- International Monetary Fund. Research Dept.
- Published Date:
- January 1991
© 1991 International Monetary Fund
World economic outlook (International Monetary Fund)
World economic outlook: a survey by the staff of the International Monetary Fund.—1980-—Washington, D.C.: The Fund, 1980-
v.; 28 cm.—(1981-84: Occasional paper/International Monetary Fund ISSN 0251-6365)
Has occasional updates, 1984–
ISSN 0258-7440 = World economic and financial surveys
ISSN 0256-6877 = World economic outlook (Washington)
1. Economic history—1971-—Periodicals. I. International Monetary Fund. II. Series: Occasional paper (International Monetary Fund)
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Assumptions and Conventions
A number of assumptions have been adopted for the projections presented in this report. It has been assumed that average real effective exchange rates will remain constant at their March 1991 levels except for the bilateral rates among the exchange rate mechanism (ERM) currencies which are assumed to remain constant in nominal terms; that “present” policies of national authorities will be maintained; that the average price of oil will be $17.18 per barrel in 1991, $17.87 per barrel in 1992, and thereafter remain constant in real terms; and that the six-month U.S. dollar LIBOR will average 6.7 percent in 1991 and 7.0 percent in 1992. These are, of course, working assumptions rather than forecasts, and the uncertainties surrounding them add to the margin of error that would in any event be involved in the projections. The estimates and projections themselves are based on statistical information available on or before April 15, 1991.
The following conventions have been used throughout the report:
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown;
– between years or months (e.g., 1990–91 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (e.g., 1990/91) to indicate a fiscal or financial year.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
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As used in this report, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
The projections and analysis contained in the World Economic Outlook are the product of a comprehensive interdepartmental review of world economic developments by the staff of the International Monetary Fund. This review is carried out biannually and draws primarily on the information the Fund staff gathers through its consultations with member countries, as well as on analysis based on econometric models maintained by the staff. The project is coordinated in the Research Department and draws on the specialized contributions of staff members in the Fund’s five Area Departments, together with those of staff in the Exchange and Trade Relations and Fiscal Affairs Departments. The World Economic Outlook has been published annually since 1980 and biannually since 1984.
An earlier version of the material in this report was the basis for a discussion of the world economic outlook by the Fund’s Executive Board on April 10 and 12, 1991. The present version has benefited from comments by Executive Directors. However, the descriptions of developments and policies, as well as the projections for individual countries, are those of the Fund staff and should not be attributed to Executive Directors or to their national authorities.
World economic growth is estimated to have declined from 3¼ percent in 1989 to 2 percent in 1990, reflecting a slowdown in the industrial countries and a fall in economic activity in the developing countries of Eastern Europe, the Middle East, and the Western Hemisphere. The growth of the world economy is expected to decline further in 1991 (to 1¼ percent) owing to the weakness of some industrial economies, to further declines in output in the Middle East and in Eastern Europe, and to a downturn in the Union of Soviet Socialist Republics. With recovery in several major industrial countries expected to begin during the course of 1991, and with growth projected to strengthen in a number of developing countries, the expansion of the world economy would rebound to 3 percent in 1992. The growth of world trade is expected to decline from 7 percent in 1989 to 2½ percent in 1991 before rising to 5½ percent in 1992.
The slowdown in growth in 1990–91 reflects in part the recession in North America and the United Kingdom, which followed a period of unsustainably rapid growth in 1987–88. and the effects of higher real interest rates in Germany and Japan where demand pressures on productive capacity have been strong and monetary policy has been tightened. In addition, the conflict in the Middle East generated a sharp, albeit temporary, rise in oil prices and raised uncertainty about the likelihood (and later the duration and intensity) of military operations in the region, with adverse effects on consumer and business confidence worldwide.
The situation in the industrial world is characterized by sharply different cyclical positions among the major countries. In 1991, output is projected to increase slightly in the United States and to decline in the United Kingdom and Canada, but recovery would begin in the course of this year, and all three countries would experience significantly positive growth in 1992. In Japan and west Germany growth is expected to remain fairly strong, although it would slow—particularly in the case of Germany—relative to the very rapid pace registered in 1990. Growth in the industrial countries is projected to rebound from 1¼ percent in 1991 to 2¾ percent in 1992, reflecting mainly the recovery in North America and the United Kingdom. After rising in the previous two years, consumer price inflation is expected to moderate in 1991–92, owing to the projected decline in oil prices and excess capacity in several industrial economies, notably in North America and the United Kingdom.
