OECD economic outlook. 38.

212 Pages·1985·29.117 MB·English

by  OECD

I6 2* c. 19
OECD
ECONOMIC
OUTLOOK
DECEMBER 1985
OECD
ECONOMIC
OUTLOOK
38
DECEMBER 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. Itappearstwiceayear
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. TheFrenchversionoftheOECD Economic
Outlook is entitled Perspectives économiques de l'OCDE.
TheOECD EconomicOutlookispublishedontheresponsibilityoftheSecretary-General. The
assessmentsgivenofcountries'prospectsdonotnecessarilycorrespondtothoseofthenational
authorities concerned.
Aseparatepublication, appearingonceayear,presentsHistoricalStatistics inanalyticalform
for a twenty-yearperiod.
The Organisation for Economic Co-operation and Development (OECD)
wasset up undera ConventionsignedinParison 14thDecember, 1960, whichprovidesthatthe
OECD shallpromotepolicies designed:
toachievethehighestsustainableeconomicgrowthandemploymentandarisingstandardof
livingin Membercountries, whilemaintainingfinancialstability, andthus tocontribute to
the development ofthe world economy;
tocontribute tosoundeconomicexpansion in Memberas wellasnon-membercountries in
theprocess ofeconomic development;
tocontribute totheexpansionofworldtradeonamultilateral, 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 UnitedStates.
*
* *
© 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
CO-OPERATION AND THE RECOVERY VII
DOMESTIC AND INTERNATIONAL DEVELOPMENTS
Fiscal and Monetary Policies 1
Demand and Output 19
Employment and Unemployment 25
Costs, Prices and Profits 36
Foreign Trade and Current Balances 51
International Monetary Developments 59
The Present Recovery in Longer-term Perspective 65
DEVELOPMENTS IN INDIVIDUAL COUNTRIES 82
United States 82 Austria 130 Netherlands 136
Japan 92 Belgium 131 New Zealand 137
Germany 98 Denmark 132 Norway 138
France 105 Finland 133 Portugal 138
United Kingdom 111 Greece 133 Spain 139
Italy 118 Iceland 134 Sweden 140
Canada 124 Ireland 135 Switzerland 140
Australia 130 Luxembourg 136 Turkey 141
TECHNICAL ANNEX 1.43
Detailed Supporting Tables and Chart 143
Sources and Methods 162
Reference Statistics 171
CONVENTIONAL SIGNS
$ US dollar Decimal point
c US cent I, II Calendar half-years
£ Pound sterling Ql, Q4 Calendar quarters
mbd Millions barrels per day Billion Thousand million
Data not available Trillion Thousand billion
0 NH or negligible s.a.a.r. Seasonally adjusted at 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.
m
LIST OF NUMBERED TABLES
Table Page Table Page
I General governmentfinancial balances 3 42 Commoditytrade forecast: France 148
1 Cyclicalandstructuralchangesingeneralgovernment 43 Commoditytradeforecasts: United Kingdom 148
financial balances 4 44 Commodity tradeforecasts: Italy 148
Publicsectorclaimson privatesavings and 45 Commoditytradeforecasts: Canada 149
governmentindebtedness 5 46 TradebalancesofmajorOECDcountriesandcountry
Monetary aggregates: recenttrends and targets 9 groups 149
Responses of interest rate changes in major OECD 47 Tradebalances ofotherOECD countries 150
countries todeclines inthe United States 13 48 Currentinvisible transactionsofmajorOECD
Growth ofreal GNP intheOECD area 19 countries andcountrygroups 150
Growth ofreal GDP in other OECDcountries 20 49 CurrentbalancesofOECDcountries 151
Development of real total domestic demand in the 50 Competitive positions 152
