OECD economic outlook. 40.

195 Pages·1986·25.691 MB·English

by  OECD

ORGANISATION FOB ECONOMIC CO-OPERATION AND DEVELOPMENT
OECD
ECONOMIC
OUTLOOK
ORGANISATION 0 E COOPERATION i T 0 I 0 E * £ L 0 P P E M E N T E C 0 » 0 M I U 0 E S
DECEMBER 1986
OECD ECONOMIC
OUTLOOK
40
DECEMBER1986
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.
TheOECDEconomicOutlookispublishedontheresponsibilityoftheSecretary-General. The
assessmentsgivenofcountries'prospectsdonot necessarilycorrespondtothoseofthenational
authorities concerned.
Aseparatepublication, appearingonceayear,presentsHistoricalStatisticsinanalyticalform
for a twenty-yearperiod.
The Organisation for Economic Co-operation and Development (OECD)
wassetup undera ConventionsignedinParison14thDecember, 1960, whichprovidesthatthe
OECD shallpromotepolicies designed:
toachievethehighestsustainableeconomicgrowthandemploymentandarisingstandardof
livingin Membercountries, while maintainingfinancialstability, andthus tocontribute to
the development ofthe world economy;
tocontribute tosoundeconomicexpansion in Memberas wellasnon-membercountries in
theprocess ofeconomic development;
tocontributetotheexpansionofworldtradeonamultilateral, non-discriminatory basisin
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, 1986
Application for permission to reproduce or translate
all or part of this publication should be made to:
Head of Publications Service, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
TABLE OF CONTENTS
REDUCING EXTERNAL IMBALANCES WHILE MAINTAINING GROWTH VII
DOMESTIC AND INTERNATIONAL DEVELOPMENTS 1
Monetary and Fiscal Policies 1
Demand and Output 18
Employment and Unemployment 26
Costs, Prices and Profits 36
Foreign Trade and Current Balances 52
International Monetary Developments 61
DEVELOPMENTS IN INDIVIDUAL COUNTRIES 65
United States 65 Austria 109 Netherlands 117
Japan 72 Belgium 110 New Zealand 118
Germany 79 Denmark 111 Norway 119
France 85 Finland 112 Portugal 120
United Kingdom 91 Greece 113 Spain 121
Italy 97 Iceland 114 Sweden 122
Canada 102 Ireland 115 Switzerland 123
Australia 108 Luxembourg 116 Turkey 124
TECHNICAL ANNEX 126
Detailed Supporting Tables and Charts 126
Sources and Methods 148
Reference Statistics 155
CONVENTIONALSIGNS
$ 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 Nil 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
1 Monetary aggregates: recenttrends and targets 3 43 Commoditytradeforecasts: France 132
2 Interest ratedevelopments 4 44 Commoditytradeforecasts: United Kingdom 133
3 Estimate of the maximum effect of corporate tax 45 Commoditytradeforecasts: Italy 134
systemson real interest rates 9 46 Commoditytradeforecasts: Canada 135
General governmentfinancial balances 10 47 TradebalancesofmajorOECDcountriesandcountry
Cyclicalandstructuralchangesingeneralgovernment groups 134
financial balances 11 48 Trade balances ofotherOECD countries 134
Salesofpublicassetsin OECD countries 15 49 Current invisible transactions ofmajorOECD coun¬
