Inflatio and Globalisation

[abiola ayodele]

Wor l d E c o n o m i c a n d F i n a n c i a l S u r
v e y s
WORLD ECONOMIC OUTLOOK
April 2006
Globalization and Inflation
International Monetary Fund
WORLD ECONOMIC OUTLOOK
April 2006
Globalization and Inflation
International Monetary Fund
Wo r l d E c o n o m i c a n d F i n a n c i a l S u r
v e y s
©2006 International Monetary Fund
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Assumptions and Conventions viii
Preface x
Foreword xi
Chapter I. Economic Prospects and Policy Issues 1
United States and Canada: Robust Growth Set to
Continue, but the U.S. Housing
Market Is a Key Uncertainty 16
Western Europe: Is the Expansion Finally Gaining
Traction? 19
Japan and Other Industrial Countries in Asia: Managing
Three Major
Transitions in Japan 31
Emerging Asia: Strong Growth Expected to Continue 34
Latin America: Improving the Business Climate Key to
Raising Long-Term Growth 39
Emerging Europe: Addressing Rising Current Account
Deficits 43
Commonwealth of Independent States: A Rebalancing of
Growth Is Needed to
Sustain the Expansion 46
Africa: Sustaining the Recent Growth Acceleration 49
Middle East: Booming Asset Prices Across the Region 52
Appendix 1.1. Recent Developments in Commodity Markets
54
Appendix 1.2. The Global Implications of an Avian Flu
Pandemic 64
References 69
Chapter II. Oil Prices and Global Imbalances 71
How Does the Current Oil Price Shock Compare with
Previous Episodes? 72
How Will the Current Oil Price Shock Affect Global
Imbalances? 77
Conclusions 91
Appendix 2.1. Oil Prices and Global Imbalances:
Methodology, Data, and
Further Results 92
References 96
Chapter III. How Has Globalization Affected Inflation?
97
Recent Inflation Developments 98
Understanding Globalization and Inflation: A Broad
Framework 99
Globalization and Inflation: An Aggregate Perspective
105
A Sectoral Perspective on Globalization and Prices 111
A Cost Perspective on the Moderation in Sectoral
Producer Prices 121
Summary and Policy Conclusions 122
Appendix 3.1. Sample Composition, Data Sources, and
Methods 124
Appendix 3.2. A Sectoral Perspective on Globalization
and Inflation 126
References 131
iii
CONTENTS
Chapter IV. Awash With Cash: Why Are Corporate Savings
So High? 135
What Has Been Driving the Increase in Corporate Excess
Saving? 136
Are Current Trends in Corporate Excess Saving
Sustainable? 151
Conclusions 153
Appendix 4.1. Econometric Methodology 154
References 158
Annex: IMF Executive Board Discussion of the Outlook,
March 2006 160
Statistical Appendix 165
Assumptions 165
What’s New 165
Data and Conventions 168
Classification of Countries 169
List of Tables
Output (Tables 1–6) 177
Inflation (Tables 7–11) 188
Financial Policies (Tables 12–19) 196
Foreign Trade (Tables 20–24) 205
Current Account Transactions (Tables 25–31) 213
Balance of Payments and External Financing (Tables
32–36) 228
External Debt and Debt Service (Tables 37–42) 238
Flow of Funds (Table 43) 247
Medium-Term Baseline Scenario (Tables 44–45) 251
World Economic Outlook and Staff Studies for the World
Economic Outlook, Selected Topics 254
Boxes
1.1 Long-Term Interest Rates from a Historical
Perspective 20
1.2 The Impact of Recent Housing Market Adjustments in
Industrial Countries 22
1.3 How Accurate Are the Forecasts in the World
Economic Outlook? 24
1.4 How Much Progress Has Been Made in Addressing
Global Imbalances? 28
1.5 The Doha Round After The Hong Kong SAR Meetings 32
1.6 China’s GDP Revision: What Does It Mean for China
and the Global Economy? 37
1.7 The Spanish Flu of 1918–19 65
2.1 How Rapidly Are Oil Exporters Spending Their
Revenue Gains? 79
2.2 Recycling Petrodollars in the 1970s 85
2.3 The Impact of Petrodollars on U.S. and Emerging
Market Bond Yields 89
3.1 Globalization and Inflation in Emerging Markets
102
3.2 Globalization and Low Inflation in a Historical
Perspective 112
3.3 Exchange Rate Pass-Through to Import Prices 114
4.1 Drawing the Line Between Personal and Corporate
Savings 137
4.2 Trends in the Financial Sector’s Profits and
Savings 143
A1 Economic Policy Assumptions Underlying the
Projections for
Selected Advanced Economies 166
CONTENTS
iv
Tables
1.1 Overview of the World Economic Outlook Projections
2
1.2 Emerging Market and Developing Countries: Net
Capital Flows 7
1.3 Major Advanced Economies: General Government
Fiscal
Balances and Debt 15
1.4 Advanced Economies: Real GDP, Consumer Prices, and
Unemployment 16
1.5 Advanced Economies: Current Account Positions 17
1.6 Selected Asian Economies: Real GDP, Consumer
Prices, and
Current Account Balance 35
1.7 Selected Western Hemisphere Countries: Real GDP,
Consumer Prices, and
Current Account Balance 39
1.8 Emerging Europe: Real GDP, Consumer Prices, and
Current
Account Balance 43
1.9 Commonwealth of Independent States: Real GDP,
Consumer Prices, and
Current Account Balance 46
1.10 Selected African Countries: Real GDP, Consumer
Prices, and Current
Account Balance 49
1.11 Selected Middle Eastern Countries: Real GDP,
Consumer Prices, and
Current Account Balance 52
1.12 Global Oil Demand by Region 56
1.13 Nonenergy Commodity Prices 61
2.1 Increase in Fuel Exporters’ Net Oil Exports 73
2.2 Change in Net Oil Exports, 2002–05 73
2.3 Petroleum Reserves 75
2.4 Composition of Merchandise Imports 76
2.5 Impact of Oil Price Shock: Greater Spending by
Fuel Exporters 88
2.6 Impact of Oil Price Shock: Delayed Pass-Through to
Core Inflation 88
3.1 Estimates of Output-Inflation Sensitivity and
Inflation Persistence in
