World Economic Outlook

International Monetary Fund

• Publisher: INTERNATIONAL MONETARY FUND
• Year: 1984
• eBook ISBN: 9781557750853

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Contents

Preface

I. General Survey

Current Situation and Prospects

Output and Employment

Inflation, Interest Rates, and Exchange Rates

Trade and Protectionism

Current Account Developments

Financing and Debt

Main Policy Issues

Sustaining Recovery in Industrial Countries

General Strategy

Country-Specific Considerations

United States, Canada, and United Kingdom

Japan and Federal Republic of Germany

France and Italy

Smaller Industrial Countries

Exchange Rates and Policy Interactions

Debt, Adjustment, and Growth in Developing Countries

Assessing External Viability

The Medium-Term Scenario

Consequences of Alternative Assumptions

Adjustment Policies

Prospects and Policy Requirements

Role of the Fund

II. Economic Recovery in Industrial Countries

The Policy Setting

Output and Employment

Inflation and Interest Rates

Forces to Sustain the Recovery

III. Growth and Adjustment in Developing Countries

External Environment

Domestic Developments and Prospects

Output

Prices

Balance of Payments Developments

Imports, Current Account Deficits, and Financing

Non-Oil Developing Countries

Major Oil Exporting Countries

Components of Current Account Changes

Regional Distribution of Current Account Changes

Adjustment Policies

Recent Policy Trends

Fiscal Policy

Credit and Monetary Policy

Exchange Rate Policy

Other Policies

Policies and Trends in Some Major Countries

IV. External Debt and Balance of Payments Adjustment

Trends in External Debt

Size and Composition of External Debt, 1973–84

Recent Developments, 1980–83

Impact of Debt Restructuring

Medium-Term Prospects

The Base Scenario

Effects of Alternative Assumptions

Policy Implications in the Near Term

Financing Current Account Deficit in 1984

Adjustment Policies

V. Exchange Rates and Policy Interactions

Recent Exchange Rate Developments Among Industrial Countries

Current Account Developments and Prospects of Industrial Countries

General Trends

Developments in Individual Countries

Policy Interactions

Divergences in Output and Inflation

Current Account Imbalances

Exchange Rates

Supplementary Notes

1. Fiscal Policy in Major Industrial Countries

2. Monetary Developments in Major Industrial Countries

3. World Oil Situation

4. Non-Oil Primary Commodity Price Developments and Prospects

5. Economic Developments in Eastern Europe and U.S.S.R.

6. Recent Trade Policy Developments

7. Methodology Used in Medium-Term Scenario for Developing Countries

Statistical Appendix

Introduction

Domestic Economic Activity and Prices (Tables 1–8)

International Trade (Tables 9–16)

Balance of Payments (Tables 17–34)

External Debt (Tables 35–38)

Country Tables (Tables 39–45)

Medium-Term Scenarios (Tables 46–49)

For a complete list of tables in the Statistical Appendix, see page 165.

LIST OF TABLES

Chapter

I. 1. Changes in World Output, 1967–84

2. Non-Oil Developing Countries: Current Account Deficits as Percentages of Exports of Goods and Services

3. Non-Oil Developing Countries: Current Account Financing

II. 1. Major Industrial Countries: Changes in Real GNP and Components of Aggregate Demand, 1980–84

2. Industrial Countries: Productivity Indicators, 1974–84

3. Major Industrial Countries: Real Private Nonresidential Fixed Investment, 1963–83

4. Major Industrial Countries: Wage Costs and Labor Productivity in the Manufacturing Sector, 1963–83

III. 1. Non-Oil Developing Countries: Patterns of Financing Current Account Deficits, 1978–84

2. Non-Oil Developing Countries: Selected Components of Current Account Balance, 1978–84

3. Selected Financial Variables, 1977–83

Supplementary Notes

1. 1. Selected Industrial Countries: General Government Fiscal Balances and Impulses, 1978–84

2. Major Industrial Countries: Selected Components of General Government Expenditures in Relation to GDP

3. Major Industrial Countries: Role of Interest Payments in General Government Deficits

2. 1. Major Industrial Countries: Selected Composite Data on Monetary Developments and Related Aggregates, 1976–83

