©1997 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)

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Library of Congress 8507

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Contents

• Assumptions and Conventions

• Preface

• Chapter I. Global Economic Prospects and Policies

  • Advanced Economies

  • Developing Countries

  • Transition Countries

• Chapter II. World Economic Situation and Short-Term Prospects

  • Economic Activity, Inflation, and Policy Stances in Advanced Economies

  • Economic Situation and Prospects in Developing Countries

  • Developments and Prospects in Transition Countries

  • Financial and Foreign Exchange Markets

  • External Payments, Financing, and Debt

• Chapter III. Meeting the Challenges of Globalization in the Advanced Economies

  • Features of Modern Globalization

  • Causes and Implications of Deindustrialization

  • Trade and Wages

  • Capital Market Integration and Implications for Policy

• Chapter IV. Globalization and the Opportunities for Developing Countries

  • Forces of Integration

  • Implications for Relative Income Patterns and Convergence

  • Policies to Boost Growth and Promote Convergence

  • Economic Convergence and the Importance of Policy Complementarities

  • Reaping Gains from Globalization and Avoiding Marginalization

• Chapter V. Integration of the Transition Countries into the Global Economy

  • Liberalization of Trade and Payments

  • Trade Liberalization

  • Revival and Reorientation of Trade

  • Progress with Financial Integration

  • Regional Integration Initiatives

• Annex

• Globalization in Historical Perspective

  • International Trade

  • Capital Market Integration

• Boxes

• Chapter

• I

  • 1. Revised Country Classification

  • 2. Policy Assumptions Underlying the Projections

• II

  • 3. Rising Petroleum Prices in 1996

  • 4. United States: Sources and Implications of Bias in the Consumer Price Index

  • 5. Problems in Measuring Output in Transition Countries

• III

  • 6. Global R&D Spillovers

  • 7. Deindustrialization and the Labor Market in Sweden

  • 8. Ireland Catches Up

• IV

  • 9. Measuring Productivity Gains in East Asian Economies

  • 10. Stabilization and Reform of Formerly Centrally Planned Developing Economies in East Asia

• V

  • 11. Normalizing the Transition Countries’ Creditor Relations

  • 12. Foreign Direct Investment Strategies in Hungary and Kazakstan

• Statistical Appendix

  • Assumptions

  • Data and Conventions

  • Classification of Countries

  • List of Countries

  • 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 Financing (Tables A33–A37)

  • External Debt and Debt Service (Tables A38–A43)

  • Flow of Funds (Table A44)

  • Medium-Term Baseline Scenario (Tables A45–A46)

• Tables

• Chapter

• I

  • 1. Overview of the World Economic Outlook Projections

• II

  • 2. Advanced Economies: Real GDP, Consumer Prices, and Unemployment Rates

  • 3. Major Industrial Countries: Questions About Inflationary Pressures

  • 4. Major Industrial Countries: General Government Fiscal Balances and Debt

  • 5. European Union: Convergence Indicators for 1995, 1996, and 1997

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

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

  • 8. Selected Economies: World Export Market Shares

  • 9. Selected Economies: Current Account Positions

  • 10. Developing Countries: Capital Flows

• III

  • 11. Costs of Air Transportation, Telephone Calls, and Computer Price Deflator

  • 12. Industrial Countries: Growth of Output and Employment

  • 13. Cross-Border Transactions in Bonds and Equities

  • 14. Gross Foreign Direct Investment plus Portfolio Investment

  • 15. Foreign Exchange Trading

• IV

  • 16. Advanced Economics Versus Developing Countries Including Newly Industrialized Economics: Diversification of Exports

  • 17. Developing Countries and Asian Newly Industrialized Economics: Increased Polarization and Reduced Mobility in Cross-Country Relative Income

  • 18. Developing Countries: Convergence and Growth in Selected Countries

  • 19. Developing Countries and Asian Newly Industrialized Economies: Policies and Economic Performance

  • 20. Developing Countries Including Asian Newly Industrialized Economies: Relationship Between Policies and Growth, 1985–95, and Conditional Probabilities of Success

• V

  • 21. Countries in Transition: Progress in Integration and Economic Performance

  • 22. Countries in Transition: Dollar Wages in Manufacturing or Industry

  • 23. Countries in Transition: Net Medium- to Long-Term Financial Flows

  • 24. Countries in Transition: Ratios of Gross External Debt to Export

  • 25. Countries in Transition: Credit Ratings and Country Risk Rankings

  • 26. Countries in Transition: Net Foreign Direct Investment

• Box

• 4 Sources of Bias in the U.S. Consumer Price Index, 1996

• 8 Net EU Transfers

• 9 Selected Developing Countries and Newly Industrialized Economies in Asia: Estimates of Total Factor Productivity Growth

