OECD economic outlook. 27.

164 Pages·1980·24.63 MB·English

by  OECD

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OECD
ECONOMIC
OUTLOOK
27
JULY 1980
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
TABLE OF CONTENTS
5. TOWARDS MORE BALANCED GROWTH
11. DOMESTIC DEVELOPMENTS
11. Demand, Output and Employment
29. Monetary and Fiscal Policies
41. Wages, Costs and Prices
51. INTERNATIONAL DEVELOPMENTS
51. Foreign Trade and Current Balances
66. International Monetary Developments
72. DEVELOPMENTS IN INDIVIDUAL COUNTRIES
72. United States 87. France 100. Canada
78. Japan 91. United Kingdom 104. Other OECD Countries
82. Germany 96. Italy
114. Special Section: THE IMPACT OF OIL IN THE WORLD ECONOMY
131. TECHNICAL ANNEX
131. Detailed Supporting Tables
138. Background Detail on Non-Oil Developing Countries and OPEC
141. Historical Statistics
152. Sources and Methods
Included in the accompanying
issue ofOccasional Studies
Fiscal Policy Simulations with the OECD
International Linkage Model
Incomes Policy in Theory and Practice
CONVENTIONAL SIGNS
$ US dollar Decimal point 1 Break in series
c US cent I, II Calendar half-years s.a.a.r. Seasonally adjusted annual rates
£ Pound sterling Q1,Q4 Calendar quarters
Data not available Billion Thousand million In Charts:
0 Nil or negligible 0 Figures based on S Strike
- Irrelevant incomplete data B Break in series
Historical numbers are presented as integers and decimals; estimates and forecasts are presented as integers
and fractions.
LIST OF TABLES AND CHARTS
TABLES
Page Table Page Table
12 1. GrowthofrealGNPintheOECDarea
14 2. GrowthofrealGDPinotherOECDcountries
14 3. DevelopmentoftotaldomesticdemandintheOECDarea 131 40. Appropriationaccountforhouseholds:UnitedStates
15 4. ContributionstochangesinrealGNP/GDP 131 41. Appropriationaccountforhouseholds:Japan
16 5. Factorsaffectingrealprivateconsumptioninsevenmajorcountries, 131 42. Appropriationaccountforhouseholds:Germany
1978-1980 131 43. Appropriationaccountforhouseholds:France
21 6. AdjustedunemploymentratesinselectedOECDcountries 131 44. Appropriationaccountforhouseholds:UnitedKingdom
22 7. Employmentandproductivity 131 45. Appropriationaccountforhouseholds:Italy
23 8. Youthunemploymentrate 131 46. Appropriationaccountforhouseholds:Canada
23 9. Ratioofyouthtoadultunemploymentrates 132 47. ComparisonofconsumerpricesandGNP/GDPdeflators
26 10. Averagedurationofunemployment 132 48. ExchangeratesofOECDcountries
29 11. Summaryofprincipaldomesticmonetarymeasuresin 133 49. EffectiveexchangeratechangesofOECDcountries
OECDcountries,December1979-May1980 133 50. VolumeofimportsofmajorOECDcountriesandcountrygroups
31 12. Monetaryaggregates:recenttrendsandtargets 133 51. VolumeofexportsofmajorOECDcountriesandcountrygroups
35 13. TheeffectsoftheUnitedStatesandUnitedKingdombudgets 134 52. ForeigntradevolumesofselectedotherOECDcountries
over1980-81 134 53. Exportmarketgrowthandrelativeexportperformanceof
36 14. GeneralgovernmentnetlendingonaSNAbasis,1976-1980 selectedOECDcountries
37 15. FiscalindicatorsforsevenmajorOECDcountries 134 54. Foreigntradeprices(averagevalues)ofmajorOECDcountries
38 16. SectoralfinancialbalancesinsixmajorOECDcountries andcountrygroups
44 17. Consumerprices 135 55. Foreigntradeprices(averagevalues)ofselectedother
45 18. Wageresponseaftertheoilpricerises OECDcountries
46 19. Unitlabourcostsinmanufacturing 135 56 TradebalancesofmajorOECDcountriesandcountrygroups
46 20. Realwages,productivity,andthetermsoftrade 135 57 TradebalancesofotherOECDcountries
48 21. GNPdeflatorsintheOECDarea 135 58 CurrentinvisibletransactionsofmajorOECDcountriesand
