GLOBAL FORECASTING

By Bernard Baumohl

Rising stock prices and profit gains are the fruits of canny investment, but the economic climate makes the harvest possible. What is the weather like in the regions into which U.S. investors are pouring funds? A panel of economic experts polled by TIME says the outlook is as good as it has been in a decade--with occasional patches of overcast, localized storms and a very small chance of a major hurricane.

Worldwide economic growth is expected to average 4% this year, up from 3.5% in 1996. The outlook for 1998 is equally rosy--4%--though the good news is not evenly distributed. Asserts John Rothfield, international economist with NationsBanc in Chicago: "Technological change has enabled countries to produce higher rates of growth without higher rates of inflation."

The award for best performance this year may belong to Latin America. In the wake of the 1994 Mexican-peso crisis, "the region has really bounced back in a remarkable way," says Nariman Behravesh, chief international economist for DRI/McGraw-Hill, an economic consulting company based in Lexington, Mass. In Mexico, between April and June, the economy surged 8.8% over the same period a year earlier. Growth is expected to hit 6% in 1997 and 4.8% in 1998. Inflation, which reached 34.4% in 1996, will be sliced in half by the end of next year. Brazil's economy will expand 4% this year and 4.4% in 1998, according to Behravesh. Argentina, which was wallowing in recession in 1995, has rebounded sharply and will grow 6.5% this year and 5.5% in 1998, he predicts. Inflation will be zero this year and below 4% next year.

The Canadian picture is the same. Growth is expected to reach 3.7% this year and next. Inflation will stay under 2%, thanks in part to rigorous budget balancing. A stubborn jobless rate fell to 9% this summer for the first time since 1990.

Western Europe should be so lucky. Economic growth resumed there this year, but the projected gains are pretty modest: 2.3% in 1997 and 2.7% in 1998. The fate of the common currency of the European Monetary Union, which is to be inaugurated Jan. 1, 1999, is a big reason. The new unit, known as the euro, will proceed on schedule, predicts John Hsu, CEO of John Hsu Capital Group, a New York City-based money-management firm. "But there will be all kinds of compromises. That implicitly means the euro is going to be a weak currency." Britain is expected to fare marginally better than the Continent, with 1997 growth of 3.4%, and 2.4% in 1998. The slowdown will result from a need to squelch inflation, running at about 3% this year and headed for 4% next year.

In Eastern Europe, the key to rapid growth is economic reform--the more radical, the better. Countries that have wholeheartedly embraced capitalism and privatization of state industry, like Poland, the Czech Republic and Slovenia, will see 4% to 5% expansion this year and next. Russia, where the problems of postcommunist transition are worse, will show 1% growth in 1997--but that is miraculous after the ruin of the past. In 1998, DRI/McGraw-Hill forecasts, Russian growth will hit 3%.

Hypergrowth in Southeast Asia has been the reliable news for decades, but suddenly the old assumptions are not so certain. Thailand this year has suffered a currency run a la Mexico and for similar reasons: overspending, a loss of competitiveness and the perception that its currency was overvalued. As the Thai baht slid 25% against the U.S. dollar over the past 12 months, other currencies also fell. Then stock markets swooned. Economist Behravesh predicts little growth (1.5%) this year in Thailand, after an annual average of 9% for the past decade. But it will rebound to 3% in 1998. Indonesia will grow 6.5% in 1997 and 6% the following year. The Philippines, which rose a record 5.5% in 1996, will slip back to about 4.5% this year and 4% thereafter. Anemic Japan will do little to counter the trend. Growth for 1997 is expected to reach just 1.5% in 1997 and 2.8% the following year.

So much of Asia will be catching its breath. How bad is that? At the outside, economists warn that the crimp on good times might lead to a worldwide capital crunch and a massive stock-market slide. But that is seen as a remote prospect.

What keeps the news from being worse? In a word: China. It has been affected by the Asian turmoil, but not much. China is still running a huge trade surplus; its currency, the yuan, is holding steady; and inflation is under control. The change of government in Hong Kong is likely to make little economic difference. China's growth this year and next should be about 9% or 10%. That hefty push should help the global good times keep rolling.