Growthofreal GNP intheOECD area 19 triesand countrygroups 139
Growth ofreal GDP in otherOECD countries 19 50 Current balances ofOECDcountries 139
Development of real total domestic demand in the 51 Competitivepositions 140
OECDarea 20 52 Summaryofbalanceofpaymentsoncurrentaccount
10 Growthofnominal GNP in theOECD area 20 oftheOECD area and othermajorworld groupings 141
11 Contributionstochanges inreal GNP/GDP 22 53 Currentbalances ofOPEC 141
12 Growthofemployment in theOECD area 26 54 Currentbalanceofnon-oildeveloping countries 142
13 Growthofemployment inotherOECDcountries 27 55 CurrentbalanceofEastern countries 142
14 Unemployment in theOECD area 27 56 Tradein manufacturedgoods: export marketgrowth
15 Unemployment rates in otherOECD countries 29 and relativeexportperformance 142
16 NAIRUestimates 30 57 Tradeofnon-oildevelopingcountries (NODCs) 143
17 Unemployment rates and capacityuse 34 58 OECD countries' exports toOPEC 143
18 Consumerprices 39 59 Market prices of selected primary commodities
19 Hourlyearnings in manufacturing 43 exported bydevelopingcountries 144
20 Labourcosts in thebusiness sector 44 60 OECD countries' exports to the Soviet Union and
21 GNPdeflatorsin theOECD area 44 Eastern Europe 144
22 Privateconsumption deflators in the OECD area 47 61 OECDcountries' importsfrom theSovietUnion and
23 World tradeand paymentssummary 55 Eastern Europe 145
24 CurrentblancesofmajorOECDcountriesandcountry 62 Oil prices 146
groups 56 63 Oilmarketconditions 146
25 CurrentbalancesofotherOECDcountries 56 64 Net imports ofoil 147
26 Internal and external adjustment of OECD foreign
trade 58
27 U.S. international investmentposition 62
RREEFFERENCESTATISTICS
TECHNICALANNEX Rl Growth ofreal GDP at market prices in the OECD
area 156
28 Growth oflabour forcein theOECD area 126 R2 Growth of real GNP/GDP - seven major OECD
29 Growth oflabour forcein otherOECD countries 127 countries (half-yearly figures) 157
30 Growth oflabourproductivityin theOECD area 127 R3 Gross fixedcapital formation as percentageofGDP 158
31 Growth oflabourproductivity in otherOECD coun¬ R4 Gross savingas percentageofGDP 159
tries 128 R5 Surplus on current transactions with the rest ofthe
32 Comparison of private consumption deflators and world aspercentageofGDP 160
GNP/GDPdeflators 128 R6 Governmentfinalconsumptionexpenditureaspercen¬
33 ExchangeratesofOECD countries 129 tageofGDP 161
34 Effectiveexchange rates ofOECD countries 129 R7 Currentdisbursementsofgovernmentaspercentageof
35 Volume of imports of major OECD countries and GDP 162
countrygroups 130 R8 Total outlays ofgovernmentas percentageofGDP 163
36 Volume of exports of major OECD countries and R9 Current receipts of government as percentage of
countrygroups 130 GDP 164
37 Foreign tradevolumesofselectedotherOECDcoun¬ RIO Consumerprices 165
tries 130 Rll Consumerprices (half-yearly figures) 166
38 Foreigntradeprices(averagevalues)ofmajorOECD R12 Standardized unemployment rates in sixteen OECD
countriesand country groups 131 countries 167.
