The World Economic Outlook, published twice a year in English, French, Spanish, and Arabic, presents IMF staff economists analyses of global economic developments during the near and medium term. Chapters give an overview of the world economy; consider issues affecting industrial countries, developing countries, and economies in transition to market; and address topics of pressing current interest. Annexes, boxes, charts, and an extensive statistical appendix augment the text.

© 1995 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)

I. Economic history—1971– —Periodicals. I. International

Monetary Fund. II. Series: Occasional paper (International Monetary

HC10.W7979 84-640155



Library of Congress 8507

Published biannually.

ISBN 9781557754677

The cover, charts, and interior of this publication were designed and produced by the IMF Graphics Section

Price: US$34.00

(US$23.00 to full-time faculty members and students at universities and colleges)

Please send orders to:

International Monetary Fund, Publication Services

700 19th Street, N.W., Washington, D.C. 20431, U.S.A.

Tel.: (202) 623-7430 Telefax: (202) 623-7201

Internet: publications@imf.org


  • Assumptions and Conventions

  • Preface

  • Chapter I. Economic Prospects and Policies

    • Industrial Countries

    • Developing Countries

    • Transition Countries

  • Chapter II. The World Economy in 1995–96

    • Economic Activity

    • Inflation and Commodity Prices

    • Foreign Exchange and Financial Markets

    • Trade, External Payments, and Debt

  • Chapter III. Financial Market Turmoil and Economic Policies in Industrial Countries

    • Market Volatility Versus Fundamental Misalignment

    • Did Currencies Overshoot?

    • Fiscal Consolidation and Currency Values

    • Priorities for Policy Action

    • Rebalancing Policies for More Sustainable Growth

    • Costs of Policy Slippage

    • Labor Market Policies

    • Special Policy Challenges in Japan

  • Chapter IV. Increasing Openness of Developing Countries—Opportunities and Risks

    • Changing Relationships Between Developing and Industrial Countries

    • Growth and Diversification of Trade

    • Changing Nature of Financial Linkages

    • Reaping the Opportunities of Increased Integration

    • External Financial Liberalization

    • Implications of a Reversal of Capital Inflows

  • Chapter V. Policy Challenges Facing Transition Countries

    • Sustaining Disinflation and Growth in Countries More Advanced in the Transition

    • Countries Less Advanced in the Process of Stabilization and Restructuring

    • Financial Fragility and Macroeconomic Stability

  • Annex Exchange Rate Effects of Fiscal Consolidation

    • Short-Run Effects of Changes in Government Budgets

    • Interest Premiums

    • Long-Term Implications of Fiscal Consolidation

    • Empirical Evidence on the Exchange Rate Effects of Fiscal Policy

    • References

  • Statistical Appendix

    • Assumptions

    • 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 (Tables A45–A46)

  • Boxes

  • Chapter

    • I 1. September 1995 Economic Stimulus Package in Japan

    • II 2. Nonfuel Primary Commodity Prices

    • IV 3. Uganda: Successful Adjustment Under Difficult Circumstances

    • 4. Financial Liberalization in Africa and Asia

    • V 5. Price Liberalization and Inflation Dynamics in Transition Economies

    • 6. Changing Wage Structures in the Czech Republic

    • 7. Trade Among the Transition Countries

    • 8. Subsidies and Tax Arrears

  • Tables

  • Chapter

    • I 1. Overview of the World Economic Outlook Projections

    • II 2. Industrial Countries: Real GDP, Consumer Prices, and Unemployment Rates

    • 3. Selected Developing Countries: Real GDP and Consumer Prices

    • 4. Countries in Transition: Real GDP and Consumer Prices

    • 5. Selected Countries: World Export Market Shares

    • 6. Selected Countries: Current Account Positions

    • III 7. Industrial Countries: General Government Fiscal Balances and Debt

    • 8. Industrial Countries: Balanced Government Deficits in Five Years and Reduced Structural Unemployment Rates

    • 9. Industrial Countries: Hard-Landing Scenario

    • IV 10. Developing Countries: Trade and Economic Performance, 1988–94

    • 11. Developing Countries: Diversification of Exports

    • 12. Developing and Industrial Countries: Diversification of Export Markets

    • 13. Developing Countries: Trends in Agriculture

    • 14. Developing Countries: Macroeconomic Stability and Trade

    • V 15. Countries More Advanced in the Transition: General Government Budget Balance

  • Annex

    • 16. United States: Effects of Fiscal Consolidation on the Exchange Rate

    • 17. Italy: Effects of Fiscal Consolidation and a Reduced Interest Premium on the Exchange Rate

  • Boxes

    • 1 Japan: Summary of Economic Stimulus Packages, 1992–95

    • Japan: Structural Budget Balance, Excluding Social Security

    • 7 Poland: Foreign Trade by Direction

  • Charts

  • Chapter

    • I 1. World Indicators

    • II 2. Selected Industrial Countries: Output Growth and Leading Economic Indicators