Advanced Economies 107
3.2 The Cumulative Impact of a 1 Percent Decrease in
Real Import
Prices on Inflation 109
3.3 Impact of Trade Openness on Relative Producer
Price Inflation 119
3.4 Producer Price Inflation by Cost Components 121
3.5 Impact of Trade Openness on Productivity, Labor
Compensation, and
Unit Labor Costs 122
3.6 Inflation in Advanced Economies: SUR Estimates 124
3.7 Classification of Sectors by Technological and
Skill Intensity 127
3.8 Impact of Changes in Import Prices on Relative
Producer Price Inflation 130
3.9 Impact of Trade Openness on Cost Components 131
4.1 Nonfinancial Corporate Sector: Change in Selected
Variables 141
4.2 Group of Seven (G-7) Countries: Cash Accumulation
by Size of Firm’s Sales 149
4.3 Defined Benefits Corporate Pension Plans: Assets
Over Liabilities 151
4.4 Weighted Average, Median, and 90th Percentile of
Selected Series, by
Change in Cash to Total Assets by Quartile, 2001–04
156
4.5 Regression Results: Dependent Variable—Change in
Cash and
Short-Term Investments 157
CONTENTS
v
Figures
1.1 Prospects for World GDP Growth 1
1.2 Global Indicators 3
1.3 Current and Forward-Looking Indicators 4
1.4 Developments in Mature Financial Markets 5
1.5 Emerging Market Financial Conditions 6
1.6 Global Exchange Rate Developments 9
1.7 Global Inflation 10
1.8 Global Outlook 11
1.9 Fiscal and Monetary Policies in the Major Advanced
Economies 12
1.10 How Will Global Imbalances Adjust? 13
1.11 United States: The Housing Market and Growth 18
1.12 Western Europe: Social Policy Indicators and
Outcomes 27
1.13 Japan: Reversing the Relative Decline in Per
Capita GDP Growth 34
1.14 Emerging Asia: Understanding Recent Developments
in the Current Account 36
1.15 Latin America: Public Debt Ratios and Investment
41
1.16 Emerging Europe: Current Account Deficits Remain
High 44
1.17 Commonwealth of Independent States: Unbalanced
Growth Raises
Concerns About the Outlook 47
1.18 Sub-Saharan Africa: Growth, Investment, and
Economic Transitions 50
1.19 Middle East: Surging Asset Markets 53
1.20 Crude Oil Prices, Futures, and Petroleum Product
Prices 55
1.21 World Refinery Capacity, Spare Capacity, and
Production 57
1.22 Commercial Oil Inventories, Spot and Futures
Prices 58
1.23 Energy Prices, Taxes, and Fuel Subsidies 60
1.24 Nonenergy Commodities 62
1.25 Semiconductor Market 63
2.1 Current Account Balances and Net Foreign Asset
Positions 71
2.2 Real Oil Prices and Net Oil Exports 72
2.3 Fuel Exporters’ Cumulative Current Account
Balances and Capital Flows 74
2.4 Fuel Exporters’ Cumulative Current Account
Balances and Identified
Asset Purchases 77
2.5 Current Account and Oil Trade Balances 78
2.6 Impact of Oil Price Shocks on External Imbalances,
1972–2004 82
2.7 Adjustment to Oil Price Shocks, 1979:Q2–2003:Q4 83
2.8 Additional Results: Adjustment to Oil Price
Shocks, 1979:Q2–2003:Q4 94
3.1 Inflation 98
3.2 Inflation Volatility 99
3.3 Prices of Goods and Services 100
3.4 Trade and Financial Openness 101
3.5 Inflation over the Business Cycle, 1961–2003 106
3.6 Selected Structural Indicators 107
3.7 Import Prices 108
3.8 The Impact of Import Prices on CPI Inflation 110
3.9 Inflation in Manufacturing and Business Services
in Selected Industrial Countries 116
3.10 Relative Producer Price Inflation by
Technological and Skill Intensity 117
3.11 Producer Price Inflation and Openness 118
CONTENTS
vi
3.12 Contributions to Declines in Relative Producer
Prices 119
3.13 Producer Price Inflation by Cost Components 120
4.1 Group of Seven (G-7), Excluding Germany: Gross
Saving, Capital Spending,
and Net Lending/Borrowing 136
4.2 Nonfinancial Corporate Sector: Gross Saving,
Capital Spending, and Net
Lending/Borrowing 140
4.3 Nonfinancial Corporate Sector: Gross Operating
Surplus and Profits 142
4.4 Nonfinancial Corporate Sector: Financial Accounts,
Selected Variables 146
4.5 Financial Transactions: Nonfinancial Corporate
Sector of the G-7 Countries 147
4.6 Cash Accumulation in the G-7 Countries by Industry
148
4.7 Sales Volatility and Intangible Assets in the G-7
Countries 150
4.8 Nonfinancial Corporate Sector Debt 152
CONTENTS
vii
A number of assumptions have been adopted for the
projections presented in the World Economic
Outlook. It has been assumed that real effective
exchange rates will remain constant at their average
levels during February 9–March 9, 2006, except for the
currencies participating in the European
exchange rate mechanism II (ERM II), which are assumed
to remain constant in nominal terms relative
to the euro; that established policies of national
authorities will be maintained (for specific
assumptions
about fiscal and monetary policies in industrial
countries, see Box A1); that the average price of oil
will
be $61.25 a barrel in 2006 and $63.00 a barrel in
2007, and remain unchanged in real terms over the
medium term; that the six-month London interbank
offered rate (LIBOR) on U.S. dollar deposits will
average 5.0 percent in 2006 and 5.1 percent in 2007;
that the three-month euro deposits rate will average
3.0 percent in 2006 and 3.4 percent in 2007; and that
the six-month Japanese yen deposit rate will
yield an average of 0.3 percent in 2006 and of 0.9
percent in 2007. These are, of course, working
hypotheses rather than forecasts, and the
uncertainties surrounding them add to the margin of
error
that would in any event be involved in the
projections. The estimates and projections are based
on statistical
information available through early April 2006.