OECD area 20 51 Summaryofbalanceofpaymentsoncurrentaccount
9 Growth ofnominal GNP inthe OECD area 21 oftheOECD areaand othermajorworld groupings 153
10 Contributionstochanges in real GNP/GDP 22 52 OPEC's balanceofpaymentoncurrentaccount 153
11 Employment and productivity 26 53 Currentaccount balance ofnon-oil developing
12 Unemploymentin the OECD area 29 countries 154
13 Unemployment ratesin otherOECD countries 29 54 Eastern countries' current balance 154
14 Youth unemployment inselectedOECD countries 30 55 Tradein manufactured goods: export marketgrowth
15 Marginal efficiencyofinvestment 34 and relativeexport performance 155
16 Hourlyearnings in manufacturing 40 56 Tradeofnon-oil developingcountries (NODCs) 155
17 Unit labourcosts inmanufacturing 40 57 OECD countries' exports toOPEC 156
18 Productivity developments in OECD manufacturing 58 Market prices of selected primary commodities
industries 47 exported bydevelopingcountries 156
19 Incomegearing ratios 48 59 OECDcountries'exporttoSovietUnionand Eastern
20 Consumerprices 49 Europe 157
21 Privateconsumptiondeflators in the OECDarea 50 60 OECD countries' imports from Soviet Union and
22 GNP deflators in theOECD area 50 Eastern Europe 158
23 World tradeand payments summary 52 61 Oilprices 159
24 Current balances of major OECD countries and 62 Oil marketconditions 159
country groups 55 63 Net importsofoil 160
25 CurrentbalancesofotherOECD countries 56
26 Exchangerates ofselected currencies 59
27 Acomparison offiveupswings 65 RREEFFERENCESTATISTICS
28 Estimates ofspare capacity 69 Rl Growth ofreal GDP at market prices in the OECD
29 Outputand investment in cyclical upswings 69
area 172
30 Relative growth, competitive position and current
R2 Growth of real GNP/GDP - seven major OECD
balances 78
countries (half-yearlyfigures) 173
R3 Gross fixed capital formationaspercentageofGDP 174
TECHNICALANNEX R4 Gross saving as percentageofGDP 175
R5 Surplus on current transactions with the rest of the
31 Comparison of private consumption deflators and world as percentage ofGDP 176
GNP/GDPdeflators 143 R6 Governmentfinalconsumptionexpenditureaspercen¬
32 Exchange ratesofOECD countries 144 tageofGDP 177
33 Effectiveexchange rates ofOECD countries 144 R7 Currentdisbursementsofgovernmentaspercentageof
34 Volume of imports of major OECD countries and GDP 178
countrygroups 145 R8 Total outlaysofgovernmentas percentage ofGDP 179
35 Volume of exports of major OECD countries and R9 Current receipts of government as percentage of
country groups 145 GDP 180
36 Foreign trade volumes ofselected otherOECD RIO Consumerprices 181
countries 146 Rll Consumerprices (half-yearly figures) 182
37 Foreigntradeprices(averagevalues)ofmajorOECD R12 Standardized unemployment rates in sixteen OECD
countries and countrygroups 146 countries 183
38 Foreigntradeprices(averagevalues)ofselectedother R13 Current balances 184
OECD countries 146 R14 Current balances (half-yearly figures) 184
39 Commoditytrade forecasts: United States 147 R15 Exchangerates,nationalcurrenciesagainsttheUnited
40 Commoditytradeforecasts: Japan 147 Statesdollar 185
41 Commodity trade forecasts: Germany 147 R16 Effectiveexchange rates 185
LIST OF CHARTS
Chart Page Chart Page
Marginalratesofoveralltaxationonwagesand P Changes in consumerprices 46
salaries 7 Q Measuresofrelativecompetitiveposition 53
B Trends in monetary growth 11 R Real oil and non-oilcommodity prices 58