    • 3. Industrial Countries: Indicators of Consumer Confidence

    • 4. Industrial Countries: Indicators of Business Sector Profitability

    • 5. Three Major Industrial Countries: Policy-Related Interest Rates and Ten-Year Government Bond Rates

    • 6. Major Industrial Countries: Output Gaps

    • 7. Selected Industrial Countries: Producer Prices

    • 8. Commodity Prices

    • 9. Three Major Industrial Countries: Real Effective Exchange Rates

    • 10. Selected Industrial Countries: Real Effective Exchange Rates

    • 11. Developing Countries: Net Capital Flows

    • 12. Emerging Markets: Equity Prices

    • 13. Major Industrial Countries: Net Investment Income

    • 14. Selected Developing Countries: Secondary Market Prices for Bank Loans

    • III 15. Major Industrial Countries: Long-Term Interest Rates and Consumer Price Inflation

    • 16. Selected Industrial Countries: Inflation and Changes in Effective Exchange Rates

    • 17. Japan: Real Prime Interest Rate

    • IV 18. Developing and Industrial Countries: Openness

    • 19. Developing and Industrial Countries: Output Growth

    • 20. Shares of World Output

    • 21. Developing Countries: Export Shares

    • 22. Developing and Industrial Countries: Current Account Convertibility

    • 23. Trends and Cycles in Prices of Commodities and Manufactured Goods

    • 24. Developing Countries: Capital Flows

    • 25. Developing Countries: Net Capital Flows by Region, 1989–94

    • 26. Developing Countries: Medium-Term Effects of a Reversal of Capital Inflows

    • V 27. Countries More Advanced in the Transition: Inflation

    • 28. Selected Countries in Transition: Open Unemployment Rates

    • 29. Selected Countries in Transition: Growth in GDP and Exports of Goods and Services

    • 30. Selected Countries in Transition: Inflation

    • 31. Selected Countries in Transition: Real GDP

    • 32. Selected Countries in Transition: General Government Expenditure, Revenue, and Deficit

  • Boxes

    • 2 Nonfuel Primary Commodity Prices

    • 3 Uganda and Other Sub-Saharan Africa: Growth and Inflation

    • 4 Selected African and Asian Countries: Indicators of Financial Deepening

    • 5 Russia and Kazakhstan: Relative Price Variability

Assumptions and Conventions

A number of assumptions have been adopted for the projections presented in the World Economic Outlook. It has been assumed that average real effective exchange rates will remain constant at their August 1-23, 1995 levels, except for the bilateral rates among the exchange rate mechanism (ERM) currencies, which are assumed to remain constant in nominal terms; that “established” policies of national authorities will be maintained; that the average price of oil will be $16.67 a barrel in 1995 and $15.51 a barrel in 1996, and remain unchanged in real terms over the medium term; and that the six-month U.S. dollar London interbank offered rate (LIBOR) will average 6¼ percent in 1995 and 1996. 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 18, 1995.

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 less than half the final digit shown;

  • – 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 constituent figures and totals 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 and Fiscal Affairs Departments.

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, Senior Advisor in the Research Department, together with David T, Coe, Chief of the World Economic Studies Division.

Primary contributors to the current issue are Francesco Caramazza. Staff an Gorne, Robert F. Wescott, Vincent Koen, Mahmood Pradhan, Paula De Masi, Alexander Hoffmaister, Thomas Helbling. Hossein Samiei, and Cathy Wright. Other contributors include Sheila Bassett, Ximena Cheetham, Hema De Zoysa. Robert Feldman. Douglas Laxton. Calvin McDonald, Steven Symansky, and Anthony G. Turner. The authors of the annex are indicated in the annex. The Fiscal Analysis Division of the Fiscal Affairs Department computed the structural budget and fiscal impulse measures. Sungcha Hong Cha and Toh Kuan provided research assistance. Shamim Kassam. Allen Cobler, Nicholas Dopuch, Isabella Dymarskaia, Gretchen Gallik, Mandy Hemmati, Yasoma Liyanarachchi, and Subodh Raje processed the data and managed the computer systems. Susan Duff, Margarita Lorenz, and Margaret Dapaah were responsible for word processing. Juanita Roushdy of the External Relations Department edited the manuscript and coordinated production of the publication; Tom Walter coordinated production of the Arabic, French, and Spanish editions.

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 11 and 13, 1995. 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.

  • Alesina, Alberto, and others, “Default Risk on Government Debt in OECD Countries,” Economic Policy: A European Forum, No. 15 (October 1992), pp. 42863.

    • Search Google Scholar
    • Export Citation
  • Beck, Stacie E., “The Ricardian Equivalence Proposition: Evidence from Foreign Exchange Markets,” Journal of International Money and Finance. Vol. 12 (April 1993), pp. 15469.

    • Search Google Scholar
    • Export Citation
  • Blanchard, Olivier Jean, and Stanley Fischer, Lectures on Macroeconomics (Cambridge, Massachusetts: MIT Press. 1989).

