OECD economic outlook. 25.

172 Pages·1979·26.5 MB·English

by  OECD

ORGANISATION FOR ECONOMIC COOPER ON AND DEVELOPMENT
ORGANISATION 0 E COOPERATION E T 0 E 0 E V E L 0 P P E M E N T E G 0 N Q M I Q U E S
JULY 1979
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Archives
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OECD
ECONOMIC
OUTLOOK
25
JULY 1979
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
TABLE OF CONTENTS
5. INFLATION, THE ENERGY PROBLEM AND GROWTH
17. DOMESTIC DEVELOPMENTS
17. Demand, Output and Employment
36. Monetary and Fiscal Policies
45. Wages, Costs and Prices
56. Special Section: The Oil Situation
66. INTERNATIONAL DEVELOPMENTS
66. Foreign Trade and Current Balances
80. International Monetary Developments
89. DEVELOPMENTS IN INDIVIDUAL COUNTRIES
89. United States 112. United Kingdom
96. Japan 117. Canada
101. Germany 121. Italy
107. France 126. Other OECD Countries
135. TECHNICAL ANNEX
135. Detailed Supporting Tables
143. Technical notes
147. Historical Statistics
158. Sources and Methods
CONVENTIONAL SIGNS
$ US dollar i Irrelevant mbd Million barrels
c US cent Decimal point
£ Pound sterling I, II Calendar half-years In charts:
Data not available Ql, Q4 Calendar quarters S Strike
0 Nil or negligible Billion Thousand million B Break in series
LIST OF TABLES AND CHARTS
TABLES
Page Table Page I Table
17 1. Growth of real GNP in the OECD area TECHNICAL ANNEX
19 2. Growth of real GDP in other OECD countries 135 41. Appropriationaccountforhouseholds: UnitedStates
22 3. Contribution of private non-residential investment to 135 42. Appropriation accountforhouseholds: Japan
real GNP/GDP growth 135 43. Appropriation accountforhouseholds: Germany
22 4. Development of total domestic demand in the OECD 135 44. Appropriation accountforhouseholds: France
area 135 45. Appropriation accountforhouseholds: UnitedKingdom
23 5. Contributionsto changesinrealGNP/GDP 135 46. Appropriationaccount forhouseholds: Canada
24 6. Factors affecting real private consumption in seven 135 47. Appropriation accountforhouseholds: Italy
25 7. mMaajnourfaccotuunritnrigesc,a1p9a7c7it-y19u79tilisationrates 136 48. Unanlemdepfilnoiytimonesnt ratesin selectedOECDcountries: natio¬
26 R. Employment and productivity 137 49. Comparison of consumer prices and GNP/GDP defla¬
27 9. Weekly hours worked in manufacturing in selected tors
OECD countries 137 50. Exchange ratesofOECD countries
28 10. Adjusted unemployment rates in selected OECD coun¬ 138 51. Effectiveexchange ratechangesofOECD countries
tries 138 52. Volume of imports of major OECD countries and
29 11. Output and productivity by sector in seven major country groups
countries, 1963-1973 and 1973-1977 138 53. Volume of exports of major OECD countries and
30 12. Decomposition of the aggregate rate of productivity country groups
growth in thetotal economy 138 54. Foreign trade volumes of selected other OECD coun¬
31 13. Productivityrelatives in sevenmajorcountries tries
34 14. Decomposition of the aggregate rate of productivity 139 55. Export market growth and relative export performance
growth in manufacturinginfourcountries ofselected OECD countries
35 15. Productivityinthirteen manufacturingindustries 139 56. Foreign trade prices (average values) of major OECD
36 16. Summary of principal domestic monetary measures in countries andcountrygroups
the OECD countries, December1978-May 1979 139 57. Foreign trade prices (average values) of selected other
37 17. Monetaryaggregates: recenttrends andtargets OECD countries
41 18. Generalgovernmentnet lendingonaSNAbasis .139 58. Trade balances of major OECD countries and country
44 19. Fiscal impact indicators for seven major OECD coun¬ groups
tries 140 59. Tradebalances ofotherOECDcountries
46 20. Non-oil commodity prices 140 60. Current invisible transactions of major OECD countries
48 7.1. Wages, realearnings andlabour costs and country groups
49 22. Unit labourcostsin manufacturing 140 61. Net imports of oil of major OECD countries and
52 23. Hourly earnings inmanufacturing country groups
53 24. Changesinrelativeenergy pricesto consumers 141 62. OECD countries' exportstoOPEC
53 25. Consumer prices 141 63. OECD countries' exports to Eastern Europe, the Soviet
54 26. Private consumption deflators inthe OECD area Union, China and selectedotherAsiancountries
