OECD economic outlook. 37.

199 Pages·1985·27.493 MB·English

by  OECD

2>6
OECD
ECONOMIC
OUTLOOK
37
JUNE 1985
1=22/87 P (E) 3
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I
OECD
ECONOMIC
OUTLOOK
37
JUNE 1985
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The OECD Economic Outlook
provides a periodic assessment of economic trends and prospects in OECD countries,
developmentswhich largelydeterminethecourseoftheworldeconomy. It appearstwiceayear
in July and December.
Each number contains an overall analysis of the latest economic trends and short-term
forecasts. This survey is thejoint work ofmembers ofthe Secretariat ofthe Department of
EconomicsandStatistics. Thejournalalsooccasionallycontainsspecialstudiesbymembersof
the Department or other parts of the Organisation designed to assist the interpretation of
economictrends. Referencestatisticsareincluded. TheFrench versionoftheOECD Economic
Outlook is entitled Perspectives économiques de l'OCDE.
TheOECD EconomicOutlookispublishedontheresponsibilityoftheSecretary-General. The
assessmentsgivenofcountries'prospectsdonot necessarilycorrespondtothoseofthe national
authorities concerned.
Aseparatepublication, appearingonceayear,presentsHistoricalStatistics inanalyticalform
for a twenty-yearperiod.
The Organisation for Economic Co-operation and Development (OECD)
wassetup undera ConventionsignedinParison 14th December, 1960, whichprovidesthat the
OECD shallpromotepolicies designed:
- toachievethehighestsustainableeconomicgrowthandemploymentandarisingstandardof
livingin Membercountries, whilemaintainingfinancialstability, andthustocontribute to
the development ofthe world economy;
tocontribute tosoundeconomicexpansion in Memberaswellas non-membercountries in
the process ofeconomic development;
tocontribute totheexpansionofworldtradeona multilateral, non-discriminatorybasisin
accordance with international obligations.
TheMembersofOECDare:Australia,Austria,Belgium, Canada,Denmark, Finland,France,
the Federal Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands,NewZealand,Norway,Portugal,Spain,Sweden,Switzerland, Turkey,theUnited
Kingdom and the United States.
*
* *
©OECD, 1985
Application for permission to reproduce or translate
all or part of this publication should be made to:
Director of Information, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
TABLE OF CONTENTS
GROWTH AND IMBALANCES vu
DOMESTIC AND INTERNATIONAL DEVELOPMENTS
Fiscal Monetary and Policies 1
Demand and Output 18
Employment and Unemployment 26
Costs, Prices and Profits 35
Foreign Trade and Current Balances 50
International Monetary Developments 57
DEVELOPMENTS IN INDIVIDUAL COUNTRIES 67
United States 67 Austria 112 Netherlands 119
Japan 76 Belgium 113 New Zealand 119
Germany 82 Denmark 114 Norway 120
France 89 Finland 115 Portugal 121
United Kingdom 95 Greece 115 Spain 122
Italy 101 Iceland 116 Sweden 123
Canada 106 Ireland 117 Switzerland 123
Australia 112 Luxembourg 118 Turkey 124
TECHNICAL ANNEX 126
Detailed Supporting Tables and Charts 126
Sources and Methods 148
Reference Statistics 155
CONVENTIONAL SIGNS
$ US dollar Decimal point
c US cent I, II Calendar half-years
£ Pound sterling Q1.Q4 Calendar quarters
mbd Millions barrels per day Billion Thousand million
Data not available Trillion Thousand billion
0 Nil or negligible s.a.a.r. Seasonally adjusted annual rates
- Irrelevant n.s.a. Not seasonally adjusted
In the tables, historical numbers are presented as integers and decimals;
estimates and forecasts are presented as integers and fractions.
