© 1993 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)
Annual.
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)
HC10.W7979
84-640155
338.5’443’09048—dcl9
AACR 2 MARC-S
Library of Congress 8507
Published biannually.
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Contents
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Assumptions and Conventions
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Preface
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Interim Committee Declaration on Cooperation for Sustained Global Expansion
Chapter I. Overview
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Industrial Countries
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Developing Countries
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Countries in Transition
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Trade Policies
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Chapter II. World Economic Situation and Short-Term Prospects
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Activity and Employment
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Inflation and Commodity Prices
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Foreign Exchange and Financial Markets
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External Payments, Financing, and Debt
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Chapter III. Policies for Stronger Noninflationary Growth in Industrial Countries
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Stance of Monetary Policies
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Reinvigorating Fiscal Consolidation
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European Monetary Policy in the Transition to EMU
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Structural Reform and Unemployment
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Alternative Scenarios: Risks and Opportunities
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Chapter IV. Convergence and Divergence in Developing Countries
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Growth in Developing Countries
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Saving, Investment, and Productivity
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Macroeconomic Stability
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Structural Distortions and Government Intervention
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Institutions and Human Capital
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Medium-Term Prospects
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Chapter V. Economic Stability and Transformation in Countries in Transition
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Economic Transformation in Central Europe
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Stabilization, Inter-Enterprise Arrears, and Structural Change in the Former Soviet Union
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Monetary Arrangements and the Adoption of New Currencies
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Momentum for Reform
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Chapter VI. Trade as an Engine of Growth
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Trade and Growth in Industrial Countries
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Outward-Oriented Growth Strategies in Developing Countries
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Importance of Trade for Countries in Transition
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Extensions of the GATT Process
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Trade Liberalization as a Strategy for World Growth
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Boxes
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Chapter
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II. 1. Equity Markets in Southeast Asia
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III. 2. Price Stability
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3. The Economic Stimulus Package in Japan
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IV. 4. Economic Reforms, Growth, and Trade in China
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5. Oil Demand and Supply in the Medium Term
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V. 6. Economic Arrangements for the Czech-Slovak Breakup
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7. Currency Arrangements in the Countries in Transition
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8. The Systemic Transformation Facility
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VI. 9. New Theories of Growth and Trade
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Annexes
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I. Monetary Policy, Financial Liberalization, and Asset Price Inflation
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Monetary Policy and Inflation
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Financial Liberalization and Monetary Policy
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Lessons for the 1990s
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II. Medium-Term Baseline Projections and Alternative Scenarios
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Baseline Scenario for Industrial Countries
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Alternative Scenario for Industrial Countries
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Baseline Scenario for Developing Countries
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Alternative Scenario for Developing Countries
III. Regional Trading Arrangements
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Evolution of Regional Arrangements
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Economic Effects of Regional Arrangements
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Performance of Regional Trade Arrangements
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Regional Arrangements and Multilateral Trade
IV. Revised Weights for the World Economic Outlook
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Market-Exchange-Rate-Based Weights Versus PPP-Based Weights
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Implications of PPP-Based Weights
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Tables
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Chapter
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II. 1. Overview of the Baseline Projections
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2. Industrial Countries: Real GDP and Consumer Prices
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3. Selected Developing Countries and Countries in Transition: Real GDP and Consumer Prices
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III. 4. Major Industrial Countries: General Government Financial Balances Including and Excluding Social Insurance
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5. Major Industrial Countries: Structural and Cyclical Changes in General Government Budget Balances
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6. United States: Estimates of the Federal Budget Balance
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7. Germany: Territorial Authorities’ Finances
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8. European Countries: Convergence Indicators for 1992 and 1993
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IV. 9. Developing Countries: Growth Performance
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10. Developing Countries: Export and Import Unit Values and Terms of Trade
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11. Developing Countries: Characteristics of High-, Middle-, and Low-Growth Countries
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12. Developing Countries: Contributions to the Growth of Trend Output
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13. Developing Countries: Indicators of Macroeconomic Stability
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14. Developing Countries: Black Market Premiums and Growth
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15. Developing Countries: Growth and Investment
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V. 16. Countries in Transition: Government Budget Balances
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17. Central European Countries in Transition: Tax Revenue During the Transition
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VI. 18. Industrial Countries: Export Volume
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19. Industrial and Developing Countries: Export Volume Growth
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20. Developing Countries: Destination and Source of Exports
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21. Developing Countries: Trade Orientation and Economic Performance
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22. Industrial Countries: Agricultural Producer Subsidy Equivalents
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Tables
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Annex
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I. 23. Five Major Industrial Countries: Monetary Policy Record Since 1980
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II. 24. Industrial Countries: Selected Indicators of Economic Performance
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25. Industrial Countries: Alternative Projections Assuming Policy Coordination