54 27. GNP deflators inthe OECD area 142 64. Market prices of seleted primary commodities exported
57 28. OECD area oil balance sheet to 1980 I by developing countries
59 29. Simulated effects on OECD area of a 10 per cent 142 65. OPEC'sbalanceofpaymentson currentaccount
(year-on-year) increase in OPEC oil prices 142 66. Balance ofpayments ofnon-oildevelopingcountries
60 30. Expected increases in oil demand, 1979-il985 143 67. Real wage gap
61 31. The elasticity of total energy requirements with respect 143 68. Financial surplus (+) or deflcit () of general govern¬
toGDP in the major OECD countries mentin selected OECD countries
63 32. The growth of oil and energy requirements in the
OECD area HISTORICAL STATISTICS
64 33. The importance of imported oil in OECD oil require¬
ments 148 Growth of real GDP at market prices in the OECD
66 34. Output andforeign trade ofthe OECD area area (annual figures)
69 35. Domestic and foreign trade prices of the OECD area 148 Growth of real GNP/GDP - Seven major OECD coun¬
70 36. Decomposition of current balances tries (half-yearly figures)
75 37. Current balances of major OECD countries and coun¬ 149 Consumer prices (annual figures)
try groups 149 Consumer prices (half-yearly figures)
77 38. Currentbalances ofother OECD countries 150 Currentbalances (annual figures)
78 39. Summary of balance of payments on current account 150 Current balances (half-yearlyfigures)
of the OECD area and other major world groupings 151 Nominal exchange rates, national currencies against the
86 40. Balance of payments summary United States S
CHARTS
age Chart Page Chart
18 A. Industrialproductioninsevenmajorcountries 68 L. Volume oftrade ofthesevenmajor OECDcountries
20 B. Selected indicators oforders 72 M Measures ofrelativecompetitive position
32 C. The output weights in total economy in seven major 76 N. Current balances ofselectedOECDcountries
countries 81 O. Effectiveexchangeratessinceend-1976
33 D. Distribution ofemploymentinsevenmajorcountries 84 P. U.S./Germany: interest rate differentials and bilateral
4338 FE.. PMroimneatrayryimmpanaacgtemofenbtuadngdeitnatreyresctharantgeestreinndsthe seven 85 Q. Aecxodcujuhnastrtneiegdes nraettesreserves (official intervention) of selected
major OECD countries
46 G. Index of non-oil commodity prices in terms of SDRs TECHNICAL ANNEX
47 H. OECD industrial production and spot commodity prices
51 I. Changein consumerprices 152 R. Household savings ratios
5672 JK.. CInodsutsatrniadlporiuctepuint,difcoarteoirgsn trade and current balance in 115536 TS.. EExffcehcatnivgeereaxtcehsaongfemarajoterscurrenciesagainstthedollar
the sevenmajorcountries combined 157 U. Uncovered interest rate differentials
The cut-offdatefor information
used in the compilation oftheforecasts
was 11th June 1979.
But additional notes are includedconcerning the
the end-June oilprice increases (seefollowingpages)
and the UnitedKingdom Budget measures of
12th June (seepage 133).
INTERNATIONAL OIL MARKETS
THE IMPLICATIONS OF RECENT DECISIONS
The assessments contained in Economic Outlook The current account of the balance of payments
No. 25 have to be interpreted in the light of the is likely to move into substantial deficit in the
decisions taken by OPEC in Geneva and by the remainder of this year, perhaps an annual
Summit in Tokyo after this issue went to press' rate of around $40 billion rather than the
on the 11th of June. $20 billion forecast. It may fall to an annual
The Geneva decision, if fully adhered to until the rate of $30 billion in the first part of next year,
end of the year, raises oil prices by about 17 per when OPEC imports increase in response to
cent above the level incorporated in the present higher earnings. The annual oil bill of the
forecasts. The price of oil will thus have risen non-oil developing countries is likely to be
by about 60 per cent between December 1978 and increased by around $3 billion.
early July. The average price that OECD countries GNP growth, essentially because of the
pay for imported oil over 1979 as a whole may thus deflationary effect on demand of unspent OPEC
be about 35 per cent higher than during 1978, earnings, is likely to be reduced to around
compared with the 23 per cent assumed when the 2 per cent, rather than the 2f per cent forecast.
