East. Do you think that these rates are commensurate with the situation in the Middle East and are your forecasts for 2004--could tally with the situation in the area?

Thank you.

MR. ROGOFF: Let me, again, give a brief answer to that question and turn it over to David to say more.

Certainly, one of the factors in our higher growth projections has to do with higher oil prices and higher oil production, which constitutes a significant share of income in the Middle East. It is certainly true that conflict in the Middle East and the security situation are something that has hindered growth, and in many ways--just to throw out an example,its effects on tourism.

At the same time, we do see some progress in some areas on structural reform. For example, Iran has fairly strong growth projected for the next couple of years, and some of that is coming from reforms. But, certainly, over the longer term, to have strong growth and sustained growth in the Middle East is going to require many things. My colleague, George Abed, will talk more about this, this afternoon. We do talk about it in the World Economic Outlook, and this includes having more flexible economies, diversifying away from oil production, opening economies to trade, and also getting into issues such as trying to reduce the size of government--there are many countries who have very large governments--improving governance and other issues.

Let me turn it over to David.

MR. ROBINSON: I think Ken has largely answered the question. I just want to add one or two points, again, coming from the essay.

First, that the big challenge facing the Middle East, of course, is to have higher and sustained per-capita growth. Over the last 20 years, it has been quite a disappointment, and that is something we bring out in Chapter 2 of this WEO. And as a result of that, we do have relatively high unemployment across the region. And because the labor forces are growing rapidly, for demographic reasons, growth is required both to reduce that level of unemployment and to employ all of the people coming into the labor force looking forward.

So I think it is very important that growth rates of this level--or preferably higher--be sustained, and I think Ken has discussed some of the things that we found could be useful in that regard. In the GCC countries, a particular thing was reducing the size of the public sector. Elsewhere, strengthening institutions could play a very big role.

MR. HACCHE: The gentleman in the blue shirt?

QUESTION: You say that next year oil prices will fall by about 10 percent, and in the outlook that's predicated, by and large, on increased supply and you identify Iraq as providing much of that supply or some of that supply. Given the security situation in Iraq and the near-constant sabotage against oil pipelines and oil production facilities, to what extent is that prediction of yours vulnerable to the security situation in Iraq?

And if there is going to be more supply, what other areas of the world do you see as providing that supply, perhaps taking up the slack?

MR. ROGOFF: I think if we look over the longer term--but I think it goes a little beyond 2004--there are a number of other areas where oil may come on stream. But I think the short answer to your question is, as I said, it's extremely difficult to predict oil prices. If you look at a graph of them they're just spectacularly volatile. So to describe a projection as vulnerable on the upside or downside is an understatement and it does have a big impact on global growth. I guess our rule of thumb is a $5 a barrel oil increase that's sustained for a year affects global GDP by roughly one-third of 1 percent, which is pretty significant.

MR. ROBINSON: Just to say there are some other areas apart from Iraq where we see increased supply: there's a fairly long discussion in the appendix to Chapter 1 if you're interested, but those include West Africa. Let me add in parentheses that higher oil production in Africa is really good news for Africa and those resources really do need to be used well to address poverty, in contrast to what's happened in the past.

Also, the Gulf of Mexico and the completion of the Baku pipeline are other positive things for supply.

MR. HACCHE: I think we can take a couple more questions. The gentleman here in the middle of the fifth row.

QUESTION: You said that a large part of Europe has to watch economic recovery on television. With a further depreciation of the dollar highly likely in the wake of the U.S. current account deficit, and the large dependence on exports on the part of Europe, does that mean that the outlook for Europe is rather gloomy? Do you see some additional leeway for fiscal and monetary stimulus, even if that means that the deficit will rise?

MR. ROGOFF: Let me answer that in a couple parts. First, clearly Europe is vulnerable to a sharp rise in the euro at some point, although it wouldn't be particularly welcome right now, and it's not necessarily something that we're calling for.

As to whether, if it were necessary, Europe should engage in other countercyclical policies should the euro rise: certainly there is the possibility for the ECB to cut rates in the face of a rise in the euro. In fact, right now I wouldn't quibble with their stance of keeping rates unchanged, but I don't think you'd hear any complaints from this quarter if they were to cut rates even now with the euro where it is.

I guess the second point is that the unwinding of global current account imbalances, and finding a way to have a collaborative way of dealing with it, really is a more pressing problem for the global economy right now.

Right now the U.S. is just charging ahead. The United States has the best recovery that money can buy. It has a very high fiscal stimulus, a huge current account deficit. It's borrowing a great deal in order to sustain this very high recovery. That really is part of the difference between the growth we see in the United States and the euro area. But this comes at a cost of mortgaging growth further down the road. I certainly support the idea of the Stability and Growth Pact of trying to rein in deficits over the cycle.

MR. HACCHE: Last question. Fourth row.

QUESTION: Can you tell us how much deterioration you expect in the fiscal balances of the large European countries, given that you seem to reserve for these countries also the largest downward revisions of the GDP figures?

MR. ROBINSON: We have the data in Table 1.5 so I don't want to go through it in detail. But broadly speaking, for the euro area as a whole we see a deficit of around 3 percent of GDP in 2003, declining only slightly in 2004. Germany we would see as remaining well above the 3 percent limit in both 2003 and 2004, and the same for France. Italy stays below, although of course, as I think you would know very well, that is in part because of the substantial recourse to one-off measures in Italy.

MR. HACCHE: Thank you. Apologies to those of you we didn't get to this time. Thank you very much for coming and see you here this afternoon at 3:00 for the briefing on the Middle East.

(Whereupon, at 10:53 a.m., the press conference ended.)