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26. Developing Countries: Indicators of Economic Performance
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27. Net Debtor Developing Countries: Indicators of Economic Performance
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28. Developing Countries: Alternative Projections Assuming Policy Slippages
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III. 29. Membership of Selected Regional Trade Arrangements
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30. Recent Initiatives in Regional Trade Arrangements
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31. Intraregional Exports and Share in World Exports of Regional Trade Arrangements
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32. East Asia: Intraregional Trade
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IV. 33. Comparison of Exchange-Rate-Based Weights and PPP-Based Weights
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34. Differences Between Aggregate Real GDP Growth Rates: PPP-Based Weights Versus Exchange-Rate-Based Weights
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Tables
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Box
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1. Selected Economies: Stock Market Activity
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2. Major Industrial Countries: Monetary Policy Objectives
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Industrial Countries: Explicit Inflation Targets
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3. Japan: Economic Stimulus Packages
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4. China: Exports and Growth
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Charts
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Chapter
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I. 1. World Indicators
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2. Three Major Industrial Countries: Policy-Related Interest Rates and Ten-Year Government Bond Rates
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II. 3. Major Industrial Countries: Real GDP
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4. Six Major Industrial Countries: Indicators of Consumer Confidence
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5. Industrial Countries: Unemployment Rates
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6. Consumer Prices and Commodity Prices
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7. Major Industrial Countries: Nominal and Real Effective Exchange Rates
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8. Major Industrial Countries: Short-Term Interest Rates
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9. Major Industrial Countries: Long-Term Interest Rates
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10. Three Major Industrial Countries: Current Account Imbalances
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11. Developing Countries and Countries in Transition: Net External Financing Flows
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12. Developing Countries: External Debt and Debt Service
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13. Countries in Transition: External Debt and Debt Service
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III. 14. United States: Monetary Indicators
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15. Japan: Monetary Indicators
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16. Germany: Monetary Indicators
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17. Industrial Countries: Saving and Investment
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18. Nominal and Real Bilateral Exchange Rates vis-à-vis Germany
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19. Industrial Countries: Alternative Scenarios
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IV. 20. Developing Countries: Real GDP Growth
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V. 21. Central European Countries in Transition: Inflation
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22. Selected Countries of the Former Soviet Union: Inflation
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VI. 23. World Exports and Production of Goods
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24. Developing Countries: Share of Manufactured Goods in Nonfuel Exports
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Charts
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Annex
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I. 25. Selected Countries: Property Prices
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26. Japan: Money, Incomes, and Prices
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27. Japan: Money, Debt, and Inflation
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28. United Kingdom: Money, Incomes, and Prices
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29. United Kingdom: Money, Debt, and Inflation
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30. United States: Money, Incomes, and Prices
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31. United States: Money, Debt, and Inflation
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IV. 32. Exchange-Rate-Based and PPP-Based Weights
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Charts
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Box
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1. Selected Economies: Stock Market Indices
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2. Major Industrial Countries: Inflation
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5. World Crude Oil Prices
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Share in World Oil Supply
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Statistical Appendix
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Assumptions
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Conventions
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Classification of Countries
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List of Tables
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Output (Tables A1–A7)
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Inflation (Tables A8–A13)
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Financial Policies (Tables A14–A20)
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Foreign Trade (Tables A21–A25)
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Current Account Transactions (Tables A26–A31)
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External Financing (Tables A32–A36)
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External Debt and Debt Service (Tables A37–A42)
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Flow of Funds (Table A43)
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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 1993 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 $17.67 a barrel in 1993, $18.13 a barrel in 1994, 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 3¾ percent in 1993 and 5¼ percent in 1994. 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 themselves are based on statistical information available on April 14, 1993.
The following conventions have been used throughout the report:
… 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 (for example, 1991–92 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (for example, 1991/92) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
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.
Preface
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. An Interim Assessment of the World Economic Outlook was published in January 1993, evaluating prospects and policies following the unexpected weakening of activity in many key economies and a period of considerable turmoil in foreign exchange markets.
The survey of prospects and policies is the product of a comprehensive interdepartmental review of world economic developments, which draws primarily on the 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 estimates are based on the projections 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 estimates used in the World Economic Outlook are updated incrementally to reflect changes in 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, Assistant Director in the Research Department, together with David T. Coe, Chief of the World Economic Studies Division.
Other contributors to the current issue include Staffan Gorne, Garry J. Schinasi, Robert P. Ford, Manmohan S. Kumar, Johan Baras, Monica Hargraves, Robert A. Feldman, Alexander Hoffmaister, Hossein Samiei, Vivek Arora, Tamim Bayoumi, Tessa van der Willigen, and Tom Enger. Steven Symansky and Sheila Bassett generated the alternative scenarios supporting the analysis. The authors of the annexes are indicated in each case. The Fiscal Analysis Division of the Fiscal Affairs Department computed the fiscal impulse measures. Anthony G. Turner, Sungcha Hong Cha, and Toh Kuan provided research assistance. Cathy Wright, Allen Cobler, Nicholas Dopuch, Gretchen Gallik, Steven Parker, Prem Pillai, and Celia Winkler processed the data and managed the computer systems. Susan Duff, Margarita Lorenz-Santin, and Nora Mori-Whitehouse were responsible for word processing. James McEuen 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 April 12 and 14, 1993. 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.