2. Major Industrial Countries: Changes in Stocks of Money (Ml), 1976–83

3. Major Industrial Countries: Changes in Stocks of Broad Money, 1976–83

4. Major Industrial Countries: Changes in Narrow Money Velocity, 1976–83

5. Major Industrial Countries: Changes in Broad Money Velocity, 1976–83

6. Major Industrial Countries: Short-Term Interest Rates, 1976–83

7. Major Industrial Countries: Long-Term Interest Rates, 1976–83

8. Recent and Implied Changes in Annual Velocity of Targeted Aggregates

3. 1. World Oil Balances, 1973–84

2. World Crude Oil Production, 1973–84

3. Distribution of World Oil Consumption

4. Distribution of World Oil Production

4. 1. Indices of Non-Oil Primary Commodity Prices

2. Fluctuation of Non-Oil Commodity Prices: Overview of Two Recent Cycles

3. Fluctuation of Non-Oil Commodity Prices by Major Groups

4. Non-Oil Commodity Prices and Underlying Factors

5. 1. Eastern Europe and U.S.S.R.: Economic Activity and Prices, 1971–84

2. Eastern Europe and U.S.S.R.: Current Account in Convertible Currencies, 1979–84

3. Eastern Europe and U.S.S.R.: Merchandise Trade, 1979–84

4. Eastern Europe and U.S.S.R.: External Debt in Convertible Currencies, 1979–83

7. 1. Selected Developing Countries Included in Survey for Medium-Term Scenarios

LIST OF CHARTS

Chapter

I. 1. Major Industrial Countries: Inflation, 1967–84

2. World Trade, in Volume, First Quarter 1980–Fourth Quarter 1984

3. Short-Term Interest Rates, 1980-March 1984

II. 1. Industrial Countries: Distribution of Growth Forecasts for 1984

2. Major Industrial Countries: Real GNP and Industrial Production, 1979–84

3. Major Industrial Countries: Consumer Prices, 1979–84

4. Five Major Industrial Countries: Interest Rates, 1979–March 1984

5. Major Industrial Countries: Household Saving Ratio, 1963–84

III. 1. Non-Oil Developing Countries: Financing of Current Account Deficits, 1978–84

2. Developing Countries: Nominal and Real Effective Exchange Rate Indices by Analytical Subgroups, 1973–83

IV. 1. Non-Oil Developing Countries: Total External Debt in Nominal Terms and Deflated by Import and Export Unit Values, 1973–83

2. Developing Countries: External Debt and Debt Service, 1975–84

3. Non-Oil Developing Countries: Sources and Uses of External Financial Flows, 1974–84

4. Non-Oil Developing Countries: Trends in the Composition of External Debt, 1973–84

5. Trends in Nominal and Real Interest Rates, 1973–83

6. Developing Countries: External Debt and Debt Service, 1981–90

7. Non-Oil Developing Countries: Sources and Uses of External Financial Flows, 1985–90

V. 1. Major Industrial Countries: Exchange Rates, January 1980–March 1984

2. Major Industrial Countries: Relative Costs and Prices of Manufactures Adjusted for Exchange Rate Changes, 1980–83

3. Three Major Industrial Countries: Payments Balances on Current Account, Including Official Transfers, and Real Effective Exchange Rates, 1973–83

4. Three Major Industrial Countries: Inflation-Adjusted Differentials in Long-Term Interest Rates and Real Bilateral Exchange Rates, 1978–83

5. Three Major Industrial Countries: Payments Balances on Private Capital Account as Percentage of GNP and Real Long-Term Interest Rates and Interest Rate Differentials, 1973–83

6. Six Major Industrial Countries: Variability of Differentials Between Domestic and U.S. Interest Rates and of Exchange Rates vis-à-vis the U.S. dollar, 1978–83

7. Major Industrial Countries: Payments Balances on Current Account, Including Official Transfers, as Percentage of GNP, 1978–83

Supplementary Notes

1. 1. Major Industrial Countries: Selected Saving and Investment Ratios, 1960–83

2. 1. Six Major Industrial Countries: Target Ranges and Growth of Targeted Aggregates as Reported at End of Policy Period, 1981–84

2. Six Major Industrial Countries: Short-Term Interest Rates, 1980-February 1984

4. 1. Non-Oil Commodity Prices, 1970–83

2. Fluctuations of Non-Oil Commodity Prices and Major Underlying Factors, 1970–83

Current Situation and Prospects

Output and Employment

The resumption of growth in the world economy in 1983 was concentrated in the industrial countries.¹ The global recession of 1980–82 had begun in these countries, and they were also the first to emerge from it. Their growth, which had averaged 1½ percent in 1980–81 and had actually been negative in 1982, accelerated to a rate of 2¼ percent in 1983. Moreover, the improvement during the course of the year was considerably more marked than these figures suggest. In this respect, it is more useful to compare developments during 1983 (i.e., from the fourth quarter of 1982 to the fourth quarter of 1983) with those during the preceding year (Appendix Table 1). On this basis, growth of real gross national product (GNP) in the major industrial countries increased from – ½ percent in 1982 to 4¼ percent in 1983. As is usual in the initial phases of an expansion, the recovery of output was especially pronounced in the industrial sector, where output increased by 10 percent in 1983, after declining by 5½ percent in 1982.

