©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)
HC10.W7979
84-640155
338.5’443’09048—dc19
AACR 2 MARC-S
Library of Congress 8507
Published biannually.
ISBN 9781557757142
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Contents
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Assumptions and Conventions
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Preface
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Chapter I. Overview
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Chapter II. Buildup to Present Difficulties
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Successful Performance
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Changes in External Environment
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Macroeconomic Management and Exchange Arrangements
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Financial Sector and Other Structural Weaknesses
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Chapter III. Onset of the Crisis and Its Evolution
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Phase I (January–April 1997): Lead-Up to the Crisis in Thailand
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Phase II (May–Beginning of July 1997): The Thai Crisis
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Phase III (Beginning of July–Mid-October 1997): Crisis Engulfs the ASEAN-4
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Phase IV (Mid-October–Mid-December 1997): Spillovers Across Global Financial Markets
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Chapter IV. Economic Developments and Financial Conditions in the Advanced Economies
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Chapter V. The Global Outlook: How Much Has It Changed?
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The Revised Baseline
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Alternative Scenarios
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Chapter VI. Conclusions and Policy Considerations
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Boxes
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Chapter
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II
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1. Overconsumption Versus Overinvestment: The Crises in Mexico and Thailand Compared
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IV
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2. Japan: Financial Sector Fragilities and the Stock Market
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V
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3. Effects of the East Asian Financial Crises on Trade with Industrial Countries
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4. Alternative Scenarios: Assumptions and Interpretation
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VI
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5. Policy Responses to Exchange Market Crises
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Statistical Appendix
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Assumptions
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List of Tables
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Tables
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Chapter
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II
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1. Selected Asian Economies: Capital Flows
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2. International Bank Lending to East Asia
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V
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3. Overview of the World Economic Outlook Projections
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4. Revisions to World Economic Outlook Projections for Selected Asian Countries
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5. Major Industrial Countries: Actual and Structural Budget Balances for General Government
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6. Developing Countries, Countries in Transition, and Newly Industrialized Economies: Net Capital Flows
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7. Overview of Current Account Projections
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8. Selected Countries: GDP Growth Forecasts
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9. Alternative Scenarios: Some Simulation Results
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Box
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3 Industrial Countries: Shares of Trade with Emerging Market Economies and Ratios of Trade to GDP
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Figures
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Chapter
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II
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1. Selected Asian Economies: Real GDP
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2. Selected Asian Economies: Consumer Price Inflation
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3. Selected Asian Economies: Current Account Balances
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4. Selected Asian Economies: Sectoral Financial Balances
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5. Selected Economies: Bilateral U.S. Dollar Exchange Rates
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6. Selected Asian Economies: Exchange Rates
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7. Selected Asian Economies: Export Market Growth
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8. Selected Asian Economies: Growth in Export Revenues
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9. Selected Asian Economies: Foreign Exchange Reserves
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III
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10. Selected Economies: Bilateral U.S. Dollar Exchange Rates
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11. Selected Economies: Three-Month Interest Rates
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12. Selected Economies: Equity Prices
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13. Selected Yield Spreads over U.S. Treasury Bonds
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14. Selected Economies: Secondary Market Yield Spreads on U.S. Dollar-Denominated Eurobonds
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15. Selected World Equity Prices
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16. Selected Advanced Economies: Exchange Rates and Bond Yields
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17. Emerging Market Economies: Private Market Financing
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IV
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18. Major Industrial Countries: Nominal Interest Rates
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19. Major Industrial Countries: Yield Curves
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20. Major Industrial Countries: Unemployment Rates
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21. Selected European Union Countries and the United States: Indicators of Consumer Confidence
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22. Selected European Union Countries and the United States: Indicators of Business Confidence
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Box
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1 Mexico and Thailand: Private Consumption and Private Gross Fixed Investment
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5 Short-Term Interest Rates in Selected Crisis Episodes
World Economic Outlook and Staff Studies for the World Economic Outlook, Selected Topics, 1992–97
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 October 9–November 5, 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; that the average price of oil will be $19.39 a barrel in 1997 and $19.03 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 5.9 percent in 1997 and 6.4 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 in mid-December 1997.
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The following conventions have been used throughout the World Economic Outlook:
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… to indicate that data are not available or not applicable;
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— to indicate that the figure is zero or negligible;
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- between years or months (for example, 1996–97 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
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/ between years or months (for example, 1996/97) 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 (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
In figures and tables, shaded areas indicate IMF staff projections.
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.
Preface
This Interim Assessment was undertaken in November–December 1997 to evaluate prospects and policies in the wake of the prolonged turmoil in financial markets, particularly in Asia, that began in mid-1997. The focus is primarily on those Asian countries that have been most affected by the recent difficulties. A more complete assessment of prospects for this region and the world economy more broadly will be provided in the next regular update of the World Economic Outlook, to be published in May 1998.
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, Assistant Director for the World Economic Studies Division.
Other primary contributors to the current issue include Guy Meredith, Andrew Tweedie, Thomas Krueger, Staffan Gorne, Jahangir Aziz, John Montgomery, and Cathy Wright. Francesco Caramazza, Paula De Masi, Ranil Salgado, and Bart Turtelboom also contributed. The Fiscal Analysis Division of the Fiscal Affairs Department computed the structural budget measures. Sungcha Hong Cha, Jeffrey Gable, Gretchen Gallik, Mandy Hemmati, and Anthony G. Turner provided research assistance. Allen Cobler, Nicholas Dopuch, Isabella Dymarskaia, Yasoma Liyanarachchi, and Olga Plagie processed the data and managed the computer systems. Susan Duff, Caroline Bagworth, and Margaret Dapaah 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 December 16, 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.