Cooperation for Sustained Global Expansion
The following “Declaration on Cooperation for Sustained Global Expansion” was adopted at the conclusion of the fortieth meeting of the Interim Committee of the Board of Governors of the IMF, April 30, 1993.
1. With economic stagnation or decline in most of Europe, only tentative indications of an upturn in Japan, and quite gradual recovery in the United States, 1993 will be the third straight year of generally poor growth for the industrial countries. While the overall performance of the developing countries has been encouraging, a number of them still suffer from declining per capita incomes, and the process of transition to market economies is proving complex and requiring considerable perseverance and support. Nevertheless, there are now a number of positive developments which, if sustained in a coordinated and cooperative manner, have the potential of strengthening global economic performance in both the near and medium term. We are consequently of the view that it is timely to join forces in a global cooperative effort to bolster confidence and strengthen prospects for a durable, noninflationary world expansion. Member countries and the multilateral institutions are invited to strengthen their efforts in carrying out and supporting mutually reinforcing policies along the following lines.
2. From our common global perspective there is an immediate and urgent need for successfully concluding the Uruguay Round. This is crucial for increasing world prosperity. Persistent failure to complete the Round would not be a standstill, but could reverse the trend of trade liberalization which has been an important contributor to growth. Every effort will thus be made by all countries concerned to speed up negotiations to reach an agreement very soon. In the meantime, all member countries commit themselves to resist inward-looking policies.
3. The recent strong performance of many developing countries and their growing openness to international trade have positively contributed to alleviating the effects of global slack. It is essential that developing countries continue to carry forward with intensified adjustment and reform programs, thereby allowing them to reap the benefits of sound policies in terms of stronger growth, to devote more resources to human investment and poverty alleviation, and to contribute further to the global recovery. These efforts must be supported by the international community with financial and technical assistance, including debt relief as appropriate.
4. Continuing, decisive progress in the transformation of the formerly centrally planned economies is a key element of our cooperative growth effort. To this end, enhanced assistance, both financial and technical, is crucial for all countries in transition that strengthen their policymaking process, create the appropriate mechanisms for mutual economic cooperation, and implement the macroeconomic and reform programs needed for the establishment of market-based systems. Improved access to foreign markets will also be essential.
5. The central responsibility for strengthening growth prospects rests with the industrial countries. Cooperative actions being undertaken are strengthening confidence and will insure against downside risks. We welcome the programs of fiscal consolidation announced in North America and in other industrial countries, which will improve national savings and investment and facilitate a reduction in interest rates; the additional economic package announced by the Japanese government which will strengthen domestic demand and contribute to reducing the large external imbalance; as well as the European growth initiative and the reduction of interest rates in Europe which will constitute an important element of economic recovery. Conditions which should allow for a progressive further reduction of interest rates, without raising concerns of renewed inflation, are expected to continue to improve in the period ahead.
6. A broad-based sustainable recovery will provide room to pursue the fiscal consolidation required to increase domestic savings in those industrial countries facing large structural deficits. To that effect, these countries intend to firmly adhere to a medium-term strategy of deficit reduction which will have a major favorable impact on interest rates, private investment and job creation, as well as on the supply of savings needed for growth in the developing countries. Structural measures to improve the allocation of resources and the functioning of markets are equally important for achieving faster output growth. We recognize in particular that, in order to achieve a substantial and lasting reduction in the unacceptably high levels of unemployment, especially in Europe, bold measures will need to be taken to make labor markets more flexible.
7. Notwithstanding the improved performance of developing countries as a group, many low-income countries, particularly in Africa, still face difficult economic situations and a lengthy process of adjustment. The Fund is encouraged to continue with its efforts in helping to implement growth-oriented adjustment strategies and catalyze external financing through its concessional facility for low-income members. We thus invite the Executive Board to complete its work on a successor to the enhanced structural adjustment facility by end-November 1993. We encourage the Board urgently to consider all the options for financing the successor facility.
8. We welcome the Fund’s prompt response to the extraordinary circumstances being faced by a number of its members as a result of the widespread transition to market-based economic systems. The new systemic transformation facility will enable the Fund to play its essential role in promoting this historic transformation. We are confident that a number of members will qualify early for support, thereby paving the way for further support through the Fund’s customary facilities.
9. We had an exchange of views on the question of an allocation of SDRs in present circumstances, and request the Executive Board to assess the long-term global need for a supplement to existing reserve assets, the potential economic and monetary effects of an allocation, and the future of the SDR as a reserve asset. We request that a report on this work be submitted to the Committee at its next meeting.
10. We all stand ready to play our individual part in the global cooperative effort for economic growth outlined in this declaration and will monitor the situation carefully to ensure a consolidation of the recovery. In this context, we will also strengthen our collaboration with the Fund as the central international monetary institution. To help us face the challenges of an ever more integrated global economy, the Fund’s effective surveillance over members’ exchange rate and macroeconomic policies becomes even more important. We support the steps agreed by the Executive Board to strengthen this surveillance, including regional developments, with a view to identifying and addressing in a timely manner problems that may give rise to tensions in the world economy and undesirable volatility in exchange rates.