Individual countries did not, however, share equally in this resumption of activity. Demand increased most in those countries where inflation had recently decelerated the most—Canada, the United States, and the United Kingdom. In the two North American economies, total domestic demand increased by about 8 percent in 1983, while in the United Kingdom it rose by 5 percent. Domestic demand was also unexpectedly strong in the Federal Republic of Germany where, reflecting in large part an unanticipated fall in the saving ratio, it increased by over 4 percent. In other countries, however, the outturn was more disappointing; domestic demand increased by only 2 percent in Japan, a deceleration of 1 percentage point from the pace of a year earlier, and registered little change or outright declines in most of the other industrial countries. Nevertheless, since these latter countries benefited from the growth of demand elsewhere in the industrial world, their output levels were considerably better maintained. The foreign balance contributed 2 percentage points to the growth of Japan’s real GNP in 1983 and l–1½ percentage points to that of France and of the smaller industrial countries as a group.

The recovery of demand was almost exclusively in the area of private expenditure. The pace of public spending on goods and services tended to slow from 1982 to 1983, especially in the United States, where public sector consumption in real terms declined by 2¼ percent in 1983. The recovery was initiated primarily by a surge in demand for consumer durables and new housing. Demand in these sectors responded strongly to the declines in nominal interest rates triggered by the sharp drop in inflation rates. Another facet of the same phenomenon was a marked decline in the household saving ratio, a development that may have been influenced in a number of countries by the effect of a strengthening of equity markets on private sector balance sheets. The growth of output in 1983 was also powerfully sustained by the turnaround in the stockbuilding cycle and, in the United States, by the effect of tax cuts on the growth of personal disposable income. In 1982, inventory corrections brought about by the recession had depressed aggregate demand in the major industrial countries by over 1 percent of GNP. In 1983, on the other hand, stockbuilding contributed 1½ percentage points to the growth of aggregate output in these countries. (See Appendix Table 5.) Gross fixed business investment was also surprisingly strong, particularly in North America and the Federal Republic of Germany.

Developments in labor markets tend to mirror those in the goods market, though typically with some lag. On this occasion, however, the traditional lags were all but absent in the United States, where the unemployment rate dropped by an almost unprecedentedly large 2½ percentage points in the first 12 months of the recovery. In the Federal Republic of Germany and the United Kingdom, labor markets responded more moderately, through a leveling off of the earlier trend toward rising unemployment (and falling employment). Elsewhere, unemployment rates tended to rise throughout the year. Overall, joblessness remained very high; for the major industrial countries as a group, unemployment rates in the final quarter of 1983 averaged about 8¼ percent, or only ½ percent less than the average a year before, and still more than 3 percent above the level of four years earlier (Appendix Table 6).

Prospects are that the recovery initiated in 1983 will continue in 1984 and 1985, with a greater degree of convergence among countries in their rates of expansion. In terms of the year-over-year figures, growth in the industrial world as a whole is projected to accelerate from 2¼ percent in 1983 to 3½ percent in 1984. The apparent acceleration of growth in 1984 is, however, a by-product of the strong pace of demand in 1983. A more accurate picture of the outlook from the beginning of 1984 onward is provided by the fourth-quarter-to-fourth-quarter developments. These point to a slowing of aggregate GNP growth in the industrial countries from 4½ percent in 1983 to 3¼ percent in 1984. For 1985, expansion is tentatively projected to be at a similar pace to that in 1984. In large part, this slowing of growth simply reflects the passing of the recovery stage of the cycle, especially the absence in 1984 of the sharp impetus to growth imparted in 1983 by stockbuilding. Final domestic demand, which does not include inventory accumulation, is projected to rise by just over 3 percent in the major industrial countries in 1984, the same rate of increase as in 1983.

The projections also show a marked convergence of growth rates around the overall average, with output growth in the North American economies slowing to 4 percent during 1984, and expansion elsewhere generally firming to rates roughly in line with staff estimates of each country’s respective rate of potential output growth. As a result, little or no absorption of slack is foreseen outside of North America, and the absorption of slack in the United States and Canada is henceforth projected at a reduced pace. The all-industrial country unemployment rate is expected to remain in the vicinity of 8 percent in 1984.

A noteworthy feature of these p...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface
• I. General Survey
• II. Economic Recovery in Industrial Countries
• III. Growth and Adjustment in Developing Countries
• IV. External Debt and Balance of Payments Adjustment
• V. Exchange Rates and Policy Interactions
• Supplementary Notes
• Statistical Appendix
• List of Tables