Economic Report of the President 1994 - The American Presidency ...

Chart 2-2 National Defense Purchases as Share of GDPDefense spending as a share of nominal GDP is projected to continue to fallsteadily over the 1990s.1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999Note: Defense spending projections taken from Mid-Session Review of the 1994 Budget.Sources: Council of Economic Advisers, Department of Commerce, Department of the Treasury, andOffice of Management and Budget.output growth averaged just 0.6 percent per year in the EuropeanCommunity, 1.7 percent per year in Japan, and only 0.2 percentper year in the world's other industrial countries (Table 2-1). Eventhough U.S. growth has been sluggish over the past couple ofyears, it has been the fastest among all the Group of Seven majorindustrial market economies. The world's second- and third-largestindustrial economies, Japan and Germany, both entered deep recessionsin the latter part of 1992 and are now operating wellbelow their capacities. During 1993, all of the Group of Seven countrieshad substantial output gaps (that is, actual GDP was wellbelow potential), and growth was slowing in such developing-countrymarkets for U.S. exports as Mexico and the Middle East.In large part because of this global weakness, U.S. merchandiseexports, which had increased by about 7 percent in nominal termsin 1991 and 5 percent in 1992, rose by only 2 percent in 1993. Merchandiseexports to Japan and Western Europe, which togetheraccount for 35 percent of total U.S. merchandise experts, were especiallyhard hit, dropping by about 3 percent (Chart 2-3). Evenexports to Mexico flattened in 1993 after half a decade of rapid increases.With excellent cost competitiveness in world markets, U.S.58