©2001 International Monetary Fund

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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

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Library of Congress 8507

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Contents

• Assumptions and Conventions

• Preface

• Chapter I. Prospects and Policy Challenges

  • How Quickly Can Growth Pick Up in North America?

  • Japan: A Somber Short-Term Outlook, But a New Opportunity for Reform

  • How Serious Is the Slowdown in Western Europe?

  • Latin America: How Will Argentina’s Crisis Affect the Region?

  • Emerging Asia: Hard Hit by External Shocks

  • Emerging Europe: A Difficult Balance Between Short- and Medium-Term Objectives

  • Commonwealth of Independent States (CIS): Recovery Continues, But Reforms Lag

  • Africa: Supporting Growth and Poverty Reduction

  • The Middle East: Managing Oil Price Volatility

  • Appendix I: Primary Commodities and Semiconductor Markets

  • Appendix II: Alternative Scenarios—How Might Medium-Term Productivity Growth Affect the Short-Term Outlook?

  • References

• Chapter II. International Linkages: Three Perspectives

  • Business Cycle Linkages Among Major Advanced Economies

  • How Do Fluctuations in the G-7 Countries Affect Developing Countries?

  • The World Trading System: From Seattle to Doha

  • References

• Chapter III. The Information Technology Revolution

  • Past All-Purpose Technological Revolutions

  • Labor Productivity Growth

  • Who Benefits—Producers or Users?

  • Business Cycle Implications

  • Prospects for the Information Technology Revolution

  • Policy Implications

  • Conclusion

  • References

• Chapter IV. International Financial Integration and Developing Countries

  • Trends in Capital Account Liberalization and Capital Flows

  • The Impact of International Capital Account Liberalization on Growth

  • Sequencing Capital Account Liberalization

  • Policy Considerations

  • References

• Annex. Summing Up by the Acting Chair

• Statistical Appendix

  • Assumptions

  • Data and Conventions

  • Classification of Countries

  • General Features and Compositions of Groups in the World Economic Outlook Classification

  • List of Tables

    • Output (Tables 1–7)

    • Inflation (Tables 8–13)

    • Financial Policies (Tables 14–21)

    • Foreign Trade (Tables 22–26)

    • Current Account Transactions (Tables 27–32)

    • Balance of Payments and External Financing (Tables 33–37)

    • External Debt and Debt Service (Tables 38–43)

    • Flow of Funds (Table 44)

    • Medium-Term Baseline Scenario (Tables 45–46)

• Boxes

  • 1.1 The Terrorist Attack: Impact on the Global Outlook

  • 1.2 How Much of a Concern Is Higher Headline Inflation?

  • 1.3 An Historical Analogy to the Terrorist Attack on the United States: The Kobe Earthquake

  • 1.4 The Japanese Economic Slowdown and East Asia

  • 1.5 Relative Euro-Area Growth Performances: Why Are Germany and Italy Lagging Behind France?

  • 1.6 The Growth-Poverty Connection in India

  • 1.7 Economic Growth, Civil Conflict, and Poverty Reduction in Sub-Saharan Africa

  • 2.1 Confidence Spillovers

  • 2.2 Channels of Business Cycle Transmission to Developing Countries

  • 2.3 Potential Welfare Gains from a New Trade Round

  • 2.4 Critics of a New Trade Round

  • 3.1 Measurement Issues

  • 3.2 Has the U.S. Total Factor Productivity Growth Accelerated Outside of the Information Technology Sector?

  • 3.3 Information Technology and Growth in Emerging Asia

  • 3.4 Has the Information Technology Revolution Reduced Output Volatility?

  • 3.5 The Information Technology Slump and Short-Term Growth Prospects in East Asia

  • 4.1 Measuring Capital Account Liberalization

  • 4.2 The Impact of Capital Account Liberalization on Economic Performance

  • 4.3 Foreign Direct Investment and the Poorer Countries

  • 4.4 Country Experiences with Sequencing Capital Account Liberalization

• Tables

  • 1.1 Overview of the World Economic Outlook Projections

  • 1.2 Emerging Market Economies: Net Capital Flows

  • 1.3 Advanced Economies: Real GDP, Consumer Prices, and Unemployment

  • 1.4 Selected Economies: Current Account Positions

  • 1.5 Major Advanced Economies: General Government Fiscal Balances and Debt

  • 1.6 Selected Western Hemisphere Countries: Real GDP, Consumer Prices, and Current Account Balance

  • 1.7 Selected Asian Countries: Real GDP, Consumer Prices, and Current Account Balance

  • 1.8 European Union Accession Candidates: Real GDP, Consumer Prices, and Current Account Balance

  • 1.9 Commonwealth of Independent States: Real GDP, Consumer Prices, and Current Account Balance