39 Foreigntradeprices(averagevalues)ofselectedother R13 Currentbalances 168
OECD countries 131 R14 Currentbalances (half-yearly figures) 168
40 Commoditytrade forecasts: United States 131 R15 Exchangerates,nationalcurrenciesagainsttheUnited
41 Commodity trade forecasts: Japan 132 Statesdollar 169
42 Commoditytrade forecasts: Germany 132 R16 Effectiveexchangerates 169
IV
LIST OF CHARTS
Chart Page Chart Page
Monetary policy indicators (aggregates for major N Price of crude oil and refined products in the four
seven OECD countries) 2 largestOECD economies 45
B Trends in monetarygrowth 5 O Costand priceindicators 46
C Real and nominal interestratedevelopments 7 P Profitsand rates ofreturn 49
D Fiscalpolicy influences 12 0 Measuresofrelativecompetitive position 53
E Lendingindicators and industrial production 21 R Oil: importand spotproduct prices 57
F Terms-of-tradechangesand theprice-volumesplit 23 S Import volume growth: China and other LMI coun¬
G Shareoflong-durationunemploymentin totalunem¬ tries 57
ployment 28
Share of youth unemployment in total unemploy¬
ment 28 TTEECHNICALANNEX
1 Youth demographicpressures onthe labourforce 29
J Unemployment duration in selected OECD coun¬ T EffectiveexchangeratesofOECD currencies 135
tries 31 U Dollarexchange rate ofOECD currencies 136
K Changes in consumerprices 37 V Exchange ratesofthedollar 137
L Commodityprices 38 w Exchange rates of major currencies against the
M Oil price pass-through 41 dollar 138
Summary of projections"
Seasonallyadjusted atannual rates
1984 1985 1986 1987 1986 1987 1988
II I II I
Percentage changes fromprevious period
Real GNP
United States 6.4 2.7 1% 3 2'/4 3'/4 3 3
Japan 5.1 4.5 VA 1% 2'/4 3 VA 3'/4
Germany 3.0 2.5 VA 3 53/4 VA 1 2
OECD Europe 2.6 2.5 VA VA 3'A VA l'A VA
Total OECD 4.7 3.0 VA VA VA 3 VA 23/4
Real totaldomesticdemand
United States 8.3 3.4 3% VA 3 23/4 VA 23/4
Japan 3.8 3.6 3% 3'/2 3 4 3'A 4'A
Germany 1.9 1.5 4'/4 4'/2 VA 3'A 3 3'A
OECD Europe 1.9 2.3 3% 3'/4 4M VA VA 23/4
Total OECD 5.0 3.1 3"A 3 3'/4 3 VA 3
Inflation(privateconsumptiondeflator)
United States 3.8 3.5 VA 3 23/4 3'/4 3'A 3'A
Japan 2.1 2.2 Vi 0 -'A 0 'A 'A
Germany 2.5 2.1 -% % -'A 1 l'A l'A
France, United Kingdom, Italy,Canada 6.8 6.0 33/4 3'A 3 3'/4 3'A 3'A
OtherOECD countries 9.8 8.6 6'/4 5% 6M 5'A 5'A 5
Total OECD 5.0 4.5 23/4 3 VA 3 3 3
$ billion
Currentbalances
United States -106.5 -117.7 -138 -136 -139 -138 -135 -133
Japan 35.0 49.2 82 77 88 80 74 72
Germany 7.0 13.2 32 26 34 29 24 21
Total OECD -65.8 -57.5 -20 -34 -7 -27 -A0 -Al
OPEC -9.6 -4.1 -51 ^12 -57 -Al -37 -29
Non-oildevelopingcountries -22.2 -20.4 -7 -4 -7 -5 -A -6
Percentoflabourforce
Unemployment
United States 7.5 7.2 7 6% 7 63/4 6% 6'A
Japan 2.7 2.6 23/4 3'A 3 3 3'A 3'A
Germany 8.2 8.3 73/4 VA 73/4 l'A VA TA
OECD Europe 10.7 10.9 11 11 11 11 11 11
Total OECD 8.4 8.3 8>/4 8M 8'/4 8va 8L/4 m
Percentagechanges from previous period
World trade4 8.8 3.7 33/4 33/4 4 3>/4 4M 4'A
a) Assumptions underlying the projections include :
- nochange in actual andannounced policies:
- unchanged exchange rates from 4th November 1986;in particular$1 = yen 163.6 DM 2.058.
- Dollarprice (OECD fob imports) forinternationallytraded oilof$ 15 per barrel.
b) Arithmeticaverageofthegrowth ratesoftheworld importvolumeandtheworldexport volume.
Thecut-offdateforinformation used in the jompilationoftheforecastswas 17thNovember 1986.