Among the developing countries, the slowdown in 1990 and 1991 mainly reflects declining output in Eastern Europe and the Middle East. With the end of the conflict in the Middle East, and assuming the successful implementation of stabilization policies and structural reform in a number of countries, economic growth in the developing countries as a whole would rebound to 3½ percent in 1992. Consumer price inflation in the developing countries picked up sharply in the past two years, but it is expected to subside in 1991 and 1992 reflecting developments in a few high inflation countries in Europe and the Western Hemisphere. Recent economic developments and prospects for the world economy are discussed in Chapter I. An analysis of the macroeconomic effects of the crisis in the Middle East is contained in the Appendix to Chapter I, recent oil market developments are examined in Supplementary Note 1, while developments in exchange and financial markets are discussed in Supplementary Note 2.
As noted above, economic activity in Eastern Europe and the U.S.S.R. fell sharply last year and is expected to fall again in 1991. These declines reflect a combination of internal and external factors, including the legacy of past policies; the disintegration of the old system of central planning; the dissolution of traditional trading arrangements among members of the Council for Mutual Economic Assistance; the economic impact of events in the Middle East; and, in some countries, the near-term effects of tighter financial policies aimed at dealing with high inflation. In spite of an unfavorable external environment and of the short-run costs of adjustment and reform, all Eastern European countries have introduced sweeping price liberalizations, taken significant steps toward currency convertibility and trade liberalization, and made considerable progress with the implementation of essential legal and institutional reforms. In the U.S.S.R., however, progress with macroeconomic stabilization and systemic reform is considerably less advanced, and a further decline in output is expected in 1992. Recent developments in Eastern Europe and the Soviet Union and the progress achieved in the process of economic reform are discussed in Chapter II.
Chapter III discusses the key policy issues facing industrial countries and presents the staff’s medium-term projections. The chapter evaluates the response of economic policies to recent events, including developments in oil markets, the weakness of economic activity in parts of the industrial world, the fall in the U.S. dollar during 1990, concerns about financial fragility in some countries, and the present status of multilateral trade negotiations. Supplementary Note 5 assesses the implications of recent financial liberalization on the effectiveness of monetary policy and Supplementary Note 6 examines the issue of financial fragility. The discussion of medium-term trends is presented in a growth accounting framework that highlights historical trends and future prospects for saving and investment, with particular focus on the role of fiscal policy. An alternative medium-term scenario illustrates the macroeconomic implications of actions to accelerate the pace of fiscal consolidation in a number of industrial countries. The recent U.S. deficit-reduction plan and its implications for the medium-term fiscal outlook in the United States are examined in Supplementary Note 4. Issues related to economic and monetary integration in Europe are addressed in Supplementary Note 3.
Chapter IV reviews the experience of saving and investment in developing countries before and after the debt crisis and discusses the interrelationship between domestic and external saving, investment, and economic growth. The preconditions for higher rates of saving and investment are then discussed, with particular emphasis on the essential role of improved domestic policies in fostering capital formation and growth, and on the appropriate role for external finance and debt reduction. The staff’s medium-term baseline projections envisage an increase in domestic saving and investment from current levels, particularly in countries which have encountered debt-servicing difficulties. Alternative scenarios are discussed that illustrate the effects of lower saving rates in the developing countries, as well as alternative assumptions concerning the global economic environment, including in particular the effects of measures to reduce the government’s use of national saving in several industrial countries. Boxes in the text deal with various measures of the net flow of resources to developing countries and recent progress toward trade integration in the Western Hemisphere. Supplementary Note 7 explains the structure of the Uruguay Round of trade negotiations and summarizes the status of those negotiations.
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This issue of the World Economic Outlook introduces a revised classification that includes all the Eastern European countries and the U.S.S.R. as part of the group of developing countries in Europe. This classification is suggested by many indicators, including real per capita income, although in some respects, such as the share of employment in industry, these countries have features in common with the industrial countries. The aggregate data for the developing countries in Europe, and also for the broader group of developing countries, presented in Table 1 and Tables A1, A20, and A30 are therefore not comparable to those shown in previous issues of the World Economic Outlook. In this report, unified Germany is referred to as Germany; the pre-unification territory of the Federal Republic of Germany is referred to as west Germany, and the former territory of the German Democratic Republic is referred to as east Germany. A fuller explanation of the changes in country classifications is provided in the Statistical Appendix.