LIST OF NUMBERED TABLES
Table Page Table Page
1 Latestfiscalpolicyannouncements 2 44 Commoditytradeforecasts: Japan 130
2 General governmentfinancial balances 3 45 Commodity tradeforecasts: Germany 130
3 Cyclicalandstructuralchangesingeneralgovernment 46 Commoditytradeforecasts: France 130
financial balances 4 47 Commoditytrade forecasts: United Kingdom 131
4 Trends in general governmentexpenditureand taxa¬ 48 Commoditytradeforecasts: Italy 131
tion 5 49 Commoditytradeforecasts: Canada 131
5 Monetaryaggregates: recent trends and targets 11 50 TradebalancesofmajorOECDcountriesandcountry
6 Growth ofreal GNPin the OECD area 18 groups 132
7 Growth ofrealGDP inotherOECD countries 19 51 TradebalancesofotherOECD countries 132
8 Development of real total domestic demand in the 52 Currentinvisible transactionsofmajorOECD coun¬
OECD area 19 triesand country groups 133
9 Growth ofnominal GNP in theOECD area 20 53 Currentbalances ofOECD countries 133
10 Contributionstochanges inreal GNP/GDP 21 54 Competitivepositions 134
11 Demandandoutputsincethesecond oil shock 25 55 Summaryofbalanceofpaymentsoncurrentaccount
12 Employmentandproductivity 27 oftheOECD areaand othermajorworldgroupings 135
13 UnemploymentintheOECD area 28 56 OPEC's balanceofpaymentson currentaccount 135
14 Unemploymentrates inotherOECD countries 28 57 Balanceofpayments ofnon-oildevelopingcountries 136
15 Youth unemployment in selected OECDcountries 29 58 Eastern countries' current balance 136
16 Labourmarketindicatorsinlowunemploymentcoun¬ 59 Tradein manufactured goods: export marketgrowth
tries 33 and relativeexportperformance 137
17 Long-durationunemploymentforprime-ageadults 33 60 Tradeofnon-oildevelopingcountries (NODCs) 137
18 Cyclical commodity price developments 1972 to 61 OECD countries' exports toOPEC 138
1984 38 62 Market prices of selected primary commodities
19 Hourlyearnings in manufacturing 39 exported bydevelopingcountries 138
20 Unitlabourcosts in manufacturing 40 63 OECD countries' exports to the Soviet Union and
21 Consumerprices 46 Eastern Europe 139
22 Privateconsumptiondeflators inthe OECDarea 46 64 OECDcountries' importsfromtheSovietUnion and
23 GNPdeflatorsin theOECD area 47 EasternEurope 140
24 Relative importprices 48 65 OECDcountries'exportstoChinaandselectedAsian
25 Import unit values in three major European coun¬ countries 141
tries 48 66 OECD countries' imports from China and selected
26 World trade and paymentssummary 53 Asiancountries 142
27 Current balances of major OECD countries and 67 Oilprices 143
country-groups 55 68 Oilmarketconditions 143
28 Current balancesofotherOECDcountries 55 69 Net importsofoil 144
29 Exchangeratesofselectedcurrencies 57
30 United Statescapital account 60
31 Summary balance of payments of major OECD RREEFFERENCESTATISTICS
country-groups 61
32 Summarybalanceofpaymentsandcapitalaccountof Rl Growth ofreal GDP at market prices in the OECD
OECDcountry-groups: changes from 1982 to 1984 62 area 156
33 Long-term capital account and basic balance of R2 Growth of real GNP/GDP - Seven major OECD
OECDcountry-groups 63 countries (half-yearlyfigures) 157
34 UnitedStates:netforeigninvestment,domesticsaving R3 Grossfixedcapital formationas percentageofGDP 158
and investment 64 R4 Grosssavingas percentageofGDP 159
R5 Surplus on current transactions with the rest of the
TECHNICALANNEX world as percentageofGDP 160
R6 Governmentfinalconsumptionexpenditureaspercen¬
35 Comparison of private consumption deflators and tageofGDP 161
GNP/GDP deflators 126 R7 Currentdisbursementsofgovernmentaspercentageof
36 ExchangeratesofOECDcountries 127 GDP 162
37 EffectiveexchangeratechangesofOECD countries 127 R8 TotaloutlaysofgovernmentaspercentageofGDP 163
38 Volume of imports of major OECD countries and R9 Current receipts of government as percentage of
countrygroups 128 GDP 164
39 Volume of exports of major OECD countries and RIO Consumerprices 165