C Short- and long-terminterestrates 15 S Cumulative OPECcurrent accountsurplus 58
D Predictions ofthe income velocity ofmoney in T Effective exchange rates of OECD currencies:
theUnited States 16 recentdevelopments 61
E Leadingindicators and industrial production 23 U Dollar exchange rates of OECD currencies:
F Industrial output growth relative to real GDP recentdevelopments 62
growth 27 V DM exchange rates ofselected OECD curren¬
G Sectoral employment trends 28 cies 63
H Youth unemployment in selected OECDcoun- (a) Cyclical developments in major seven OECD
tries 31 countries 67
I Long duration unemployment (12 months and (b) Monetarypolicyindicators 68
over) 31 (c) Fiscal influences 73
J Predicted and actual money wages in private (d) Recovery inmajorOECD countries 74
sector 32 (e) Currentbalances as a percentofGDP/GNP 77
K EEC: net rate of return on capital and real
long-term interest rate 33
Grossfixed asset formation and employment 35
M Indexofnon-oil commodityprices 37 TECHNICAL ANNEX
N Wages, prices and unemployment 38
0 Profits,ratesofreturnandinvestmentinmanu- W Exchangeratesofmajorcurrenciesagainstthe
facturing 43 dollar 161
Summary of projections0
Seasonally adjusted atannual rates
1984 1985 1986 1985 1986 1987
II I il I
Percentagechanges from previous period
Real GNP
United States 6.8 VA VA VA VA VA VA
Japan 5.8 5 3'k 5 3% 2 3'A
Germany 2.7 Vk 3'A 5% l'A VA VA
OECD Europe 2.4 VA VA 3'A 2 1 VA
Total OECD 4.9 VA VA 3'A VA VA l'A
Real total domestic demand
United States 8.7 3Vi VA 3'A VA VA VA
Japan 4.0 3% 4 5 4'A 1 3'A
Germany 1.8 VA 3 6 1 VA VA
OECD Europe 1.7 2 l'A 3'A l'A 1 1
Total OECD 5.1 3 VA 3'A VA VA VA
Inflation(private consumption deflator)
United States 3.2 3 3'A VA 3'A 3'A 3'A
Japan 2.1 l'A l'A 1 \'A l'A l'A
Germany 2.5 l'A l'A I l'A l'A l'A
France, United Kingdom, Italy, Canada 6.9 6 4'A 5 4'A 4'A 4'A
High inflation smallercountries4 38.4 3S'A 30 32 29% 29 V&'h
OtherOECD countries 6.9 6 S'A 6 S'A 5Vi S'A
Total OECD 5.0 4% 4'A 4'A 4'A 4'A 4'/2
$ billion
Current balances
United States -101.5 -128 -146 -132 -144 -148 -147
Japan 35.0 48 57 52 58 57 57
Germany 6.3 13 20 16 20 20 18
OECD Europe 10.5 17 35 26 36 33 29
Total OECD -63.8 -73 -64 -66 -60 -67 -69
Percent oflabourforce
Unemployment
United States 7.5 TA l'A l'A TA l'A l'A
Japan 2.7 VA VA VA VA VA VA
Germany 8.2 %'h 8 m 8 8 TA
OECD Europe 10.7 11 11 11 11 11 11
Total OECD 8.4 VA 8'/4 8'/4 m 8'/4 8'/4
a) Assumptions underlying the projections include :
- no change in actual and announced policies;
- unchanged exchange rates from 5th November 1985;
- no significantchange in dollar price for internationally traded oil tomid-1987;
b) Greece, Iceland, Portugal, Turkey.
The cut-offdate for information used in the compilation ofthe forecasts was 18th November 1985.
Co-operation and the Recovery
The outlook to Thepresentforecastsaresimilar, ina numberofbasicrespects, tothosepublished
mid-1987 six months ago in Economic Outlook37. Growth in the first half of 1985 turned out
somewhat weaker (by three quarters of a percentage point at an annual rate) than
expected;thecausesdiffered acrosscountries, andseemtohavebeentemporary. In the
United States the causewas weakexports and destocking; in Europetheseverewinter
anda temporarypostponementofautomobile purchasesin Germany; in Japan weaker
exports and investment. A technical rebound has subsequently been taking place.