  • 1.10 Selected African Countries: Real GDP, Consumer Prices, and Current Account Balance

  • 1.11 Selected Middle Eastern Countries: Real GDP, Consumer Prices, and Current Account Balance

  • 1.12 Volatility Measures

  • 1.13 Potential Output Growth Rates in the Baseline

  • 1.14 Alternative Scenario: Faster U.S. Productivity Growth

  • 1.15 Alternative Scenario: Immediate Realization of Slower Productivity Growth

  • 1.16 Alternative Scenario: Gradual Realization of Slower Productivity Growth

  • 2.1 Cross-Correlations of Output Gaps in Group of Seven (G-7) Countries, 1974–2000 and 1991–2000

  • 2.2 Trade Interdependence in Group of Seven (G-7) Countries, 1974–2000

  • 2.3 Foreign Portfolio Assets and Household Wealth in Selected Group of Seven (G-7) Countries

  • 2.4 International Revenue Diversification of Listed Joint Stock Companies in the Group of Seven (G-7) Countries

  • 2.5 Countries Included in the Developing Country Aggregates

  • 2.6 Output Correlation with the Group of Seven (G-7) Countries

  • 2.7 Developing Countries: Determinants of Output Comovement

  • 3.1 Contribution of New Technology to Economic Growth

  • 3.2 Railroad Mileage, 1840–1920

  • 3.3 Social Savings from Railways

  • 3.4 Contribution of Information Technology (IT) to the Acceleration in Productivity in the United States

  • 3.5 Contribution of Information Technology Capital Deepening to GDP Growth in the G-7 Economies

  • 3.6 Contribution of Information Technology (IT) Activities to GDP Growth, 1990–98

  • 3.7 Illustrative Estimates of the Impact of Falling Prices of Information Technology (IT) Goods on GDP, Terms of Trade, and Domestic Demand

  • 3.8 Selected Economies: Indicators of Information Technology (IT) Use

  • 4.1 Summary Studies on Capital Account Liberalization and Growth

  • 4.2 Openness of the Capital Account

  • 4.3 Liberalization and Economic Growth for Developing Countries

  • 4.4 Liberalization and Private Investment for Developing Countries

  • 4.5 Liberalization and FDI Spillovers for Developing Countries

  • 4.6 Liberalization and Domestic Financial Development for Developing Countries

  • 4.7 The Benefits of Capital Flows from Stronger Institutions in the 1990s

• Figures

  • 1.1 Global Indicators

  • 1.2 Selected European Union Countries, Japan, and United States: Indicators of Consumer and Business Confidence

  • 1.3 Global Output, Industrial Production, and Trade Growth

  • 1.4 Financial Market Developments

  • 1.5 Net Overseas Aid Disbursement by Major Development Assistance Committee (DAC) Countries

  • 1.6 United States: A Sharp Slowdown in the Business Sector

  • 1.7 Japan: Banking and Corporate Sector

  • 1.8 Euro Area: Weakening Growth, Rising Inflation

  • 1.9 Selected Western Hemisphere Countries: Overall Public Sector Deficit and Public Debt

  • 1.10 Selected Asia-Pacific Countries: Weakening Export Growth

  • 1.11 Emerging Europe: Export Growth

  • 1.12 Commonwealth of Independent States (CIS): Continuing Recovery But Disappointing Progress on Reform

  • 1.13 Selected African Countries: Sensitive to Commodity Markets

  • 1.14 Selected Middle East Oil Producing Countries: Fiscal Restraint Apparent

  • 1.15 OPEC Target and Actual Production of Oil

  • 1.16 Commercial Stocks and Prices

  • 1.17 Indices of Commodities

  • 1.18 Semiconductor Sales and Prices

  • 1.19 Illustrative Country Scenario: Productivity Uncertainty

  • 1.20 Impact of Changes in Productivity Growth

  • 2.1 Common Components in Group of Seven (G-7) Output Gaps

  • 2.2 Group of Seven (G-7) Countries: Selected Bilateral Output Gap Correlations

  • 2.3 Group of Seven (G-7) Countries: Asset Market Interdependence

  • 2.4 Group of Seven (G-7) Countries: Net Foreign Assets

  • 2.5 Group of Seven (G-7) Countries: Gross Foreign Direct Investment and Portfolio Flows

  • 2.6 U.S. Asset Markets and Group of Seven (G-7) Countries

  • 2.7 G-7 Equity Return Linkages

  • 2.8 Output Fluctuations in the Group of Seven (G-7) and Developing Countries

  • 2.9 Output Comovements Between the Developing and the Group of Seven (G-7) Countries

  • 2.10 Trade Developments in Developing Countries and the Cycle in G-7 Countries

  • 2.11 Developing Countries: Net Private Capital Flows

  • 2.12 Stock Returns Comovement Between the Developing and the Group of Seven (G-7) Countries