50 22. PrivateconsumptiondeflatorsintheOECDarea countrygroups
51 23. Output,tradeandinflationoftheOECDarea 136 59 OECDcountries'exportstoOPEC
56 24. Competitivepositions 136 60 OECDcountries'exportstoEasternEurope,theSovietUnion,
59 25. ChangesinOECDcurrentbalancesbymajorcomponents ChinaandselectedotherAsiancountries
60 26. CurrentbalancesofmajorOECDcountriesandcountrygroups 137 61 Marketpricesofselectedprimarycommoditiesexported
61 27. CurrentbalancesofotherOECDcountries bydevelopingcountries
65 28. Summaryofbalanceofpaymentsoncurrentaccountofthe 137 62 OPEC'sbalanceofpaymentsoncurrentaccount
OECDareaandothermajorworldgroupings 137 63 Balanceofpaymentsofnon-cildevelopingcountries
66 29. Balanceofpaymentssummary
71 30. UnitedStatesbalanceofpayments
116 31. Crudeoilprices,1978-1980 HISTORICAL STATISTICS
116 32. Realpriceofimportedcrudeoil 142 Growth of real GDP at market prices in the OECD
118 33. Realenergypricesforhouseholds area(annualfigures)
120 34. OECDenergysupplies,1973and1978 142 Growth of real GNP/GDP Seven major OECD coun-
122 35. SimulatedeffectsonOECDareaofrealoilpriceincrease tries(half-yearlyfigures)
sinceend-1978 143 Consumerprices(annualfigures)
126 36. OPECrevenuesandcashsurpluses,1973-1980 143 Consumerprices(half-yearlyfigures)
127 37. Impactofoilimportcostsonnon-oildevelopingcountries 144 Currentbalances(annualfigures)
128 38. Oilmarketconditions 144 Currentbalances(half-yearlyfigures)
129 39. SimulatedeffectsonOECDareaofafurtherhypothetical 145 Nominal exchange rates, national currencies against the
10percentincreaseinOPECoilpriceson1stJuly1980 UnitedStatesdollar
CHARTS
Page Chart Page Chart
13 A. Industrialproductioninsevenmajorcountries 62 M. CurrentbalancesofOECDcountries
17 B. GNPgrowthandinflationinthemajorsevencountries 67 N. Adjustednetreserves(officialintervention)ofselectedcountries
18 C. DispersionofGNPgrowthinthemajorsevencountries, 68 0. Effectiveexchangeratessinceend-1976
1972-1981 115 P. Thepriceofcrudeoil,1953-1980
24 D. Ageandsex-specificunemploymentratesinselectedcountries 117 o. Therealpriceofgasoline
30 E. Cyclicalbehaviourofmonetaryindicatorsandsectoralfinancial 117 R. Governmenttaxesaspercentageofgasolineprices,1970and 1979
balancesintheOECDarea 118 S. Realenergypricestofinalusers
32 F. Monetarymanagementandinterestratetrends 125 T. Comparisonof1973-74with1979-81
42 G. Indexofnon-oilcommoditypricesintermsofSDRs
43 H. Contributiontoinflation,sevenmajorcountries
47 I. Costandpriceindicators bCHMIO
49 J. Changeinconsumerprices 146 U. Householdsavingratios
52 K. Industrialoutput,foreigntradeandcurrentbalancein 147 V. Effectiveexchangerates
thesevenmajorOECDcountries 150 W. Exchangeratesofmajorcurrenciesagainstthedollar
51 Measuresofrelativecompetitiveposition 151 X. Uncoveredinterestratedifferentials
The cut-off datefor information
used in the compilation of theforecasts
was 4th June 1980.
Towards More Balanced Growth
Once again the short-term prospectsfor the OECD area are dominated by a
massiveoilshock.Apriceriseofover130percentsincetheendof1978 hasincreased
the net oil importbillby an amount equivalent to about 2percent ofGNP, increased
prices by severalpercentagepoints, and may by end 1981 have reduced OECD
real GNP by some 5per cent compared with what it would otherwise have been. In
most OECD countries, the latest wave ofinflation hasprobablypasseditspeak and,
unless there is afurther rise in oilprices, there should be a steady improvement over
the next twelve months. Meanwhile, the UnitedStates economyhasenteredrecession,
and some European economies are showing increasing signs ofweakness.