countrygroups 128 Rll Consumerprices (half-yearlyfigures) 166
40 ForeigntradevolumesofselectedotherOECDcoun¬ R12 Standardized unemployment rates in fifteen OECD
tries 128 countries 167
41 Foreigntradeprices(averagevalues)ofmajorOECD R13 Currentbalances 168
countriesand country groups 129 R14 Currentbalances (half-yearly figures) 168
42 Foreigntradeprices(averagevalues)ofselectedother R15 Exchangerates,nationalcurrenciesagainsttheUnited
OECDcountries 129 Statesdollar 169
43 Commodity tradeforecasts: UnitedStates 129 R16 Effectiveexchange rates 169
LIST OF CHARTS
Chart Page Chart Page
A Historical public debt/GNP ratios for five major N Changes inconsumerprices 44
OECD countries 7 O Measuresofrelativecompetitiveposition 51
B Trendsin monetary growth 9 P Real oil and non-oil commodityprices 54
C Realand nominal interestratedevelopments 13 Q UnitedStates: imports ofgoodsrelativeto GNP 54
D Business non-residential investment 20 R United States: capitalaccount 59
E The response of trading patterns to technological
change 23
F Leading indicators and industrialproduction 24
G Unemployment ratedifferentials 26
TTlECHNICALANNEX
H Short-runrealwage rigidityandunemployment 30
I Output, employment, productivity and real labour
costsperemployed person 31 S EffectiveexchangeratesofOECD currencies: recent
J Unemployment ratesand capacityuse 32 developments 145
K Indexofnon-oil commodityprices 37 T Dollar exchange rates of OECD currencies: recent
L Wages,pricesandunemployment 38 developments 146
M Profits, rate ofreturn and investment in manufactu U Exchange rate of major currencies against the
ring 41 dollar 147
Summary of projections0
Seasonallyadjustedat annual rates
1984 1985 1986 1985 1986
I II I II
Percentagechange frompreviousperiod
RealGNP
UnitedStates 6.8 3'/4 2% 3 VA 23/4 216
Japan 5.8 5'/4 416 5 514 4'/4 4
Germany 2.6 l'A VA l3/4 VA 3 23/4
OECD Europe 2.4 va VA VA VA VA VA
TotalOECD 4.9 3% VA 3 3'/4 VA 23/4
Real total domestic demand
United States 8.7 3% 3 316 316 3 23/4
Japan 4.0 416 3% 4 43/4 33/4 3'/4
Germany 1.7 VA 1 1 l3/4 2 VA
OECD Europe 1.7 VA 1 1% 2 2 1
TotalOECD 5.1 3 VA 3 3 23/4 VA
Inflation(privateconsumptiondeflator)
United States 3.2 3M VA VA 314 3'/4 3'/4
Japan 2.1 IVa VA 2'/4 VA 216 VA
Germany 2.6 va VA 214 2 214 216
France, United Kingdom, Italy,Canada 6.9 5% 5'/4 6 514 5'/4 43/4
High inflation smallercountries'' 37.0 3416 3014 343/i 3216 31'/4 273/4
OtherOECD countries 6.9 53/< 5 6 516 43/4 416
Total OECD 5.0 4% 43/4 43A 43/4 43/4 416
$ billion
Current balances
United States -101.6 -120 -145 -112 -127 -140 -151
Japan 35.0 39 48 37 42 46 50
Germany 6.2 12 18 10 14 18 19
OECD Europe 9.3 16 29 10 22 27 31
Total OECD -65.4 -72 -74 -73 -71 -74 -74
Percent oflabourforce
Unemployment
United States 7.5 VA 7'/4 VA 7'/4 7'/4 7'/4
Japan 2.7 VA VA VA 216 VA 216
Germany 8.3 m 8 8'/4 814 8 73/4
OECD Europe 10.7 11 11'A 11 11 11'/4 11%
Total OECD 8.4 8M m 8'/4 816 816 m
a) Assumptions underlying theprojections include :
- nochangein actual and announcedpolicies;
- unchanged exchangerates from 28th March 1985;
- nosignificantchange in dollarpriceforinternationally tradedoil toend-1986;
b) Greece, Iceland, Portugal,Turkey.
Thecut-offdate forinformation used in the compilationoftheforecastswas 19th April 1985.
VI
Growth and Imbalances
Irtroduct'on Theeconomicsituationandoutlookarefavourableinanumberofkeyrespects. After
verystrongexpansioninthefirsthalfoflastyear, demandgrowthintheUnitedStateshas
deceleratedtoamoremodestandprobablymoresustainablerate, enhancingprospectsfor
continuedinflation control. The Japanese economy continues togrow briskly, with even
lowerinflation. Realgrowth inEurope, thoughsubstantiallylowerthanelsewhereinthe
OECD, has been associated with an improvement in the underlying macroeconomic
conditions for growth lower inflation and budget deficits, and higher profits and
investment.