The following conventions have been used throughout
the World Economic Outlook:
. . . to indicate that data are not available or not
applicable;
— to indicate that the figure is zero or negligible;
– between years or months (for example, 2004–05 or
January–June) to indicate the years or
months covered, including the beginning and ending
years or months;
/ between years or months (for example, 2004/05) to
indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a
thousand billion.
“Basis points” refer to hundredths of 1 percentage
point (for example, 25 basis points are equivalent
to !/4 of 1 percent point).
In figures and tables, shaded areas indicate IMF staff
projections.
Minor discrepancies between sums of constituent
figures and totals shown are due to rounding.
As used in this report, the term “country” does not in
all cases refer to a territorial entity that is a
state as understood by international law and practice.
As used here, the term also covers some territorial
entities that are not states but for which statistical
data are maintained on a separate and independent
basis.
viii
ASSUMPTIONS AND CONVENTIONS
This report on the World Economic Outlook is available
in full on the IMF’s Internet site, www.imf.org.
Accompanying it on the website is a larger compilation
of data from the WEO database than in the
report itself, consisting of files containing the
series most frequently requested by readers. These
files
may be downloaded for use in a variety of software
packages.
Inquiries about the content of the World Economic
Outlook and the WEO database should be sent by
mail, electronic mail, or telefax (telephone inquiries
cannot be accepted) to:
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E-mail: w...@imf.org Telefax: (202) 623-6343
ix
FURTHER INFORMATION AND DATA
The analysis and projections contained in the World
Economic Outlook are integral elements of the
IMF’s surveillance of economic developments and
policies in its member countries, of developments in
international financial markets, and of the global
economic system. The survey of prospects and policies
is the product of a comprehensive interdepartmental
review of world economic developments,
which draws primarily on information the IMF staff
gathers through its consultations with member
countries. These consultations are carried out in
particular by the IMF’s area departments together
with the Policy Development and Review Department, the
International Capital Markets Department,
the Monetary and Financial Systems Department, and the
Fiscal Affairs Department.
The analysis in this report has been coordinated in
the Research Department under the general
direction of Raghuram Rajan, Economic Counsellor and
Director of Research. The project has been
directed by David Robinson, Deputy Director of the
Research Department, together with Tim Callen,
Division Chief, Research Department.
The primary contributors to this report are Thomas
Helbling, Subir Lall, Kalpana Kochhar, Sandy
Mackenzie, Gian Maria Milesi-Ferretti, S. Hossein
Samiei, Roberto Cardarelli, To-Nhu Dao, Selim
Elekdag, Toh Kuan, Florence Jaumotte, Valerie
Mercer-Blackman, Paul Nicholson, Alessandro Rebucci,
Martin Sommer, Nikola Spatafora, and Johannes Wiegand.
Christian de Guzman, Stephanie Denis,
Angela Espiritu, Bennett Sutton, and Ercument Tulun
provided research assistance. Mahnaz Hemmati,
Laurent Meister, and Casper Meyer managed the database
and the computer systems. Sylvia Brescia,
Celia Burns, and Seetha Milton were responsible for
word processing. Other contributors include
Laurence Ball, Nicoletta Batini, Pelin Berkmen,
Michael Bordo, James Boughton, Luis Catão, Jean
Pierre Chauffour, Li Cui, Daniel Hardy, Lutz Kilian,
Laura Kodres, Kornélia Krajnyák, Suchitra
Kumarapathy, Doug Laxton, Vojislav Maksimovic, Sam
Ouliaris, Lars Pedersen, M. Hashem Pesaran,
Miguel Segoviano, Marco Terrones, Kenichi Ueda, and
Frank Warnock. Jeff Hayden of the External
Relations Department edited the manuscript and
coordinated the production of the publication.
The analysis has benefited from comments and
suggestions by staff from other IMF departments, as
well as by Executive Directors following their
discussion of the report on March 29 and 31, 2006.