The immediate priority in all OECD countries is to continue tightfiscal and
monetary policies, in order to contain the inflationary impact of the oil shock.
Although essentialfor creating the conditions necessaryfora restoration ofbalanced
growth, this is onlyafirst step on the long roadto moresatisfactorygrowth andhigh
employment. The underlyingrateofinflation isstillfartoohigh in muchofthe OECD
area and represents a serious constraint on growth. Impediments to the operation of
the market mechanism and to international trade stillcreate undesirable distortions
and rigidities, imposing a cost in terms oflostproductivity andreducedadaptiveness
to change. Moreover, OECD economies are vulnerable tofurther disruptive external
shocks originating in world oil markets. What is needed is a combination ofpolicies
directedatreducingunderlyinginflation, enhancingproductivepotentialandreducing
energy dependence.
Recent developments Economic performance in 1979 was reasonably satisfactory on a number of
and the forecasts fronts. GNP, benefiting from the 1978 Concerted Action Programme,was advancing
steadily at around 3lA per cent, and the international pattern of payments balances
was markedly improved. Domestically-generated inflation was around 7V2 per cent in
the major countries considered as a group, employmentwas increasingand, in several
countries, unemployment was falling. Perhaps most encouraging ofall was the vigour
ofbusiness fixed investment, which in several countries was growingfasterthaninany
year since the 1973/74 oil crisis.
However, it becameincreasingly apparentthroughthe courseoftheyearthatthe
progress towards better-balanced and less inflationary growth was being interrupted
by the second massive rise in world oil prices, which is now exerting a powerful in¬
fluence on the OECD economy. The initial impact was to raise prices. After an
acceleration ofconsumerpriceinflation from 8Vi per cerit(annualrate)inthefirsthalf
of 1979 to around 12per cent in the first halfofthis year,the peak may now be past.
But the real demand effects typically are felt somewhat later. Higher oil prices lower
the purchasing power of domestic incomes by increasing the quantity of goods and
services which have to be offered in exchange for each barrel of oil. This terms-of-
trade change, which is likely to persist unless there is a marked change inthe balance
ofsupply and demand for OPEC oil, reduces the volume ofdomestic spending inthe
OECD economy. The counterpart is an increase in the real income of OPEC, but
typically OPEC is, for a variety ofreasons, slow to spend this additional income, so
that the total ofdomestic and foreign spending in the OECD economy tends to fall.
This effect is offset to some extent bytheflow ofOPEC savings backintothe OECD
banking system, tending to lower interest rates, stimulate private borrowing and
maintain expenditure. Buttheoveralldemandeffectislikely,foraperiodatleast,tobe
deflationary. Furthermore, this deflationary influence is being reinforced by the
necessary tight monetary and fiscal policies being pursued in virtually all OECD
countries.
Against this background, the forecasts presented inthis issue suggestthe follow¬
ing broad picture:
amoderatedecelerationofconsumerpriceinflationfromthe 12percentrate
seen in the early part ofthis yearto a littlebelow 10per centinthefirsthalf
of next year. The apparent success so far in absorbing real income losses
from higher oil prices without asignificant acceleration inmoneyincomes is
thought likely to be sustained;
Private consumption deflator
Percentagechanges, seasonally adjusted at annual rates
From previous half-year
1980 1980 1981
1979 I II I
United States 11 ni 11 9
Japan n 8 8£ 6i
Germany 5 5i 4 3£
Other major countries" 15f 16Î 14i 12£
Smaller OECD countries
- low inflation group6 6 6i 6i 5*
- othersmallercountries 18J 19i 17i 184
Total OECD ni 12 11 9J
a) France,UnitedKingdom.ItalyandCanada.
b) Austria,Belgium-Luxembourg,NetherlandsandSwitzerland.