forecasts were made. Because of the terms of trade loss, real income
As a result, OECD's inflation will be higher, is likely to grow even more slowly, at around
growth slower, and current accounts in smaller 1J per cent.
surplus or larger deficit, than forecast in the present
Economic Outlook. The extent of the changes But this purely mechanical impact of higher oil
cannot be forecast with precision. Weaker growth prices on demand may be aggravated by other
might constrain the rise in oil prices. The level of influences. As discussed on page 21 of the present
OPEC oil supplies is subject to some uncertainty. Economic Outlook, there is some possibility that
The decision at Tokyo to take important measures demand will be weaker than assumed because of
to curb OECD oil imports will have important waning confidence in the private sector, a tightening
effects between now and 1985, but it is not yet of macro-economic policy, or a more marked slow¬
clear how much limitation will be seen over the down in the United States. Given the size of the
twelve months to mid-1980 to which the present recent oil price rise, this possibility would now
forecasts apply. seem to be greater. The rise in OECD activity over
The special section on "The Oil Situation" the next 12 months could thus be lower than the
(pages 56 to 65) suggests how the purely mechanical 2 per cent suggested above.
effects of an oil price rise can be assessed. Applying The latest indicators for the United States suggest
this method of calculation, and allowing for the that the forecast slowdown is indeed imminent.
timing of the latest oil price rise, the forecasts for There must be a risk, particularly given the latest
the OECD area as a whole over the next twelve oil price rises, that it will be somewhat deeper than
months should be adjusted as follows: has seemed likely todate. In other OECD countries,
loss of confidence could result in higher personal
Inflation, as measured by domestic demand savings ratios and weaker business investment.
deflators or consumer prices, could be pushed These suggestions are proferred with reserve, for
up by about a percentage point, to a 10 per experience has shown that, for a few quarters at
cent annual rate in the second part of this least, behaviour can be apparently perverse. Follow¬
year and to around 9 per cent in the first ing the 1973/1974 oil price rise, savings ratios fell
part of next year. However, if wages were, for two quarters or so, as consumers sought to
as in recent years, to rise in sympathy, the cushion the fall in their real incomes, so that it
inflationary impulse would be higher and next was not until after the first half of 1974 that weaker
year's deceleration jeopardized. personal sector expenditure and business investment
seriously depressed GNP. Nonetheless, given that is not open to the area as a whole, unless the
the increase since December in the oil bill relative deflation were sufficient to reduce the oil price
to GNP is now about half as large as the massive substantially. This would probably imply a slow¬
rise in 1973/1974, there must be a risk that, at down that on other grounds would be considered
least by the first half of next year, the OECD unacceptable; economising on energy use would be
economies will be depressed by more than a simple greatly preferable. Third, if policies in OECD
mechanical calculation, which does not take account countries allow the real price of oil to weaken, as
of confidence factors, would suggest. happened after 1973/1974, the incentive to conserve
There are a number of implications for policy. energy and reduce dependence on imported oil will
First, the inflationary effects of higher oil prices be weakened because misleading signals will be sent
can be greatly exacerbated if there is an attempt, to users and indigenous producers. It was in this
almost certainly self-defeating in the longer-term, to way that four or five potentially valuable years
redress an oil-induced terms-of-trade loss by raising were largely wasted, from the point of view of
nominal incomes inside the OECD area. It must energy policy, with the result that the OECD
be a major aim of policy to avoid the pass-through economy today is not well prepared to withstand a
ofhigher energyprices into money incomes. Second, relatively modest shortfall in the supply of energy.
while any one country can improve its current
account through deflation of demand, this option 4th July 1979.
INFLATION, THE ENERGY PROBLEM
AND GROWTH
Introduction The events of the lastyear orso have been marked by a number of encourag¬
ing features. The evidence suggests that restrictive demand management can
help reduce high inflation and that, in suitable circumstances, expansionary fiscal
policy has its desired effect on real demand and output. When conditions have
been appropriate, rising capacity utilisation has brought forth an increase in
productive investment, and exchange rate changes have helped to produce impor¬
tant equilibrating movements in payments balances. Traditional tools of macro-
economic policy, appropriately used, remain effective.