However, both projections and policy considerations
are those of the IMF staff and should not be
attributed
to Executive Directors or to their national
authorities.
x
PREFACE
The World Economic Outlook is a cooperative effort. A
few members of the Research Department put it
together, but in doing so they rely heavily on staff
from around the Fund. I thank Tim Callen, members
of the World Economic Studies Division, and all the
IMF staff from other divisions and departments
who worked together to bring this World Economic
Outlook to you. I am especially grateful to David
Robinson, who has supervised an impressive series of
high-quality Outlooks over the last six years, and
will now be moving on to a different position in the
Fund.
The world economy is in the midst of an extraordinary
purple patch, with what looks like a third year
of significantly above-trend growth. Growth is also
becoming more balanced with Japan picking up
strongly, and the euro area showing advance signs of
steadier growth. Perhaps the best reflection of the
times is that sub-Saharan Africa is headed for its
best growth performance in over 30 years.
As past Outlooks have documented, an important reason
for this good performance has been greater
flows of goods, services, and capital across the
world, a phenomenon known colloquially as
globalization.
The chapters in this Outlook all try to make sense of
this phenomenon.
Chapter III, “How Has Globalization Affected
Inflation?,” finds that globalization has at times had
an
important impact on inflation over the past decade.
IMF staff estimates suggest that through non-oil
import prices, globalization has reduced inflation by
an average of a !/4 of a percentage point a year in
the advanced economies, with a larger effect of a !/2
percentage point a year in the United States. At
times when global spare capacity has been plentiful,
as for instance after the 1997–98 crises in emerging
markets, these direct effects have been even larger,
shaving more than 1 percentage point off actual
inflation in some advanced economies over one- to
two-year periods. More generally, globalization has
contributed to reducing the sensitivity of inflation
to domestic capacity constraints, while increasing the
sensitivity to global constraints. It has also
restrained wage increases in industries most open to
global
competition, and even lowered the sensitivity of wages
to productivity increases.
For globalization to have a substantial lasting impact
on inflation, however, it must change the overarching
objectives of monetary policy—such as the central
bank’s inflation target—which, over the
medium term, determines inflation. After all, with
such a target, downward pressure from abroad on
the domestic price index would only allow central
bankers more room to be accommodative. In my
view, however, the true impact of globalization has
been in contributing to wage and price restraint at a
time when central bankers were establishing their
inflation-fighting credibility, thus allowing them to
achieve targets and gain credibility without the need
to tighten to politically difficult levels.
Despite being helpful in the past, globalization may
not continue to be a crutch for central bankers.
Spare capacity is decreasing worldwide, especially in
the United States, the United Kingdom, and
Canada. International competition helps less in
restraining prices when there are global supply
constraints.
Tight domestic labor markets can also attenuate the
effects of global competition on wages—in
the United States, wage pressures are beginning to
come to the fore. Central bankers must therefore
remain vigilant for signs of a pickup in inflation in
the period ahead.
Another aspect of globalization is an integrated
market for world savings and borrowing. What is
particularly
interesting here is that the identity of the savers
and borrowers has shifted in the last few years.
Corporations are usually net borrowers. In 2003 and
2004, though, total corporate excess savings
(undistributed profit less capital expenditure) in the
G-7 countries amounted to $1.3 trillion, which was
more than twice the combined current account surpluses
of emerging market and developing countries
over the same period.
xi
FOREWORD
This increase in corporate savings can be decomposed
into two main components. First, there has
been a substantial increase in corporate profits in
the G-7 since about 2000. In general, this has not
been because of better operating profits, but because
taxes and interest rates have come down so that
profits after interest and taxes have gone up—in other
words, profitability is largely due to accommodative
monetary and fiscal policy rather than, as commonly
believed, productive efficiency. The second
and arguably more important component is falling
capital spending. It accounted for as much as
threequarters
of the total increase in corporate excess savings
since 2000. One reason for lower capital
spending is that the real price of capital goods has
declined sharply, so less has to be invested to
increase the real capital stock by a given amount.
Another reason is a drop in real capital spending.
Here there is no uniform pattern across all seven
countries—the United States and Germany are
responsible for much of the decline.
Taken together, Chapters III and IV suggest an
extraordinary confluence of global forces have
kept the world economy going in the last few years. As
investment slowed following the overcapacity
built up by excess investment in the late 1990s and
early 2000s, excess corporate savings
contributed to the global savings pool to push down
long-term interest rates. Consumption picked
up—driven more by accommodative policy and its effects
on house prices and household wealth
than by improved job prospects. Quiescent inflation,
partly because of a significant global output
gap, allowed monetary policy to be very accommodative.
Now as the global output gap narrows,
monetary accommodation is being withdrawn. Also real
corporate investment is likely to pick up.
Both will tend to reduce corporate excess savings and
push up long-term interest rates. This will
slow asset price growth, but consumption may continue
to be supported, this time by improved job
prospects.
Such a scenario would be the proverbial soft landing.
There are less benign possibilities. For
instance, consumption growth may fall more rapidly
than anticipated as the froth comes out of house
prices, and this may have knock-on effects on
confidence and investment. Our overall assessment,
taking
a variety of risks into consideration, is that
surrounding the central scenario of robust growth, the
risks are weighted to the downside.
Even as the internal transition of savings from
corporations to households and governments takes
place within some countries, we also need a shift in
aggregate demand across countries. Chapter II
explains how the oil price shock—itself a result of
past underinvestment in the industry—will widen
existing global current account imbalances and prolong
them. Because the inflationary consequences
of oil prices have been limited—partly a result of
globalization—and because financing conditions have
been benign, oil consumers have not had to adjust as
much as they did in the past. Oil producers are
rightfully being more circumspect about spending,
mindful of past waste. As a result, oil-price-induced
imbalances are likely to be with us for some time.