Broadly, there have been no majorchanges inthe economic forces likely to shape
the course ofthe OECD economy as a whole over the next year and a half. However,
non-OECD importdemandhasweakened, and islikelytoremainsluggish, while lower
commodityprices haveresulted in morefavourable terms oftradeforthe OECD area.
There havealso been some changes as between OECD countries. The dollarand a few
other currencies have fallen sharply in effective terms, and almost all currencies have
risenvis-à-visthedollar. Fiscalpolicymaystop movingin anexpansionarydirection in
the United States, and the pace of budgetary tightening has slowed elsewhere. The
centralprojectionsforthenexteighteenmonths (seetableopposite),constructedonthe
customarytechnicalassumptions ofunchangedexchangerates, nochange inactual or
announced government policies, and no change in the dollar price of oil, are for an
underlyingOECDgrowthrateofaboutVhpercent.Incontrastwith 1983-84,growthin
the United States is expected to differ little on average from the rest ofthe OECD. A
similarnarrowingofgrowth ratesofdomesticdemand is projected. Thusin the United
Statesbothdomesticdemandand GNP areprojectedtogrow at2'Apercent ratesover
the next eighteen months; in Japan they are projected to grow in the 3 to 3lkper cent
range, and in Europe at 2 to 2'Aper cent.
Employment intheOECD area seems likely to growovertheprojectionperiod at
about 1 percentperyear,withdoublethatrateinthe UnitedStatesandhalfthatratein
Europe. Onlymodest changes in unemploymentrates are expected for mostcountries,
and the rate for the OECD area as a whole seems likely to stay around 8V2per cent.
Inflation is projected to stabilize at about 4V2per cent for the OECD area, with
markedly lower figures than this for each ofthe three largest countries. The absolute
price level fell in several OECD countries during the summer, partly on account of
seasonal factors. Currentaccountpositions-particularlythe United Statesdeficitand
thesurplusesofJapan andGermany-areprojected towidenfurther inthefirsthalfof
1986, and thereafter to level off. Little change seems likely in the current account
balanceoftheOECDareaasawhole;withinthenon-OECDarea,thecombineddeficit
of non-oil developing countries may widen somewhat, while that of OPEC countries
narrows.
The projections depend importantly on their assumptions. These include
unchanged exchange rates, as from 5thNovember. In the course of 1985, however,
exchange rates have been changing quite significantly; further large changes could
materiallyaffect the distributionofdemand asbetweencountries, andwould alter the
inflation projections for individual countries. There are also risks to the projected
outcome. The current accounts ofthe three major OECD regions seem set to diverge
somewhat further, and over the projection period continuing surpluses and deficits
cumulate into even larger net foreign debtor and creditor positions. As discussed in
previous Economic Outlooks1, these could pose risks of movements in exchange rates
and financial flows that could be so sharp as to create problems for economic
management.Theserisksremainbut,asdiscussedbelow,thereisnowevidentagreater
co-operative intent among the major countries to reduce them.
Economic policy and For about five years now, most OECD countries have been following a
performance in the medium-term approach to economic policy, although details of implementation have
first halfof the 1980s inevitably varied somewhat across countries and over time. The OECD strategy has
called basically for the pursuit ofsteady and cautious monetary and fiscal policies to
reduce inflation and then stabilize it at a low rate, to bring budget deficits and public
spending under control, and for an improvement in profits and profitability so as to
strengtheninvestment.Theotherlegofthestrategyhasbeenconcernedwithimproving
the functioning of economies. A major emphasis has been on policies to facilitate
structural adaptation. By enabling markets to function more effectively and by
improvingtheflexibilityandresponsivenessofthepublicsector,suchpoliciescontribute
to reducing inflation risks.