declining GNP inthe OECD areainthe latter part ofthis year with, atbest,
modest growth next year. The level ofGNP in mid-1981 may be no higher
than at present;
Growth of real GNP/GDP
Percentage changes, seasonally adjusted at annual rates
From previous half-year
1980 1980 1 1981 I 1980 1981
1979 1979 1 1980 1 I II I
United States -1 i -2 -f -4 0
Japan 5* 6 3f 6 3f 3i
Germany 2 3i 0 2i -n i
Other majorcountries 1 2 -1 n -If -i
Smaller OECD countries n 2 n H H
Total OECD u 2Ï 0 n -1 1
OECD Europe H 2\ 0 2 -i i
declining productivity throughthe remainderofthis year,withperhaps some
improvement next year, but relatively weak private non-residential invest¬
ment throughout;
an increase in unemployment, despite poor productivity performance, from
around 20millioninthefirstpartofthis yeartoover 23 million(nearly 7 per
cent ofthelabourforce) by mid-1981. Over halfofthisincreasecouldoccur
in the United States;
a continuing OECD area deficit on external current account, running at
nearly $100billiofi (annual rate) in the early part ofthis year but perhaps
declining to below $50billion by the first half of next year;
a considerable diversity ofgrowth and inflation performance. Over the next
twelve months GNP is forecast to fall by 2per cent in the United States, to
be roughly unchanged in Europe, but to increase by close to 4 per cent in
Japan. Inflation among the larger countries bythe middle ofnextyearcould
range from 3Vi per cent (Germany) to nearly 16 per cent (Italy), with an
even wider range among the smaller countries.
Ifthe OECD economy is not subjected to further large shocks over the next 12
to 18 months, it may absorbthe oilshock withlesseffectonrealactivitythanafterthe
1973/74 oil price rise, and with aprogressive deceleration ofinflation, albeitto a high
underlying rate1. Thus far, private sector confidence has been broadly maintained.
However, loss of confidence, whether resulting from disturbance in international oil
markets or some other cause, could weaken consumption in relation to real income if
consumers soughtto restore therealvalueoftheir savings; andheighteneduncertainty
could lead firms to reduce their planned investment and possibly sparkoffa period of
destocking.
Aims for policy Theprospect, forthe area,ofrisingunemployment, rapidinflation, anddeclining
real income per head is by any normal standards unsatisfactory. At their meeting in
June 1980, OECD Ministers stressed that in this situation the basic aim should beto
restore price stability and to promote the conditions for sustainable medium-term
growth of output and employment. They agreed that this involves:
" Bringing the oil-induced surge of inflation under control and keeping or
bringing about a relationship between costs and prices sufficiently
favourable to make investment worthwhile.
As this is achieved, and as continuingeffortstoreducetheunderlyingrateof
inflation take effect, policies to ensure a sufficient level of activity for
productive investment to be needed as well as profitable.
Positive supply-oriented policies to improve productivity and inflation
performance, and provide more jobs, through raising the share of savings
and productive investment in GNP and improving the operation ofproduct,
capital and labour markets"2.
1. SeetheSpecialSection:"TheImpactofOilontheWorldEconomy".
2. See Ministerial Communiqué, Press/A(80)37, 4th June, 1980.
Monetary and In the period immediately ahead there appears no realistic alternative to giving
fiscal policy continued priority to containing the current surge of inflation and protecting the
profitability of productive investment through a combination of tight monetary and
fiscal policies. Nevertheless, despite encouraging signs, it is too early to be more than
cautiously optimistic that present policies will succeed in bringing about a smoother
and more rapid absorption ofthe oil price rise than occurred after 1973. There is an
important role here for discussion with the social partners on the need to accept the
consequences ofhigheroilprices on realincomes. Giventhenecessarytight stanceof
policy, demand and output could turn out weaker than expected3. It might then be
tempting to take early steps to support demand. But experience, particularly since
1973, suggests thatpremature supportofdemandcan leadrapidlyto are-acceleration
ofinflation andafurtherperiodofdemandrestraint. Indeed,OECD Ministers"agreed
thatitwould be a serious errorto relaxtight monetary andfiscalpoliciesuntilthecur¬
rent surge in inflation has demonstrably been brought under control and the conse¬
quences of higher oil prices on real incomes are fully absorbed."