Should this be a concern? More generally, should we
worry about the size of the global current
account imbalances, given that they have been financed
so long? I think we should. For one, the
benign global financing conditions appear to be
turning so the past need not say much about the
future. More important, the imbalances are
unsustainable at their current level—even with
increasing
economic integration, there is a limit to how much a
country can depend on the outside world. Deficit
countries have to start thinking about weaning
themselves of reliance on global savings while surplus
countries have to find ways to depend less on external
demand. Since adjustment is inevitable, would it
not be better to commit to a medium-term policy
framework today so that public policy can support
private sector adjustment and ensure the process is
smooth?
A set of such frameworks for all the major players
would have two additional effects. First, it would
indicate that the imbalances are a shared
responsibility and help prevent concerns about
imbalances
degenerating into protectionism. Second, it would
reassure financial markets that a policy framework
FOREWORD
xii
for supporting adjustment is in place, thus limiting
the risk of an abrupt and costly, market-induced,
adjustment.
Unfortunately, the rapidity with which globalization
is advancing seems to worry citizens. Some governments
see their role increasingly as slowing globalization,
extracting political mileage by pandering
to vociferous interest groups obstructing change,
rather than educating citizens to accept it. Even as
linkages between economies grow, far too many
governments are putting the slightest domestic
constraint
above any international interest. Others are reviving
beggar-thy-neighbor policies, except they
are now on the capital account—shielding large swathes
of their own economy from corporate
takeovers while encouraging their own companies to
take advantage of the continued openness of others.
Multilateralism is in retreat everywhere.
These are the best of times but they are also the most
dangerous of times. We need to strengthen the
process of multilateral dialogue, else globalization
could prompt a backlash that might reverse much
that has been gained over the last few decades. An
important test of the resolve of economic policymakers
is whether they will take serious steps to monitor
each other (through organizations like the
Fund) and force a narrowing of the imbalances over
time, or whether they will take their chances with
the market and protectionist politics. I hope good
sense will prevail.
Raghuram Rajan
Economic Counsellor and Director, Research Department
FOREWORD
xiii

Notwithstanding higher oil prices and natural
disasters,
global growth has continued to exceed expectations,
aided by benign financial market conditions
and continued accommodative macroeconomic policies.
Looking forward, the baseline forecast is for
continued
strong growth, although—as illustrated in Figure 1.1—
risks remain slanted to the downside, the more so
since
key vulnerabilities—notably the global imbalances—
continue to increase. With the risks associated with
inaction rising with time, the principal challenge for
global policymakers is to take advantage of the
unusually
favorable conjuncture to address these
vulnerabilities.
In particular, an orderly resolution of global
imbalances will require measures to facilitate a
rebalancing
of demand across countries and a realignment
of exchange rates over the medium term, with the
U.S. dollar needing to depreciate significantly from
current levels, and currencies in surplus countries—
including in parts of Asia and among oil producers—
to appreciate.
The momentum and resilience of the global
economy in 2005 continued to exceed expectations
(Table 1.1 and Figure 1.2). Despite higher
oil prices and natural disasters, activity in the
second half of 2005 was stronger than earlier
projected, particularly among emerging market
countries; accounting also for statistical revisions
in China,1 global GDP growth is estimated at
4.8 percent, 0.5 percentage point higher than
projected last September. At the same time,
incoming data have been generally positive.
Global industrial production has picked up
markedly from mid-2005; the services sector
1
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
0
1
2
3
4
5
6
7
Figure 1.1. Prospects for World GDP Growth
(Percent)
1
Central forecast 10 percent confidence intervals 2
Source: IMF staff estimates.
This so-called fan chart shows the uncertainty around
the World Economic Outlook
central forecast with the 90 percent probability
interval. See Box 1.3 for details.
Shaded areas of the same gradient above and below the
central forecast add up to 10
percent.
2
1
Global growth is projected to remain about 4#/4
percent in 2006 and 2007, but
the risks are slanted to the downside, the more so as
time progresses (see text
for a detailed discussion).
2001 02 03 04 05 06 07
1Following recent revisions to Chinese national
accounts data, its share of global GDP (measured on a
purchasing power parity, or PPP, basis) increased by
1!/2
percentage points to 15.4 percent. Since China’s
growth
has been relatively high, this has raised global GDP
growth by 0.1 percentage point in almost every year
since
1992 (see Box 1.6).