But events have also confirmed the view that a major obstacle to further
reduction of unemployment and increase in living standards is inflation. It is
because of accelerating inflation that the United Stales has had to opt for a period
of much slower growth. And it is because of the obstinacy of inflation that the
countries identified earlier as "convalescent" have had to remain in that category.
The aims of economic policy are now further jeopardised by the energy crisis
that surfaced five years ago but then became temporarily dormant.
For the first time since the days of immediate post-war recovery, there is
now a very real risk that the short and medium-term growth of living standards
and employment will be constrained by availability of a key industrial input
energy. Supply shortages of industrial raw materials have developed before.
But consequent sharp increases in price have typically resulted in a markedincrease
in availability, and thereafter a fall in price. This mechanism, though chaotic
at times and imparting periodic inflationary shocks to the world, has on balance
ensured a reasonably steady supply of key industrial inputs at a real price which,
averaged across commodities, has shown little trend rise over the post-war period.
The present energy situation, however, is different. A shortage of supply, such
as the 2 million barrels a day (mbd) shortfall which followed the Iranian dis¬
turbances at the end of last year, does indeed drive up price, all the more so
because there is no readily available substitute. But the short-run supply response
of oil to higher prices is very much lower than for other raw materials, because
most suppliers are already producing at or near desired capacity rates, and
supply policy in Saudi Arabia seems to have changed. Prospects for OECD
growth therefore now depend importantly on the likely supply of energy and the
efficiency with which it is used.
The Oil Supply An examination of the probable development of OECD indigenous energy
Outlook sources and OPEC production levels, assuming exports from Saudi Arabia and
Iran at 8£ mbd and 34 mbd respectively, suggests that over the forecast period
to mid-1980, oil supplies available to OECD could indeed be a limiting factor.
The OECD countries appear to have become more efficient in their use of fuel,
so that a 1 per cent increase in GNP now necessitates only a 0.8 per cent increase
in energy use (compared with a ratio of about one to one before 1973). Even
so, in the absence of special conservation efforts such as those agreed upon in
the International Energy Agency, further violent price changes would be probable
unless GNP growth in the OECD area as a whole was kept down to only about
1£ per cent from mid-1979 to mid-1980, and it is unlikely that policy could
accomplish such a slowdown. On the other hand, attainment of the full 5 per
cent saving on oil consumption aimed at over the period to mid-1980 would
allow GNP to grow as currendy forecast by about 2f per cent and permit some
very necessary rebuilding of stocks, to beyond their end-1978 levels1. An
intermediate possibility, with oil conservation amounting to about 34 per cent,
would just about permit GNP growth at the rate forecast and the restoration of
the end-1978 stock levels. The lower the conservation achievement, the more
danger there would be that rising inflation and falling confidence would push
the OECD area into recession.
The Prospects for The Secretariat's present forecasts thus assume no serious or protracted
Aggregate Demand interruption to the supply of oil and a fair degree of success in achieving the
and Inflation immediate oil conservation target, so as to avoid further large increases in the
price of oil and a consequential weakening of either business confidence and
investment, or personal sector confidence and consumption. In aggregate, OECD
GNP is forecast to slow down from the 3£ per cent growth (at an annual rate)
likely to have been realised in the first half of this year, to around 2f per cent
through the period to mid-1980, largely because of the developments expected in
the United States.
Growth ofreal GNP/GDP in the OECD area0
Percentagechanges,seasonallyadjusted atannualrates
From previousyear From jrevious half-year
1976 1977 1978 1979 1976 1977 1978 1979 1980
II I II I II I ii I
United States 5.5 4.9 4.0 2Î 3.0 5.7 5.1 2.8 5.2 2* i H
Japan 6.0 5.4 5.6 H 4.1 6.9 4.0 7.1 4.3 6k 5 5*
Othermajorcountries6 5.1 2.5 3.2 H 2.7 2.6 2.2 3.5 3.8 2f 31 2i
Seven majorcountries 5.4 4.1 4.0 H 3.0 4.7 3.8 3.8 4.5 3i 21 2*
Other OECDcountries0 3.6 1.8 2.4 3 3.2 1.2 1.5 2.9 2.2 31 31 3
Total OECD lessthe United States 4.8 3.0 3.6 3* 3.1 3.3 2.4 4.2 3.5 3f 4 31
Total OECD 5.1 3.7 3.7 31 3.1 4.2 3.5 3.7 4.2 n 2f 2f
a) 1976averageswereobtained using 1976GNP/GDPweightsandexchangerates; from 1977onwards, 1977 weights
wereused.
b) FordetailsseeTable I.
c) Half-yearlydata,must beinterpreted withcare, sinceforeightofthesecountries,amountingtoover40percentof
the total GDP ofthe smaller countries, half-yearly growth rates were obtained by a purely mechanical interpolation.