Once the terms-of-trade losses have been absorbed, real incomes and hence
private demand will tend to be more buoyant. Further, adherence to target rates of
monetary expansion should lead to significantly lower interest rates as credit demand
eases and inflationary expectations subside. And, compared with the experience after
1973-74, profitability is being largely maintained and inventory levels do not appear
excessive. Although these positive demand factors can be expected to arrest the
downturn and may leadto amodest upturn, itisdoubtfulwhether,onpresentpolicies,
most countries would experience a fully self-generated recovery. This assessment led
Ministers to conclude that"as the second oilshockis successfully absorbed ... it may
become desirable and possibleto shiftbackto aless restrictivefiscal stance consistent
with a balancedmedium-term growth path. Countries wherethe underlying rate ofin¬
flationremains amajorproblemwill, however,havetocontinue arestrictivemonetary
andfiscalstance,whilecountrieswheretheoilshockhasbeenabsorbedandtheunder¬
lying rate ofinflation is satisfactory should not delay shiftingtheir policy stanceifthe
self-generated elements of recovery prove insufficient."
As regards international payments and monetary questions, OECD countries
will inevitably have to accept a substantial share ofthe counterpartto the OPEC sur¬
plus for some time to come. An encouraging feature is that Germany and Japan are
carrying a large part of the area's total deficit, and may continue to do so. Less
welcome is that a group offifteen smaller countries, accounting for some 15 per cent
ofthe area's GNP, may still bear acombined deficitofnearly$30billion(annualrate)
over halfofthe OECD total inthefirsthalfofnextyear4. All countries willhave
to pursuepolicies designed toreduceinflation andto promote structural adaptationto
higher energyprices. OECD Ministers agreedthat"countries whichhave nodifficulty
in external financing should refrain from taking policy measures specifically aimed at
reducing current account deficits." This suggests that it would be desirable for the
low-inflation countries to avoid currency depreciation as far as possible, while
attempting to encourage capital inflows by means other than interest rates which are
3. See "Risks and Uncertainties" in the section on Demand, Output and Employment,
4. See the sections on "Foreign Trarfp »"H Current Balances" and "International Monetary
Developments".
8
Current accounts of OECD countries
$ billion; seasonally adjusted, at annual rates
1979 1980 1980 1981
I II I
United States -0.3 -2* -7* 3 8*
Japan -8.8 -17* -20* -14* -9*
Germany -5.7 -16 -17* -14* -13*
Other majorcountries -2.8 -14 -17* -11 -5*
Smaller OECD countries" -21.2 -32* -33 -31* -29*
Total OECD -37.4 -81 -95* -66* -45*
a) ExcludingNorwayandSwitzerland.
higherthan needed fordomestic stabilisation. Bythesametoken,itsuggeststhathigh-
inflation countries should not go to excessive lengths to resist depreciation, whileplac¬
ing particular emphasis on stabilisation policies.
The latest oil price increase has faced the non-oil developing countries with
greatly increased external financing needs. These will require additional measures to
make non-concessionary flows more dependable, especially for middle-income
developing countries with increasingly difficult debt management problems, and ex¬
panded aid forlow-income countries lacking adequate adjustmentcapacityandaccess
to capital markets. There is agreement among OECD countries thatthe international
financial institutions should play a central role in providing adequate financing to
enabledeveloping countries to carry out orderly adjustment and structuralchange. Of
particular importance to the poorest countries is sufficient concessional assistance to
prevent a setback to development. In addition to their development financing efforts,
OECD countries should strive to maintain open markets to facilitatetheexpansion of
developing countries' exports.
The supply side There is need for policies which improve productivity and inflation performance
and thereby lead, over the medium term, to a higher rate ofgrowth andincreasedjob
opportunities. The basis ofsuch policies should be supply-side measures to encourage
the expansion of capacity and improve the operation of the market mechanism
through the removal ofdistortions and rigidities, and measures to promote competi¬
tion. For example, there is scope for removing structural disincentives to the employ¬
ment oflabour and improving the functioning oflabour markets. This could help pre¬
vent the early emergence ofbottlenecks as growth picks up, andenhance employment
prospects in the medium term even where there are short-termjob losses. A strategy
emphasizing the enhancement ofproductivity as the key to both growth and counter¬
ing inflation depends more generally on the pursuit, within each country, ofpositive
adjustment policies, and on the maintenance of an open trading system. In this
connection, governments of OECD countries, at the recent Ministerial meeting,
adopted a new Declaration on Trade Policy.
To theextentthat, in the contextofcontinuing effortsto reduceunderlyinginfla¬
tion rates, room emerges over time for relaxation ofthe fiscal stance, priority could
usefully be given to measures which lower costs and encourageinvestment. Thereis a
particular need to step up investment in energy production, fuel switching and con¬
servation. And, as agreed by Ministers, the prospect of continuing high and rising