  • 2.13 World Trade and Developing Countries

  • 2.14 Number of Antidumping Investigations Initiatied

  • 2.15 Selected OECD Countries: Agricultural Producer Support Estimate, 1986–2000

  • 3.1 United States: Relative Prices of Information Technology Goods

  • 3.2 Information Technology Investment in the United States

  • 3.3 Information Technology (IT) Expenditure and Production

  • 3.4 Initial Phase of Technological Revolutions

  • 3.5 Demand for Information Technology (IT) Goods and Consumer Surplus

  • 3.6 Increase in Consumer Surplus, 1992–99

  • 3.7 Exports of Information Technology (IT) Goods

  • 3.8 Trade in Information Technology (IT) Goods

  • 3.9 Globalization of Information Technology (IT) Firms

  • 3.10 Stock Prices

  • 3.11 Information Technology (IT) Financing in Advanced Economies

  • 3.12 Short-Term Debt to Book Value of Equity

  • 3.13 United States: Evolving Official Estimates of the Output Gap

  • 4.1 Gross Capital Flows

  • 4.2 Summary of Measures of Capital Account Openness

  • 4.3 Concentrations of Capital Flows: Largest Developing Country Users

  • 4.4 Per Capita Growth by Liberalization in Developing Countries

  • 4.5 Private Investment and Foreign Direct Investment (FDI) Inflows by Liberalization in Developing Countries

  • 4.6 Financial Development by Liberalization in Developing Countries

  • 4.7 Volatility of Net Capital Flows and Liberalization

  • 4.8 Growth by Volatility of Gross Portfolio Flows in Countries with Open Capital Markets

• World Economic Outlook and Staff Studies for the World Economic Outlook, Selected Topics, 1992–2001

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 23–August 17, 2001, except for the currencies participating in the European exchange rate mechanism II (ERM II), which are assumed to remain constant in nominal terms relative to the euro; that established policies of national authorities will be maintained (for specific assumptions about fiscal and monetary polices in industrial countries, see Box A1); that the average price of oil will be $26.80 a barrel in 2001 and $24.50 a barrel in 2002, 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 4.1 percent in 2001 and 3.7 percent in 2002. 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 through early September, 2001.

• 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 (for example, 1997–98 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

• / between years or months (for example, 1997/98) 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.

FURTHER INFORMATION AND DATA

This report on the World Economic Outlook is available in full on the IMF’s Internet site, www.imf.org. Accompanying it on the website is a larger compilation of data from the WEO database than in the report itself, consisting of files containing the series most frequently requested by readers. These files may be downloaded for use in a variety of software packages.

Inquiries about the content of the World Economic Outlook and the WEO database should be sent by mail, electronic mail, or telefax (telephone inquiries cannot be accepted) to:

World Economic Studies Division

Research Department

International Monetary Fund

700 19^th Street, N.W.

Washington, D.C. 20431, U.S.A.

E-mail: weo@imf.org Telefax: (202) 623-6343

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 various support 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 those countries and updated during the WEO exercise.

The analysis in the World Economic Outlook draws extensively on the ongoing work of the IMF’s area and specialized departments, and has been coordinated in the Research Department under the general direction of Michael Mussa and Kenneth Rogoff, former and current Economic Counsellors and Directors of Research. The World Economic Outlook project is directed by David Robinson, Senior Advisor in the Research Department, together with Tamim Bayoumi, Chief of the World Economic Studies Division.

Primary contributors to the current issue include Hali Edison, Thomas Helbling, Maitland MacFarlan, James Morsink, Cathy Wright, Marc Auboin, Geoffrey Bannister, Luis Catão, Markus Haacker, Luca Ricci, Torsten Sløk, and Marco Terrones. Other contributors include Jahangir Aziz, Taimur Baig, Robin Brooks, Ximena Cheetham, Susan Collins, Karl Habermeier, Ayhan Kose, Manmohan Kumar, II Houng Lee, Anne McGuirk, Guy Meredith, Ashoka Mody, Gary Moser, Eswar Prasad, Blair Rourke, Scott Roger, Kevin Ross, and Stephen Tokarick. Several consultants were also involved in background work, namely Michael Artis, Nicholas Crafts, Michael Klein, and Ross Levine. Nese Erbil, Mandy Hemmati, Yutong Li, and Bennett Sutton provided research assistance. Gretchen Byrne, Nicholas Dopuch, Toh Kuan, Olga Plagie, Di Rao, and Anthony G. Turner processed the data and managed the computer systems. Sylvia Brescia, Dawn Heaney, and Laura Leon were responsible for word processing. Jeff Hayden 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 5 and 7, 2001. 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.