Reducing External Imbalances
While Maintaining Growth
GrowthintheOECDareainthefirsthalfof1986wasslowerthanexpected. Thishas
not, however, affectedthebroadjudgementthat thefallsinoilprices, combinedwith the
exchange-rate changes and interest-rate declines since mid-1985, have enhanced the
prospectforsustained, thoughmoderate,growth atlowratesofinflation. OECDactivity
isprojectedtoexpandatannualratesofl'kto 3percentoverthe nexteighteenmonths.
Employment should continue to increase, but soshould the labourforce: there may be
littlechangeintheaverageOECDunemploymentrate. Appreciableadjustmentofexport
andimportvolumetrendsisgettingunderway,thoughonlyalimitedreductionisforeseen
in large current-account imbalances measured in dollars or as shares of GNP. The
international debt situation continues to be contained, but remainsfragile.
Against this background, the main taskfacingpolicy is still the unwindingofthe
international imbalances while maintaining low inflation and strengthening the mom¬
entumofoutputandemploymentgrowth. Thereisadangerthatimpatiencewiththepace
ofreduction oflarge surpluses anddeficits couldprovoke disorderly exchange-market
conditionsor leadtointensifiedprotectionistpressures. Eitherofthese couldimpair the
strengthofworldgrowth. Itisthereforeimportantfornationalauthoritiestoagree-and
to beseen toagree- on the internationalrequirementsforadjustment over the medium
term, andtopursuethepolicieswhichflowfrom these. Animportantelementhereis the
achievement of significant differences across countries in growth rates of domestic
demand, while maintaining an adequate expansion ofactivity in the OECD area as a
whole. All countries can strengthen growth and employment trends by persisting with
-andinsomeareassteppingup-effortstoimprovethestructuresandflexibilityoftheir
economies.
Unwinding external Major current account imbalances remain a key macroeconomic problem facing
imbalances OECDcountries. Failuretocorrecttheminasmoothmannercouldjeopardisegrowth,
high employment and price stability.
At the PlazaG.5 meeting of September 1985, the pattern of current account
balances arising from the prevailingconfiguration ofpolicies and ofexchange rates in
the largest countries was recognised as unsustainable. Since then, there has been
progress in creating conditions conducive to current-account adjustment. On an
effective (trade-weighted) basis, the dollar has reversed nearly all of its rise between
1980and 1985againstotherOECDcurrencies.TheU.S.budgetdeficitappearssetfora
significant structural reduction in 1987, even ifthe outlook for subsequent cuts is not
clear.Andprospectiverelativegrowthratesofdomesticdemandamongmajorcountries
should begin to be supportive of adjustment.
vii
The main elements in the OECD assessment of current account developments
are:
- Thedollar's fall hasbeen particularlymarked against thecurrencies ofJapan
and Germany, the two OECD countries with very large surpluses. The dollar
hasnotfallenvis-à-visthecurrenciesofagroupofSouth-EastAsiancountries
with strong external positions; however, taking account oftrade patterns, the
implicationsofthisfortheprospectiveimprovementofU.S. tradeperformance
are limited;
- Thus far the terms-of-trade changes that normally accompany large shifts in
exchange rates have been attenuated, particularly for the United States.
Exporters to the United States appear to have absorbed much of the initial
phaseofthedepreciationofthedollaronprofitmargins, ratherthanpassingit
fully into U.S. importprices (broadly reversing theunusual widening ofprofit
margins when the dollar appreciated). Hence the effects on the competitive
position of U.S. producers vis-à-vis imports have been limited as, in conse¬
quence, have been the effects on U.S. import volumes. With the depreciation
continuing, there has been less scope for reducing margins on exports to the
UnitedStates;bothdollarpriceincreasesandconsequentvolumeeffectsshould
now become more apparent;
- As economies adjust more fully to the new pattern of relative costs, the
adjustmentsinvolumeterms,asmeasuredbyrealforeignbalances,arelikelyto
be significant. For the next eighteen months or so, GNP may grow steadily
'ApointfasterthandomesticdemandintheUnitedStates, 1 pointmoreslowly
than domestic demand in Japan and more than 1 point more slowly in
Germany;
- Reduction of nominal current account imbalances is' likely to be slow,
particularly for the United States and Japan. Part of the terms-of-trade
changesarisingfromrecentexchange-rateswingshasstilltocomethrough.As
well, reduction ofnominal imbalancesis slowed because these imbalances are
solarge (see tablebelow): in the UnitedStates exports mustgrowmuch more
rapidlythanimportssimplytomaintainanunchangeddeficit,whilethereverse
is true for countries in large surplus. (See the Foreign Trade and Current
Balances chapter for more detail.)