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
2
Table 1.1. Overview of the World Economic Outlook
Projections
(Annual percent change unless otherwise noted)
Difference from
September
_C__u_rr_e_n_t_ P_r_o_j_e_ct_i_o_n_s_ __2__0_0_5_
P_r_o_j_e_ct_i_o_n_s__
2004 2005 2006 2007 2006 2007
World output 5.3 4.8 4.9 4.7 0.6 0.3
Advanced economies 3.3 2.7 3.0 2.8 0.2 –0.2
United States 4.2 3.5 3.4 3.3 0.2 –0.3
Euro area 2.1 1.3 2.0 1.9 0.2 –0.3
Germany 1.6 0.9 1.3 1.0 0.1 –0.5
France 2.1 1.4 2.0 2.1 0.3 –0.4
Italy 0.9 0.1 1.2 1.4 –0.2 –0.3
Spain 3.1 3.4 3.3 3.2 0.3 0.2
Japan 2.3 2.7 2.8 2.1 0.8 0.5
United Kingdom 3.1 1.8 2.5 2.7 0.3 –0.1
Canada 2.9 2.9 3.1 3.0 –0.2 –0.2
Other advanced economies 4.6 3.7 4.1 3.7 0.2 –0.3
Newly industrialized Asian economies 5.8 4.6 5.2 4.5
0.5 –0.6
Other emerging market and developing countries 7.6 7.2
6.9 6.6 0.8 0.7
Africa 5.5 5.2 5.7 5.5 –0.1 0.6
Sub-Sahara 5.6 5.5 5.8 5.7 –0.1 0.5
Central and eastern Europe 6.5 5.3 5.2 4.8 0.7 0.2
Commonwealth of Independent States 8.4 6.5 6.0 6.1 0.3
0.6
Russia 7.2 6.4 6.0 5.8 0.8 0.8
Excluding Russia 11.1 6.7 6.0 6.6 –0.8 –0.1
Developing Asia 8.8 8.6 8.2 8.0 1.0 0.8
China 10.1 9.9 9.5 9.0 1.3 1.0
India 8.1 8.3 7.3 7.0 1.0 0.5
ASEAN-4 5.8 5.2 5.1 5.7 –0.4 –0.1
Middle East 5.4 5.9 5.7 5.4 0.6 0.6
Western Hemisphere 5.6 4.3 4.3 3.6 0.5 0.1
Brazil 4.9 2.3 3.5 3.5 — —
Mexico 4.2 3.0 3.5 3.1 — —
Memorandum
European Union 2.5 1.8 2.4 2.3 0.2 –0.2
World growth based on market exchange rates 4.0 3.4
3.6 3.4 0.4 0.1
World trade volume (goods and services) 10.4 7.3 8.0
7.5 0.6 0.5
Imports
Advanced economies 8.9 5.8 6.2 5.6 0.4 –0.1
Other emerging market and developing countries 15.8
12.4 12.9 11.9 1.0 1.3
Exports
Advanced economies 8.5 5.3 6.6 6.1 0.3 0.2
Other emerging market and developing countries 14.6
11.5 10.9 10.3 0.6 1.0
Commodity prices (U.S. dollars)
Oil1 30.7 41.3 14.8 2.9 0.9 5.7
Nonfuel (average based on world commodity
export weights) 18.5 10.3 10.2 –5.5 12.3 –1.1
Consumer prices
Advanced economies 2.0 2.3 2.3 2.1 0.3 0.1
Other emerging market and developing countries 5.7 5.4
5.4 4.8 –0.4 –0.4
London interbank offered rate (percent)2
On U.S. dollar deposits 1.8 3.8 5.0 5.1 0.5 0.5
On euro deposits 2.1 2.2 3.0 3.4 0.6 0.7
On Japanese yen deposits 0.1 0.1 0.3 0.9 0.1 0.4
Note: Real effective exchange rates are assumed to
remain constant at the levels prevailing during
February 9–March 9, 2006. See Statistical
Appendix for details and groups and methodologies.
1Simple average of spot prices of U.K. Brent, Dubai,
and West Texas Intermediate crude oil. The average
price of oil in U.S. dollars a barrel
was $53.35 in 2005; the assumed price is $61.25 in
2006, and $63.00 in 2007.
2Six-month rate for the United States and Japan.
Three-month rate for the euro area.
remains resilient; global trade growth is close to
double-digit levels; consumer confidence and
labor market conditions are strengthening; and
forward-looking indicators, notably business
confidence,
have risen (Figure 1.3).
From a regional perspective, the expansion is
becoming more broadly based. Among industrial
countries, despite a weak fourth quarter, the
United States remains the main engine of
growth, but the Japanese expansion is well
established,
and there are signs of a more sustained
recovery in the euro area, although domestic
demand growth remains subdued. Growth in
most emerging and developing countries
remains solid, with the buoyancy of activity in
China, India, and Russia—which together
accounted for two-thirds of the upward revision
to global growth in 2005 relative to that
expected at the time of the September 2005
World Economic Outlook—being particularly striking.
Consistent with the strength of corporate
profits and improved balance sheets, investment
in major industrial countries appears to be picking
up, although—with some exceptions, most
importantly China—less so in emerging market
countries, including many in Asia.
Oil prices remain high and volatile. After easing
from Katrina-related highs, crude oil prices
fluctuated in the range of $60–66 per barrel2
over the past three months, with comfortable
inventory levels—particularly in the United
States—counterbalancing rising geopolitical
uncertainties in the Islamic Republic of Iran and
in Iraq and threats to oil production in Nigeria.
With crude oil consumption somewhat lower
than expected in 2005, prices are being increasingly
driven by concerns about future supply,
with the International Energy Agency assessing
both upstream and downstream investment to
be significantly below desirable levels (see
Appendix 1.1); futures markets suggest prices
will remain close to current levels for the fore-
ECONOMIC PROSPECTS AND POLICY ISSUES
3
1970 75 80 85 90 95 2000 05 10
-4
0
4
8
12
16
1970 75 80 85 90 95 2000 05 10
-1
0
1
2
3
4
5
6
1970 75 80 85 90 95 2000 05 10
0
5
10
15
20
World Real per Capita GDP
Trend,
1970–20052 Trend,
1970–20052
World Trade Volume
(goods and services)
Developing countries
(median)
World Real GDP Growth Consumer Prices
Advanced
economies
Figure 1.2. Global Indicators
(Annual percent change unless otherwise noted)
1
Global growth remains noticeably above the historical
trend, while inflation and
long-run interest rates are unusually low.
