- International Monetary Fund. Research Dept.
- Published Date:
- October 1996
WORLD ECONOMIC AND FINANCIAL SURVEYS
WORLD ECONOMIC OUTLOOK
A Survey by the Staff of the International Monetary Fund
INTERNATIONAL MONETARY FUND
© 1996 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
- Partnership for Sustainable Global Growth
- Chapter I. Global Economic Prospects and Policies
- Chapter II. World Economic Situation and Short-Term Prospects
- Chapter III. Policy Challenges Facing Industrial Countries in the Late 1990s
- Chapter IV. Financial Market Challenges and Economic Performance in Developing Countries
- Chapter V. Long-Term Growth Potential in the Countries in Transition
- Chapter VI. The Rise and Fall of Inflation—Lessons from the Postwar Experience
- Sources of Inflation: Three Inflation Episodes in Industrial Countries
- Role of the Exchange Rate Regime
- Guideposts for Anti-Inflationary Monetary Policy
- Special Features of Inflation in Developing and Transition Countries
- Stopping High Inflation
- Some Empirical Evidence on Factors Influencing the Inflationary Process
- Costs of Inflation
- Costs of Disinflation
- Achieving and Sustaining Price Stability
- I The Difficult Art of Forecasting
- II World Oil Market: Recent Developments and Outlook
- III World Current Account Discrepancy
- IV Capital Inflows to Developing and Transition Countries—Identifying Causes and Formulating Appropriate Policy Responses
- I 1. Policy Assumptions Underlying the Projections
- III 2. Using the Slope of the Yield Curve to Estimate Lags in Monetary Transmission Mechanism
- IV 3. Assessing Overheating in Emerging Market Countries
- V 6. Trade and Growth in the Countries in Transition
- VI 8. Inflation Targets
- Statistical Appendix
- Data and Conventions
- Classification of Countries
- List of Tables
- Output (Tables A1–A7)
- Inflation (Tables A8–A13)
- Financial Policies (Tables A14–A21)
- Foreign Trade (Tables A22–A26)
- Current Account Transactions (Tables A27–A32)
- Balance of Payments and External Financing (Tables A33–A37)
- External Debt and Debt Service (Tables A38–A43)
- Flow of Funds (Table A44)
- Medium-Term Baseline Scenario (Table A45)
- I 1. Overview of the World Economic Outlook Projections
- II 2. Industrial Countries: Real GDP, Consumer Prices, and Unemployment Rates
- 3. European Union: Convergence Indicators for 1995, 1996, and 1997
- 4. Major Industrial Countries: Questions About Inflationary Pressures
- 5. Industrial Countries: General Government Fiscal Balances and Debt
- 6. Selected Developing Countries: Real GDP and Consumer Prices
- 7. Selected Developing Countries: General Government Budget Balance
- 8. Countries in Transition: Real GDP and Consumer Prices
- 9. Selected Countries in Transition: General Government Budget Balance
- 10. Changes in Foreign Exchange Reserves
- 11. Selected Countries: Current Account Positions
- 12. Developing Countries: Capital Flows
- 13. Summary of World Medium-Term Baseline Scenario
- III 14. Selected Major Industrial Countries: Responsiveness of Bank-Lending Rate to a Change in the Policy Interest Rate
- IV 16. Selected Emerging Market Countries: Macroeconomic Indicators
- V 18. Countries in Transition: Medium-Term Scenario for Output and Inflation
- 19. Industrial and Developing Countries: Long-Run Growth of GDP Per Capita
- 20. Rapidly Growing Economies and Countries in Transition: Factors Influencing Growth
- 21. Postwar Recovery: Sources of Growth in GDP, 1950–73
- 22. Developing Countries: Total Factor Productivity Growth
- 23. Countries in Transition: Per Capita Income and Selected Demographic Indicators
- 24. Countries in Transition: Trends in Educational Attainment of the Population Aged 15 and Over
- 25. Countries in Transition: Indicators of the Quality of School Inputs
- 26. Countries in Transition: Population Growth
- 27. Selected Countries in Transition: Simulated Growth Rates
- 28. Selected Countries in Transition: Reform of Social Protection Systems
- 29. Selected Countries in Transition: Indicators of Capital Flows
- 30. Countries in Transition: Indicators of External Viability, 1995
- 31. Countries in Transition: Broad Money
- 32. Selected Countries in Transition: Problem Loans
- 33. Selected Countries in Transition: Bank Interest Rate Spreads
- VI 34. Exchange Rate Regime and Inflation
- II 38. Consumption of Petroleum by Groups of Countries
- III 41. Discrepancies on World Current Account