  • Caramazza, Francesco, “French-German Interest Rate Differentials and Time-Varying Realignment Risk,” Staff Papers, International Monetary Fund, Vol. 40 (September 1993), pp. 56783.

    • Search Google Scholar
    • Export Citation
  • Chen, Zhaohui, and Alberto Giovannini, “The Determinants of Realignment Expectations Under the EMS: Some Empirical Regularities,” CEPR Discussion Paper No. 790 (London: Centre for Economic Policy Research, June 1993).

    • Search Google Scholar
    • Export Citation
  • Evans, Paul, “Is the Dollar High Because of Large Budget Deficits?” Journal of Monetary Economics. No. 18 (November 1986). pp. 22749.

    • Search Google Scholar
    • Export Citation
  • Fleming, J. Marcus, “Domestic Financial Policies Under Fixed and Under Floating Exchange Rates.” Staff Papers, International Monetary Fund, Vol. 9 (November 1962), pp. 36980.

    • Search Google Scholar
    • Export Citation
  • Frankel, Jeffrey A., “In Search of the Exchange Risk Premium: A Six-Currency Test Assuming Mean-Variance Optimization.” Journal of International Money and Finance. Vol. I (December 1982), pp. 25574.

    • Search Google Scholar
    • Export Citation
  • Frankel, Jeffrey A., “Recent Estimates of Time-Variation in the Conditional Variance and in the Exchange Risk Premium.” Journal of International Money and Finance, Vol. 7 (March 1988). pp. 11525.

    • Search Google Scholar
    • Export Citation
  • Froot, Kenneth, and Kenneth Rogoff, “The EMS, EMU, and the Transition to a Common Currency.” NBER Macroeconomics Annual, ed. by Olivier Jean Blanchard and Stanley Fischer (Cambridge, Massachusetts: MIT Press, 1991).

    • Search Google Scholar
    • Export Citation
  • Koray, Faik, and Pingfai Chan, “Government Spending and the Exchange Rate,” Applied Economics, Vol. 23 (September 1991), pp. 155158.

    • Search Google Scholar
    • Export Citation
  • Kramer, Charles, “The Real Effective Value of the U.S. Dollar, the Fiscal Deficit, and Long-Run Balance of Payments Equilibrium.” in United States—Background Papers, IMF Staff Country Report No. 95/94 (Washington, 1995).

    • Search Google Scholar
    • Export Citation
  • Lane, Timothy, and Steve Symansky, “Italy: The Impact of the Crisis on Financial Markets in 1992” (unpublished; Washington: International Monetary Fund, 1993).

    • Search Google Scholar
    • Export Citation
  • Macklem, R. Tiff, David Rose, and Robert Tetlow, “Government Debt and Deficits in Canada: A Macro Simulation Analysis.” Bank of Canada Working Paper No. 95-4 (Ottawa: Bank of Canada, May 1995).

    • Search Google Scholar
    • Export Citation
  • McMillin, Douglas, and Faik Koray, “Does Government Debt Affect the Exchange Rate’? An Empirical Analysis of the U.S.-Canadian Exchange Rate.” Journal of Economics and Business, Vol. 42 (November 1990). pp. 27988.

    • Search Google Scholar
    • Export Citation
  • Melvin, Michael, Don Schlagenhauf, and Ayhan Talu, “The U.S. Budget Deficit and the Foreign Exchange Value of the Dollar.” Review of Economics and Statistics. Vol. 71 (August 1989), pp. 50005.

    • Search Google Scholar
    • Export Citation
  • Mishkin, Frederick S., “The Real Interest Rate: A Multi-Country Empirical Study,” Canadian Journal of Economics. Vol. 17 (1984), pp. 282311.

    • Search Google Scholar
    • Export Citation
  • Mundell, Robert A., “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates,” Canadian Journal of Economics and Political Science, Vol. 29 (November 1963), pp. 41331.

    • Search Google Scholar
    • Export Citation
  • Rebelo, Sergio, and Carlos Végh, “Real Effects of Exchange-Rate Based Stabilization: An Analysis of Competing Theories,” NBER Macroeconomics Annual (forthcoming).

    • Search Google Scholar
    • Export Citation
  • Reinhart, Carmen, “Fiscal Policy, the Real Exchange Rate. and Commodity Prices,” Staff Papers, International Monetary Fund, Vol. 38 (September 1991), pp. 50624.

    • Search Google Scholar
    • Export Citation
  • Svensson, Lars E.O., “The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk,” Journal of International Economics. Vol. 33 (August 1992). pp. 2140.

    • Search Google Scholar
    • Export Citation
  • Thomas, Alun, “Expected Devaluation and Economic Fundamentals.” Staff Papers, International Monetary Fund, Vol. 41 (June 1994). pp. 26285.

    • Search Google Scholar
    • Export Citation
  • Throop, Adrian W., “Fiscal Policy, the Dollar and International Trade: A Synthesis of Two Views,” Federal Reserve Bank, of San Francisco Economic Review (Summer 1989), pp. 2744.

    • Search Google Scholar
    • Export Citation