Trend,
1970–20052
World Real Long-Term
Interest Rate (percent)3
Real Commodity Prices
(1995 = 100)
Non-oil
commodity prices
Oil prices4
Shaded areas indicate IMF staff projections.
Aggregates are computed on the basis of
purchasing-power-parity (PPP) weights unless otherwise
noted.
Average growth rates for individual countries,
aggregated using PPP weights; the
aggregates shift over time in favor of faster-growing
countries, giving the line an upward
trend.
GDP-weighted average of the 10-year (or nearest
maturity) government bond yields
less inflation rates for the United States, Japan,
Germany, France, Italy, the United
Kingdom, and Canada. Excluding Italy prior to 1972.
Simple average of spot prices of U.K. Brent, Dubai
Fateh, and West Texas
Intermediate crude oil.
2
1
3
4
1970 75 80 85 90 95 2000 05 10
-6
-3
0
3
6
9
1970 75 80 85 90 95 2000 05 10
0
100
200
300
400
500
1970 75 80 85 90 95 2000 05 10
0
2
4
6
8
2The oil price used in the World Economic Outlook is a
simple average of the spot prices for West Texas
Intermediate, U.K. Brent, and Dubai crudes.
seeable future. Nonfuel commodity prices—
particularly metals—rose strongly in 2005,
reflecting both cyclical and supply-side factors,
but are projected to moderate in 2006–07 as supply
responds to higher prices. The semiconductor
cycle has also turned up, particularly in Asia,
and while forward-looking indicators are mixed
and prices continue to decline, industry analysts
expect some pickup in revenue growth in 2006.
Global financial market conditions remain
very favorable, characterized by unusually low
risk premiums and volatility.3 Global short-term
interest rates have continued to rise, led by the
United States. With tightening cycles in the euro
area and Japan less advanced or yet to begin,
short-term interest rate differentials have
widened considerably (Figure 1.4). Despite some
recent increase, long-run interest rates remain
below average, and the yield curve has flattened,
the more so in the most cyclically advanced
countries. Interest rate spreads—in both industrial
countries and emerging markets—remain
close to historic lows (Figure 1.5), reflecting
both improved fundamentals but also a search
for yield in an environment of easy liquidity,
accompanied by buoyant inflows to emerging
markets (Table 1.2), with many having already
prefinanced their borrowing needs for 2006.
Given this favorable environment, equity prices
have risen significantly, particularly outside the
United States, with some markets looking
increasingly richly valued; property prices have
been more diverse, although signs of a slowdown
have increased in some cyclically advanced countries,
notably the United States.
The flattening of the yield curve has raised
questions about the durability of the current
expansion, particularly in the United States.
Certainly, there is a considerable body of evidence
supporting the view that a flatter yield
curve is a leading indicator of an economic slowdown,
although the relationship has weakened
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
4
-16
-8
0
8
16
24
32
40
20
40
60
80
100
120
140
160
180
-24
-20
-16
-12
-8
-4
0
4
8
40
45
50
55
60
65
70
-50
-40
-30
-20
-10
0
10
Business Confidence
(index) Euro area
(right scale)
Consumer Confidence
(index)
United States
(left scale)
Japan
(right scale)
1999 2000 01 02 03 04 05 Feb.
2006
1999 2000 01 02 03 04 05 Feb.
2006
United States
(left scale)
Euro area
(right scale)
-8
-4
0
4
8
12
16 Industrial Production
World
Global Trade
(in SDR terms)
World
1999 2000 01 02 03 04 05 Feb.
2006
1999 2000 01 02 03 04 05 Feb.
2006
Industrial
countries1
Emerging
markets2
Figure 1.3. Current and Forward-Looking Indicators
(Percent change from a year ago unless otherwise
noted)
Global industrial production has turned up, while
business and consumer
confidence are generally improving.
1
2
3
4
5
6
7
8
9
-4
0
4
8
12
Global Investment 16
World
Industrial
countries1
Emerging
markets2,4
1999 2000 01 02 03 04 05:
Q4
World
Sources: Business confidence for the United States,
the Institute for Supply Management;
for the euro area, the European Commission; and for
Japan, Bank of Japan. Consumer
confidence for the United States, the Conference
Board; for the euro area, the European
Commission; and for Japan, Cabinet Office; all others,
Haver Analytics.
Australia, Canada, Denmark, euro area, Japan, New
Zealand, Norway, Sweden,
Switzerland, the United Kingdom, and the United
States.
Argentina, Brazil, Bulgaria, Chile, China, Colombia,
Czech Republic, Estonia, Hong Kong
SAR, Hungary, India, Indonesia, Israel, Korea, Latvia,
Lithuania, Malaysia, Mexico,
Pakistan, Peru, the Philippines, Poland, Romania,
Russia, Singapore, Slovak Republic,
Slovenia, South Africa, Taiwan Province of China,
Thailand, Turkey, Ukraine, and Venezuela.
Japan's consumer confidence data are based on a
diffusion index, where values greater
than 50 indicate improving confidence.
Data for China, India, Pakistan, and Russia are
interpolated.