- IV 42. Potential Indicators for Analyzing Causes of Capital Inflows in Developing and Transition Countries
- 2 Number of Quarters Between Changes in the Yield Gap and the Maximum Impact on the Growth of Output, Unemployment, and Inflation
- 5 Developing Countries: Financial Repression and Economic Performance
- 8 Inflation Targets in Selected Countries
- I 1. World Indicators
- II 4. Commodity Price Indices
- 5. Major Industrial Countries: Output Gaps
- 6. Three Major Industrial Countries: Policy-Related Interest Rates and Ten-Year Government Bond Yields
- 7. European Union and the United States: Indicators of Consumer Confidence
- 8. Major Industrial Countries: Monetary Conditions Indices
- 9. Selected Countries More Advanced in Transition: Inflation
- 10. Selected Countries Less Advanced in Transition: Inflation
- 11. Major Industrial Countries: Nominal Interest Rates
- 12. Major Industrial Countries: Effective Exchange Rates
- 13. United States and Japan: Equity Yield Gap and Stock Market Prices
- 14. Selected Emerging Market Countries: Equity Prices
- 15. Emerging Market Countries: Equity Prices
- 16. Elasticity of World Trade with Respect to World Output
- 17. Developing Countries and Countries in Transition: External Debt and Debt Service
- III 18. Major Industrial Countries: Real Short-Term Interest Rate Differential Versus Real Exchange Rates
- IV 22. Developing Countries: Net Private Capital Flows, 1990–95
- 23. Developing, Industrial, and Transition Countries: Current Account Convertibility
- 24. Developing Countries: Openness
- 25. Selected Emerging Market Countries: Indicators of Demand Pressure
- 26. Developing Countries: Foreign Direct Investment in Selected Countries
- 27. Developing Countries: Financial Development and Economic Growth, 1976–94
- 28. Developing Countries: Real Interest Rates and Financial Intermediation, 1976–94
- 29. Developing Countries: Debt-Export Ratios of Heavily Indebted Poor Countries, Average 1992–94
- 30. Developing Countries: Net Resource Transfers to Heavily Indebted Poor Countries, 1990–94
- V 31. Economies in Transition: Inflation and Real Output Growth, 1992–95
- VI 34. Inflation
- 35. Price Level in the United States and the United Kingdom
- 36. Industrial Countries: Inflation and Real Output Growth
- 37. Selected Industrial Countries: Inflation
- 38. Developing Countries: Inflation Across Regions
- 39. Selected Industrial and Developing Countries: Inflation and Money Growth, 1960–95
- 40. Influences of Various Factors on Inflation
- 41. Response of Inflation to Various Shocks
- 42. Industrial Countries: Inflation and Inflation Variability, 1960–95
- 43. Industrial Countries: Variability in Inflation and Real Output Growth, 1960–95
- 44. Inflation and Real Output Growth, 1965–95
- 45. Asymmetric and Symmetric Model Responses to Overheating
- I 46. Industrial Country Real Output Growth: World Economic Outlook Forecast Compared with Actual
- II 48. Crude Petroluem Price in Current and Real Terms
- III 54. Global Discrepancies on World Current Account and on World Financial Flows
- 3 Selected Emerging Market Countries: Impact of the Output Gap on Inflation, 1975–95
- 6 Countries in Transition: Trade Volume and Output Growth
- 11 Industrial Countries: Central Bank Independence and Inflation Selected Developing Countries: Central Bank Independence and Inflation
List of Tables
- A1. Summary of World Output
- A2. Industrial Countries: Real GDP and Total Domestic Demand
- A3. Industrial Countries: Components of Real GDP
- A4. Industrial Countries: Unemployment, Employment, and Real Per Capita GDP
- A5. Developing Countries: Real GDP
- A6. Developing Countries—by Country: Real GDP
- A7. Countries in Transition: Real GDP
- A8. Summary of Inflation
- A9. Industrial Countries: GDP Deflators and Consumer Prices 179
- A10. Industrial Countries: Hourly Earnings, Productivity, and Unit Labor Costs in Manufacturing
- A11. Developing Countries: Consumer Prices
- A12. Developing Countries—by Country: Consumer Prices
- A 13. Countries in Transition: Consumer Prices
- A14. Summary Financial Indicators 186
- A15. Industrial Countries: General and Central Government Fiscal Balances and Balances Excluding Social Security Transactions
- A16. Industrial Countries: General Government Structural Balances
- A17. Industrial Countries: Monetary Aggregates
- A18. Industrial Countries: Interest Rates
- A19. Industrial Countries: Exchange Rates
- A20. Developing Countries: Central Government Fiscal Balances
