Many readers are probably in a glum mood this morning, what with the world trade talks at a seeming impasse. I'll get to those talks over the next week, but in the meanwhile here's some good economic news.

Loyal readers of this blog are probably aware that I hold great respect for intellectual output of the Institute for International Economics. So it's worth pointing out that they're optimistic about the global economy:

Many forecasters had already been expecting the United States to recover strongly. [former International Monetary Fund chief economist Michael] Mussa echoes that judgment, projecting US growth at better than 4 percent through at least mid-2004 with a strong possibility of considerably better results for a quarter or two, and [former Council of Economic Advisers chairman Martin Neil] Baily expects the rapid growth to start creating substantial numbers of new US jobs in the fourth quarter of this year. However, there have been previously widespread expectations that only China would join the United States in experiencing robust expansion over this period.

The Institute team now believes that, to the contrary, most other components of the world economy will share in the rapid expansion (see table 1). This includes Japan and most of Europe, both of which had until recently been viewed as lagging significantly. Germany is viewed as the only major exception. Hence the strong recovery now appears likely to be globalized.

In addition, positive interaction between the pickups in the different regions can be expected. For example, faster-than-expected growth in Europe and Japan, along with the modest decline in the exchange rate of the dollar over the past 18 months, may at least arrest the steady deterioration in the US trade balance that has deducted an average of 0.75 percentage points annually from US growth in five of the last six years. Stabilization of the external imbalance is thus an important factor in the positive outlook for the United States.

Moreover, strong growth throughout the world adds to the likelihood of implementation of policy reforms that will help sustain that growth and enhance economic prospects for the longer run. For example, the crucial German reforms proposed by Chancellor Schroeder and Japan's efforts to strengthen its banking system are more likely to be pursued successfully in a hospitable economic climate. Their implementation will then enhance both those countries' own performance and, since they are the world's second and third largest national economies, the global outlook as well. (emphasis in original)

Developing....