There are also some unsatisfactoryfeatures. Unemployment is high in nearly all
countries, andstillrisingin many; in Europe it is at its highest rateformore thanfifty
years. And there are a number of emerging features which may jeopardise the
sustainabilityoftheupswing. TheseincludehighbudgetdeficitsintheUnitedStatesanda
numberofothercountries;continuinghigh interestrates;increasedvolatilityofexchange
rates;avalueforthedollarthathasstayedhighonaverage, leadingtoapatternofcurrent
accountpositionsthatisbecomingincreasingly unbalanced, andthreatensthesurvivalof
some sectors ofthe U.S. economy; growing trade tensions, with discriminatory trade
interventions becomingincreasinglyprevalent;andastill-fragileeconomicandfinancial
situation in many developingcountries.
Main features of Activity. The OECD economy is apparently growing at present at 3 to 3'aper
the projections cent, much the same rate as in the second half of last year, and there has been a
narrowing of the growth differential between the United States and Europe. The
projectionsarebased onthecustomaryassumptionsofpresentorannouncedmonetary
andfiscalpolicies,andunchangedexchangerates-seesummarytableopposite.Onthis
basis, some slight deceleration in OECD growth is expected over the next eighteen
months;growthintheUnitedStatesandEuropeisprojectedtocontinuetobewellbelow
that ofJapan.
IntheUnitedStates,finaldomesticdemandhasbeengrowingatanunderlying3to
4percentratesincethemiddleoflastyear. Irregularmovementsin Stockbuildingand
netexports have led to somevolatilityin GNP growth rates. Industrial production has
been flat over the nine months since last July, possibly reflecting increasing import
penetration. Domesticdemandgrowth isexpected todecelerateoverthenexteighteen
monthsto3 percent,withGNPgrowthsomewhatlowerthanthat.Domesticdemandin
Japanhasbeen onan acclerating trendforoverayearnowandthismaycontinue until
the end of 1985. As the impulse from net exports wanes, GNP and domestic demand
growth are expected to fall back in 1986. In Europe, there has been fairly smooth but
modestgrowth ofdomesticdemand, withnetexports raising GNP growth toaround a
2'/2per cent rate. Over the next eighteen months, private demand components are
expected to pick up progressively; with a declining contribution from net exports,
however, GNP growth is expected to remain modest.
Labourmarkets. Althoughemploymenthas beenincreasing moderatelyin most
countries since mid-1984, so too has the labour force; the number ofunemployed has
continuedtorise. Overthenexteighteen monthstheunemploymentrateintheOECD
area is expected to show little change from its present level of 8XUper cent.
Above-average and offsetting increases in both employment and the labour force are
expectedinboththeUnitedStatesandJapan: theunemploymentrateinbothcountries
seemslikelytostayfairlystable.InEurope,theunemploymentratemaycontinuetorise
slowly despiteslow labour force growth; by the end of 1986, 11 per cent ofthe labour
force, 19V2million persons, may bejobless.
Inflation, as measured by the increase of the private consumption deflator,
decelerated somewhat more than foreseen towards the end of last year, bringing the
average annual OECD rate to around 4'Aper cent. Over the next eighteen months,
moderate wage settlements combined with steady productivity gains and weak
commodity prices are expected to contribute to a further modest deceleration of
inflation. InflationintheUnitedStatesisexpectedtostabilizeat3toVkpercent,under
the technical assumption of unchanged exchange rates. Disinflation in European
countriesisprojectedtocontinue,withtheinflationgapbetweenEuropeandtheUnited
Statesnarrowingbytheendof1986tolessthan 3 percentagepoints.Japaneseinflation
is projected to remain at its low 2 to 2'Aper cent rate.
Foreign trade and current balances. The growth of OECD import volumes,
includingintra-areatrade,isexpectedtodecelerate,inlinewithcyclicaldevelopments,
from 12per cent last year to 5 to 5'/2per cent this year and next. With demand from
OPEC countries remaining weak, only a slight stimulus to OECD growth is expected
fromnetexportsin 1985and 1986,despitetherecoveryindevelopingcountriestakenas
agroup. Growth ofOECD exportvolumes hasdecelerated from9 percentlastyearto
an annual rate ofaround 5'Aper centatthe beginning ofthis year, and seems likely to
remain around this rateup to theend of 1986. Within the OECD area, United States
imports areprojectedtorisemuch moreslowlythanin 1984. Thiswould beofgreatest
significance for Japanese, Canadian and developing-country exporters.