- A21. Developing Countries: Broad Money Aggregates
Current Account Transactions
- A27. Summary of Payments Balances on Current Account
- A28. Industrial Countries: Balance of Payments on Current Account
- A29. Industrial Countries: Current Account Transactions
- A30. Developing Countries: Payments Balances on Current Account
- A31. Developing Countries—by Region: Current Account Transactions 208
- A32. Developing Countries—by Analytical Criteria: Current Account Transactions
Balance of Payments and External Financing
External Debt and Debt Service
- A38. Summary of External Debt and Debt Service 226
- A39. Developing Countries—by Region: External Debt, by Maturity and Type of Creditor 228
- A40. Developing Countries—by Analytical Criteria: External Debt, by Maturity and Type of Creditor
- A41. Developing Countries: Ratio of External Debt to GDP
- A42. Developing Countries: Debt-Service Ratios
- A43. IMF Charges and Repurchases to the IMF
Flow of Funds
Medium-Term Baseline Scenario
Assumptions and Conventions
A number of assumptions have been adopted for the projections presented in the World Economic Outlook. It has been assumed that real effective exchange rates will remain constant at their average levels during July 25-August 21, 1996 except for the bilateral rates among the European exchange rate mechanism (ERM) currencies, which are assumed to remain constant in nominal terms; that established policies of national authorities will be maintained (for specific assumptions about fiscal and monetary policies in industrial countries, see Box 1); that the average price of oil will be $19.42 a barrel in 1996 and $17.94 a barrel in 1997, and remain unchanged in real terms over the medium term; and that the six-month London interbank offered rate (LIBOR) on U.S. dollar deposits will average 5.6 percent in 1996 and 6.0 percent in 1997. These are, of course, working hypotheses 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 are based on statistical information available on September 10, 1996.
- The following conventions have been used throughout the World Economic Outlook:
- … to indicate that data are not available or not applicable;
- — to indicate that the figure is zero or negligible;
- – between years or months (e.g., 1994–95 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
- / between years or months (e.g., 1994/95) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (e.g., 25 basis points are equivalent to ¼ of 1 percentage point).
Minor discrepancies between sums of constituent figures and totals shown are due to rounding.
* * *
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 an integral element of the IMF’s ongoing surveillance of economic developments and policies in its member countries and of the global economic system. The IMF has published the World Economic Outlook annually from 1980 through 1983 and biannually since 1984.
The survey of prospects and policies is the product of a comprehensive interdepartmental review of world economic developments, which draws primarily on information the IMF staff gathers through its consultations with member countries. These consultations are carried out in particular by the IMF’s area departments together with the Policy Development and Review Department and the Fiscal Affairs Department.
The country projections are prepared by the IMF’s area departments on the basis of internationally consistent assumptions about world activity, exchange rates, and conditions in international financial and commodity markets. For approximately 50 of the largest economies—accounting for 90 percent of world output—the projections are updated for each World Economic Outlook exercise. For smaller countries, the projections are based on those prepared at the time of the IMF’s regular Article IV consultations with member countries or in connection with the use of IMF resources; for these countries, the projections used in the World Economic Outlook are incrementally adjusted to reflect changes in assumptions and global economic conditions.
The analysis in the World Economic Outlook draws extensively on the ongoing work of the IMF’s area and specialized departments, and is coordinated in the Research Department under the general direction of Michael Mussa, Economic Counsellor and Director of Research. The World Economic Outlook project is directed by Flemming Larsen, Deputy Director of the Research Department, together with Graham Hacche, Chief of the World Economic Studies Division.