FordetailsonayearlybasisseeTable2.
Within this overall GNP development, the pattern as between countries
seems likely to be much as envisaged under the concerted action programme on
which OECD Ministers have agreed. Domestic demand in the United States is
forecast to slow markedly in the latter part of this year, and then to pick up a
little in early 1980. In the remaining OECD countries, considered as a group,
domestic demand growth at around 3£ per cent through to the middle of next year
1. End-1978 stock levels were equivalent to 75 days' supply; stocks had been run down
to about 65 days' supply by the end of the first quarter of 1979, compared with the minimum
of 60 days' supply thought to be necessary for the efficient operation of the distribution
system and to the 90 days' supply which is the International Energy Agency's long-term
target.
is forecast. It seems clear that the balance of risks attaching to these forecasts is
on the downside, because of the possibility of stronger inflation rates and of the
effects these and the energy situation could have on business and consumer
spending2.
Total domestic demand"
Percentagechanges, seasonallyadjustedatannualrates
From previousyear Fromprevious half-year
1976" 1977 1978 1979 1976 1977 1978 1979 1980
11 I II I II I II I
United States 6.7 5.4 4.1 21 3.3 6.3 5.7 3.0 4.8 2 1 li
Japan 4.5 4.1 6.9 3.8 4.5 3.7 7.4 9.2 8 3£ 51
Othermajorcountries0 5.0 1.5 3.2 31 2.7 1.2 1.0 3.6 4.6 31 3 3
Seven majorcountries 5.7 3.7 4.2 31 3.2 4.1 3.6 4.0 5.4 31 2 21
Other OECD countries'* 3.5 1.5 1.1 3 3.6 1.0 0.4 1.0 2.2 31 31 3
Total OECD lessthe United States 4.5 2.1 3.5 41 3.2 1.9 1.5 3.8 5.1 41 31 31
Total OECD 5.4 3.4 3.7 31 3.2 3.6 3.1 3.5 4.9 31 21 21
a) 1976averageswereobtainedbyusing1976GNP/GDPweightsandexchangerates;from1977onwards,1977weights
wereused.
b) 1976growthratesweretakenfromEconomicOutlookNo.23.
c) FordetailsseeTable4.
d) Half-yearlydata must beinterpreted withcare, sinceforeightofthesecountries,amountingtoover40percentof
the total GDP ofthe smallercountries, half-yearly growth rates were obtained by a purely mechanical interpolation
Shifts in the international pattern of domestic demand growth, together with
the exchange rate changes of the last couple of years, have markedly improved
the distribution of current balances between the United States and Japan. The
Japanese surplus on current account has for the moment almost disappeared,
and the United States deficit has been halved since the first half of last year.
Except for a reduction in Germany's surplus, however, little further change in the
distribution of surpluses and deficits between OECD countries is expected over
the forecast period. Part of the yen appreciation has been reversed, so that
Current balances ofOECD countries
$ billion; seasonallyadjusted, atannualrates
1976 1977 1978 1979 1976 1977 1978 1979 1980
II I II I II I II I
United States 4è -15i -16 -111 1 -121 -181 -21Î -10 -101 -121 -n
Japan 3Ï 11 161 1 2 91 121 21 121 0 1 21
Germany 31 4i 8i 5 31 4 41 7 101 71 21 i
France -6 -31 4 31 -9Î -4 -2Î 31 5 41 2 21
United Kingdom -2 1 1 0 -21 -21 31 -1 21 -2 lf n
Canada -3Ï -4 -4i -Ai -31 -4 -A -3£ -51 -5 -41
Italy -2Î 2i 6è 41 -21 1 4 61 6 5 4
Seven majorcountries -3 -41 16 -31 -12 -81 -i 111 201 -1 -61 -31
Switzerland 31 31 5 41 31 3 3Î 41 51 41 41 41
OtherOECD countries -19 -25i -141 -16* -21 -24J -26 -151 -131 -14* -19 -191
TotalOECD -19 -26* 61 -151 -29* -301 -22 1 12 -10 -21 -181
2. For a further discussion of the assumptions underlying the forecasts, and of risks
and uncertainties, see the section "Demand, Output and Employment".