The OECD current account deficit is projected to remain broadly unchanged in
1985and 1986. Withinthis,thecurrentaccountdeficitoftheUnitedStatesisexpected
to increase further, by nearly $20 billion in 1985 and $25 billion in 1986, to attain an
all-time record level of$145 billion, equivalent to more than 3 per cent ofGNP. This
projected deteriorationisaccompanied bysignificantincreases inthecurrentsurpluses
of Japan and Germany.
Stagnant employment The extension of the forecasting horizon by six months to end-1986 has not
in Europe materiallyalteredthepicturethatwaspresentedinlastDecember'sEconomicOutlook,
and this perhaps has the greatest significance for Europe. Growth there is seen as
continuing, but at a rate unlikely to prevent a further edging-up of unemployment.
Notwithstanding considerable progress in improving underlying macroeconomic con¬
ditionsinEurope,otherprojectionswhichlookfurtheraheaddepictapersistenceofthis
poor employment performance beyond 1986. This baseline outlook has to be judged
unsatisfactory. An increasingly-urgent issue for European policy, both micro and
macro, is how to start making inroads into unemployment.
The slow growth of European activity reflects relatively buoyant exports in
combinationwithsluggishdomesticdemand. Lastyear,exportscontributedhalfofthe
total increase in demand in Europe. Private consumption, after a widespread
disinflation-inducedreductioninsavingsratiosin 1983,settleddowntoamodestrateof
growthin 1984, broadlyinlinewith realpost-taxincomes.Governmentexpenditureon
goodsandservicescontributedaquarterofapercentagepointtothegrowthofEuropean
domestic demand. Private non-residential gross fixed investment contributed slightly
more-abouthalfapercentagepoint.AsashareofGNP,investmentisnowjustbackto
its 1980 level, a performancethat comparespoorly with thatin theUnited States and
Japan -see chartD in the chapter on Demand and Output.
European policy since the second oil shock has been placing particular emphasis,
withrespectbothtostructuraland macropolicy,on"improvingthefundamentals"-at
reducing and then containing inflation, and improving profits and profitability so as to
spark off the investment needed to make growth sustainable, while improving labour
market performance in a variety ofways so as both to increase the incentive to hire
workers and to make recovery less inflation-prone.
Various considerations will bear on the assessment of the way in which policy
should evolve from now on. One consideration is that, despite the substantial
improvement in the macroeconomic fundamentals over the last few years, expected
profitability in particular is not yet sufficient to be able to overcome increased risk
premiaandhighcostsofborrowing, andtherebytosparkastronginvestmentrecovery.
On this argument, a further shift ofincome towards profits is needed, together with a
longer record ofgood price performance and budgetary discipline. Another consider¬
ation, withdifferent implicationsforpolicy, is thatwhileanimprovement inthemacro
fundamentals is a necessary condition for better economic performance over the
medium term, this has not adequately restored business confidenceofa higher future
volume ofdemand and sales.
Anotherfrequently-advancedargument,notnecessarilyinconsistentwitheitherof
the others, is that the crucial factor holding back growth in Europe is rigidity on the
supply side, in labour, product and capital markets. Such rigidities undoubtedly exist,
although there is scant evidence that the current degree of slack in Europe is due in
significantparttotheirhavinggotworse. Indeed,onekeyrigidityofthepastdecadeor
so, that of real wages, seems to have been significantly loosened. Important
developmentshaveincludedthede-indexationofwagesinmanycountries,aweakening
of the links between rates of increases of public and private sector pay, an increased
tendency to link actual pay bargaining to company performance, and more flexible
hiringandfiringpractices.Otherrigiditiesremain,however,includingsomethatarethe
result, directly or incidentally, of government policy.
Howshouldthesevariousconsiderationsbeweighedintheformulationofpolicyin
the period ahead?
Asregardsstructuralpolicy,thereappearstobeconsiderablescopeforaction.This
mightprove less difficult than some tasks which governments havefaced in therecent
past, given that a number of the rigidities that obtain today are considered to be the
unfortunateby-productofearliergovernmentactions. Ifvigorous andcrediblepolicies
aretaken tomakethe Europeaneconomiesmoreflexible,tostrengthenincentives, and