• 10 Comparison Between Developing Countries in East Asia Moving Away from Central Planning and Selected Transition Countries in Eastern Europe and the Former Soviet Union

• Charts

• Chapter

• I

  • 1. World Industrial Production

  • 2. World Indicators

  • 3. European Union: General Government Budget Positions

• 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. Major Industrial Countries: Monetary Conditions Indices

  • 8. Selected European Countries: Real Total Domestic Demand

  • 9. European Union and the United States: Indicators of Consumer Confidence

  • 10. Selected Asian Countries: Growth in Export Revenues

  • 11. Selected Transition Countries: Inflation

  • 12. Major Industrial Countries: Nominal Interest Rates

  • 13. Major Industrial Countries: Effective Exchange Rates

  • 14. United States: Stock Market Indicators

  • 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. Selected Advanced Economies: Employment by Sector as a Share of Total Civilian Employment

  • 19. Selected Advanced Economies: Value Added by Sector as a Share of GDP in Current Prices

  • 20. Selected Advanced Economies: Value Added in Manufacturing as a Share of GDP in Constant Prices

  • 21. Selected Advanced Economies: Balance of Trade in Manufactured Goods

  • 22. Changing Structure of Employment

  • 23. Selected Advanced Economies: Employment

  • 24. Selected East Asian Economics: Share of Manufacturing in Employment

  • 25. Selected Advanced Economies: Changes in Ratios of Earnings Deciles

  • 26. Selected Advanced Economics: Unemployment Rates

  • 27. Selected Advanced Economies: Foreign Direct Investment Outflows

  • 28. Selected Advanced Economies: Dispersion of Covered Interest Differentials

  • 29. Selected Advanced Economies: Mean and Dispersion of Nominal Short-Term Interest Rates

  • 30. Advanced Economies: U.S. Dollar Exchange Rate and Inflation Differential

  • 31. Selected Advanced Economies: Mean and Dispersion of Real Short-Term Interest Rates

  • 32. Selected Advanced Economies: Mean and Dispersion of Nominal Bond Yields

• IV

  • 33. Developing Countries and Asian Newly Industrialized Economies (NIEs): Trade

  • 34. Developing Countries: Net Private Capital Flows

  • 35. Developing Countries: Net Private Capital Flows, 1990–96

  • 36. Advanced, Developing, and Transition Economies: Current Account Convertibility

  • 37. Developing Countries and Asian Newly Industrialized Economies (NIEs): Real Per Capita Income

  • 38. Developing Countries and Asian Newly Industrialized Economies (NIEs): Relative Economic Performance

  • 39. Advanced and Developing Economies: Convergence in Per Capita Income, 1965–95

  • 40. Developing Countries and Asian Newly Industrialized Economics: Convergence in Absolute Income, 1965–95

  • 41. Selected Economies: Exports, Imports, and Per Capita Real Income

• V

  • 42. Countries in Transition: Ratio of Trade to Output

  • 43. Central and Eastern European Countries: Composition of Trade by Partner

  • 44. Selected Countries in Transition: Real Exchange Rates vis-à-vis U.S. Dollar

  • 45. Countries In Transition: Medium-to Long-Term Net Financial Flows

• Annex

  • 46. Advanced Economies: Effective Tariff Rates

  • 47. Selected Countries: External Capital Flows

  • 48. Selected Major Industrial Countries: Current Account Balances

  • 49. Selected Countries: Dispersion of Real Interest Rates

• Box

• 3 West Texas Oil Prices: Spot and Futures Contracts

• 6 Impact of Increased R&D on Output and Consumption

• 7 Employment by Sector as a Share of Total Civilian Employment

• 8 Per Capita GDP

• Ireland: General Government Budget Balance and General Government Debt

• Ireland: Competitiveness Indicators

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 March 1–18, 1997 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 2); that the average price of oil will be $19.69 a barrel in 1997 and $18.36 a barrel in 1998, 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 6.0 percent in 1997 and 6.1 percent in 1998. 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 at the end of March 1997.

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 slates 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.

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, Mark De Broeck, Paula De Masi, Jahangir Aziz, Kornélia Krajnyák, Ramana Ramaswamy, Phillip Swagel, and Cathy Wright. Other contributors include Paul Armknecht, Tarnim Bayoumi, David Ordoobadi, Blair Rourke, Anthony G. Turner, and Andrew Tweedie. The authors of the annex are indicated on its first page. 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 March 31 and April 2, 1997. 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.