Current balances as a percentage ofGNP
1985 1986 1987 19881
United States -2.9 -3.3 -3.0 -2.9
Japan 3.7 4.2 3.7 3.3
Germany 2.1 3.6 2.6 2.0
In summary, recent exchange-rate changes can be expected to contribute to the
reductionofexternalimbalancesofmajorOECDcountries.Theyarealsolikelytohave
furtherbeneficialeffectsbeyondtheshort-termhorizon.Whethertheywillbesufficient
to bring current balances back to "sustainable" ranges is, however, difficult tojudge.
The difficulty arises partly because the notion of sustainability is not precise (see
discussion in the International Monetary Developments chapter), and partly because
substantialandlastingexchangeratechangesmightultimatelyhavelargereffectsthan
conventional estimates ofprice elasticities of trade would suggest.
Allowingfortheuncertainties,itneverthelessseemslikelythat,overtime,therewill
be need for further adjustment beyond what would result from the continuation of
present policy settings and exchange-rate relationships. If the U.S. budget deficit is
reducedoverthemediumtermbroadlyascalledforbytheGramm-Rudmann-Hollings
Act,thiswouldsetinmotionforcesthatshouldbringaboutasignificantloweringofthe
current-account deficit. Further exchange rate changes over the medium term would
strengthentheadjustmentprocess.Andgreaterdivergenceingrowthratesofdomestic
demandacrosscountries, beyondwhatmight resultfromU.S. fiscal action, would also
contribute to better balance.
Discussionofdifferentialgrowthofdomesticdemandinevitablyraisesissuesofthe
relative contributions of the United States and other OECD countries to the
medium-term correction of imbalances. Several points are worth making:
- Reduction of the U.S. budget deficit would have the short-term impact of
reducingdomesticdemandgrowth. Thisdampingofactivitywouldbeoffsetto
someextent bythe reliefon long-terminterestrates which should accompany
the declining budget deficit. GNP growth in the United States would also be
boostedinsofarasnetexportsimproved. Onbalance, theremaynonethelessbe
someweakeningofoutputgrowth;attemptstooffsetthisbyamarkedeasingof
U.S. monetary policy would, however, carry a risk of higher inflation and
interest rates;
- Itisimportantforanypolicy-inducedslowingofU.S.domesticdemandgrowth
tobebroughtaboutthroughfiscaltightening,whichwould tendtoexpandthe
flow ofsaving available for investment and reduce interest rates, rather than
through monetary tightening, which would tend to increase interest rates and
crowd out investment;
- RegardingactivityincountriesotherthantheUnitedStates,theprimaryfocus
should be less on its potential effects on U.S. external adjustment -which
mightberelativelymodest-andmoreonensuringthatthegrowthofdomestic
output is adequate relative to a sustainable non-inflationary path, taking
account, interalia, of possible weakness of exports arising from slower U.S.
growth.
Withfulladjustmentalmostcertaintotakeanumberofyears,thereisacontinuing
riskthat,asaresultofapaceofadjustmentthatisseenassloworinadequate,largeand
disorderly exchange-rate changes might occur, or that protectionism will become
increasinglydifficulttoresist.Butauthoritiesarefacedwithadilemmahere,becauseof
the likely costliness of attempts to speed up current-account adjustment in the short
term. It might, for example, be difficult in the short run to bring about wider
ix