These basic objectives remain; indeed, that they do so is a major reason for the
likelihood of the continuing recovery depicted in the projections. At the same time,
policies continue to evolve. Thefollowing two sections reviewthe progress made under
the strategy; the ensuing section then discusses the steps taken in recent months to
developmoreco-operativeapproachesto someoftheproblemsfacing theinternational
economy,andconsiderssomeofthechallengesthatpolicyislikelytohavetofaceinthe
period ahead.
a) Macroeconomicpolicies andperformance
Monetary policy over the past few years has broadly speaking followed the
prescriptionofthestrategy: ingeneralinitiallytight,itbecameless soasinflationcame
down. Inanumberofcountries recentrates ofmoneygrowthmightbearguedtocarry
risks ofareacceleration ofinflation; this could applyparticularly to the United States
andtheUnitedKingdom. Butinterpretationofthegrowthofthemoneyaggregateshas
See especially Economic Outlook37, June 1985, pp.xiii to xvi, and Economic Outlook36,
December 1984, pp. 24-26.
recentlybeendifficult;theimpactofmoneygrowthmayhavebeenattenuatedbyfalling
velocity in some countries, perhaps owing to the pace ofstructural change in financial
markets.
Fiscalpolicyimplementationhasbeenmoreuneven.Thestructuralbudgetbalance
oftheOECDcountriesasagrouphaschangedlittlesincethebeginningofthedecade;a
largeswingintodeficitin theUnitedStates hasapproximately offsetanoppositeswing
in the other countries combined. The aggregate budget deficit, as recorded, for the
OECD as a whole expanded during the early part of the decade, but has narrowed
somewhat over the past two years of recovery.
Thesepolicies,especiallymonetarypolicy,havebeensuccessfulinloweringOECD
inflation from a peak of 13 per cent in early 1980 to some 4'Aper cent currently, the
lowest rate for sixteen years. This is the longest-lasting disinflation in the post-war
period, breaking the pattern since the early-1960s of higher average inflation in each
successivebusinesscycle.Commoditypriceshavebeenexceptionallyweak.Thereisalso
evidenceofchangedwage-settingbehaviourinsomecountriesand,moregenerally,ofa
shiftofincomesharestowardsprofits,althoughtherehasbeenlessofanimprovementin
rates of return.
The upswing of activity in the OECD area is now a mature one as recoveries go
-threeyearsold. At anearlystage,effects onspendingstemmingfromthedisinflation
processitselfmayhavegiventherecoveryanimportantimpetus;forthetimebeingthere
maynowbelittlefurthertobeexpectedfromthissource. Growthofgrossbusinessfixed
investment has been buoyantrelativetooutputgrowth, especially in the United States
but noticeably so in Japan and Europe also.
The fact that inflation is still, if anything, decelerating three years into recovery,
and the absence of any important near-term supply constraint, are reasons for
confidence that the recovery could continue for some time to come -hence the
projections ofcontinuing growth to mid-1987. In this respect the strategy has brought
aboutafundamentalchangefromtheeconomicpolicyclimateofthelate 1960sandthe
1970s,wheninflationseemedonoccasionalmostuncontrollableandsupplyconstraints
led three times to economic expansion being brought to an end.
But there remain some less favourable features. First, reflecting in part the
contrasting movements in fiscal stance, has beenthe unbalanced geographical pattern
oftherecovery.WhilethereisageneraltendencyfortheUnitedStatestoplayaleading
part in OECD recoveries, until the present episode the rest of the area was never far
behind.Thistime,however,demandrecoveryoutsidetheUnitedStateshasnotfollowed
anythinglikeasstrongly (seeChart'd' intheSpecialSection"ThePresentRecoveryin
Longer-Term Perspective"). Together with the high dollar, this has made for
increasingly unevencurrentaccountpositions among majorOECD countries, withthe
UnitedStatesdeficitandJapanesesurpluseachreaching 33Apercentoftheirrespective
GNPs, and Germany's surplus heading for 3 per cent ofits GNP. This configuration,
whichmostobserversregardasunsustainable,seemstohavecontributed toheightened
protectionist sentiment.
IX