Primary contributors to the current issue are Francesco Caramazza, Robert F. Wescott, Staffan Gorne, Paula De Masi, James Haley, Mahmood Pradhan, Jahangir Aziz, John McDermott, Phillip Swagel, and Cathy Wright. Other contributors include Guy Debell, Anne-Marie Guide, Douglas Laxton, Ceyla Pazarbaşjoǧlu, Robert Price, and Anthony G. Turner. The authors of the annexes are indicated on the first page of each. The Fiscal Analysis Division of the Fiscal Affairs Department computed the structural budget and fiscal impulse measures. Sungcha Hong Cha, Toh Kuan, and Michelle Marquardt provided research assistance. Shamim Kassam, Allen Cobler, Nicholas Dopuch, Isabella Dymarskaia, Gretchen Gallik, Mandy Hemmati, and Yasoma Liyanarachchi processed the data and managed the computer systems. Susan Duff, Caroline Bagworth, and Margaret Dapaah were responsible for word processing. Juanita Roushdy of the External Relations Department edited the manuscript and coordinated production of the publication.
The analysis has benefited from comments and suggestions by staff from other IMF departments, as well as by Executive Directors following their discussion of the World Economic Outlook on September 4 and 6, 1996. However, both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.
Partnership for Sustainable Global Growth
The following “Declaration on Partnership for Sustainable Global Growth” was adopted at the conclusion of the forty-seventh meeting of the Interim Committee of the Board of Governors of the IMF, September 29, 1996.
The Interim Committee has reviewed the “Declaration on Cooperation to Strengthen the Global Expansion.” which it adopted two years ago in Madrid.1 It notes that the strategy set out in the Declaration, which emphasized sound domestic policies, international cooperation, and global integration, remains valid. It reiterates the objective of promoting full participation of all economies, including the low-income countries, in the global economy. Favorable developments in, and prospects for, many industrial, developing, and transition economies owe much to the implementation of sound policies consistent with the common medium-term strategy.
The Interim Committee sees a need to update and broaden the Declaration, in light of the new challenges of a changing global environment, and to strengthen its implementation, in a renewed spirit of partnership. It attaches particular importance to the following:
- Stressing that sound monetary, fiscal, and structural policies are complementary and mutually reinforcing: steady application of consistent policies over the medium term is required to establish the conditions for sustained noninflationary growth and job creation, which are essential for social cohesion.
- Implementing sound macroeconomic policies and avoiding large imbalances are essential to promote financial and exchange rate stability and avoid significant misalignments among currencies.
- Creating a favorable environment for private savings.
- Consolidating the success in bringing inflation down and building on the hard-won credibility of monetary policy.
- Maintaining the impetus of trade liberalization, resisting protectionist pressures, and upholding the multilateral trading system.
- Encouraging current account convertibility and careful progress toward increased freedom of capital movements through efforts to promote stability and financial soundness.
- Achieving budget balance and strengthened fiscal discipline in a multiyear framework. Continued fiscal imbalances and excessive public indebtedness, and the upward pressures they put on global real interest rates, are threats to financial stability and durable growth. It is essential to enhance the transparency of fiscal policy by persevering with efforts to reduce off-budget transactions and quasi-fiscal deficits.
- Improving the quality and composition of fiscal adjustment, by reducing unproductive spending while ensuring adequate basic investment in infrastructure. Because the sustainability of economic growth depends on development of human resources, it is essential to improve education and training; to reform public pension and health systems to ensure their long-term viability and enable the provision of effective health care: and to alleviate poverty and provide well-targeted and affordable social safety nets.
- Tackling structural reforms more boldly, including through labor and product market reforms, with a view to increasing employment and reducing other distortions that impede the efficient allocation of resources, so as to make our economies more dynamic and resilient to adverse developments.
- Promoting good governance in all its aspects, including by ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption, as essential elements of a framework within which economies can prosper.
- Ensuring the soundness of banking systems through strong prudential regulation and supervision, improved coordination, better assessment of credit risk, stringent capital requirements, timely disclosure of banks’ financial conditions, action to prevent money laundering, and improved management of banks.
The Committee encourages the Fund to continue to cooperate with other international organizations in all relevant areas. It welcomes the recent strengthening of Fund surveillance of member countries’ policies, which is an integral part of the strategy. It reaffirmed its commitment to strengthen the Fund’s capacity to fulfill its mandate. It will keep members’ efforts at achieving the common objectives of this strategy under review.