1
2
3
Global Private Consumption
Industrial
countries1
Emerging
markets2,4
Emerging
markets2
Industrial
countries1
1999 2000 01 02 03 04 05:
Q4
Japan
(left scale)
3
4
3See the April 2006 Global Financial Stability Report
for a
detailed discussion.
noticeably since the 1980s. However, the yield
curve is only one such indicator, and others—
such as equity markets and credit spreads—do
not suggest a slowdown (indeed, the OECD’s
aggregate measure of leading indicators, which
includes the yield curve slope, is rising both in
the United States and elsewhere). More generally,
the interpretation of the flattening of the
yield curve is clearly related to the factors causing
the unusually low level of long-run interest
rates (see Box 1.1, p. 20), and how they will
evolve over time. In this regard, as discussed
below, the future behavior of the corporate sector,
which is presently accumulating record net
savings, appears of particular importance.
Within this favorable environment, beyond
the continuing strength of oil prices, three features
are particularly striking:
• The U.S. current account deficit has continued to
rise, matched by large surpluses in oil exporters,
China and Japan, a number of small industrial
countries, and other parts of emerging Asia. That
said, partly reflecting favorable short-run interest
rate differentials, as well as high net savings
in corporates, oil exporters, and much of Asia,
financing has not been a problem; indeed, the
U.S. dollar appreciated somewhat in tradeweighted
terms during 2005, with depreciations
against many emerging market
currencies offset by appreciations against the
euro and yen (Figure 1.6). Despite the record
current account deficit, initial estimates suggest
that the U.S. net investment position
deteriorated only moderately as—for the
fourth year in succession—the United States
benefited from favorable valuation changes. In
contrast to previous years, these stemmed not
from U.S. dollar depreciation, but rather the
relatively low rate of price increase of U.S.
equities relative to the rest of the world.
• Inflationary pressures remain surprisingly modest.
Global headline inflation has picked up in
response to higher oil prices, but core inflation
has been little affected (Figure 1.7) and
inflationary expectations remain well
grounded. This has raised questions as to
whether low inflation reflects deflationary
ECONOMIC PROSPECTS AND POLICY ISSUES
5
40
80
120
160
200
240
280
-100
0
100
200
300
400
500
30
40
50
60
70
80
90
100
110
120
Figure 1.4. Developments in Mature Financial Markets
DJ Euro
Stoxx
Wilshire
5000
Equity Markets
(March 2000 = 100; national
currency)
Topix
Residential Property Price
Index (logarithmic scale;
1995 = 100)
1995 97 99 2001 03 05:
Q3
While short-term interest rates have generally risen,
long-run interest rates have
increased more modestly, resulting in a marked
flattening of the yield curve.
0
100
200
300
400
500
600
700
Euro
area
Short-Term Interest Rates
(basis points)
Japan
Yield Curve Slopes
(basis points)
1
United
States
Japan
Industrial
countries
(MSCI)
United
States
Sources: Bloomberg Financial Markets, LP; OECD;
national authorities; and IMF staff
calculations.
Ten-1 year government bond minus three-month treasury
bill rate.
Industrial
countries
United
States
Japan
Euro
area
1999 2000 02 04 Mar.
2006
1999 2000 02 04 Mar.
2006
0
200
400
600
800 Long-Term Interest Rates
(basis points)
1999 2000 02 04 Mar.
2006
Japan
United
States
Euro
area
1999 2000 02 04 Mar.
2006
-7
0
7
14
Private Credit Growth 21
(percent change from a year ago)
1999 2000 02 04 Feb.
2006
Japan
Euro
area
United
States
Euro
area
Industrial
countries
Industrial
countries
Industrial
countries
Industrial
countries
pressures from other sources, notably globalization—
the theme of this issue of the World
Economic Outlook—or whether there is a danger
that the inflationary impact has simply
been postponed. The analysis in Chapter III,
“How Has Globalization Affected Inflation?”
concludes that while globalization has reduced
the sensitivity of inflation to domestic capacity
constraints, the direct impact of globalization
on inflation has generally been quite small,
except in several periods of excess global
capacity when import prices suddenly plunged.
In the current environment of strong global
growth and diminishing excess capacity, the
restraining effect of declining import prices
has faded. Indeed, a cyclical upturn in import
prices could contribute to stronger inflation
pressures going forward, which monetary policymakers
will need to remain vigilant against.
• Emerging markets and corporations remain—highly
unusually—large net savers, contributing to low
long-term interest rates. In the emerging markets,
as discussed in the last World Economic Outlook,
this primarily reflects a combination of low
investment and—increasingly—buoyant oil
revenues. Chapter IV of this World Economic
Outlook, “Awash With Cash: Why Are
Corporate Savings So High?,” finds that record
Group of Seven (G-7) corporate surpluses
reflect a combination of lower tax and interest
payments and low nominal investment; surprisingly,
underlying profitability has barely
changed. This surplus has been partly used to
buy back equities, restructure debt, and build
up liquid assets. While it is commonly argued
that this mainly reflects a reaction to the high
debt and excess investment in the late 1990s,
Chapter IV argues that the underlying reasons
are considerably more diverse. With some of
these clearly temporary in nature, the current
situation is unlikely to be sustained, suggesting
that changing corporate behavior will start to
put upward pressure on interest rates going
forward.
Against this background, global GDP growth
is projected at 4.9 percent in 2006, 0.6 percentage
point higher than expected last September,
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
6
0
5
10
15
20
25
30
35
40
45
50
Sources: Bloomberg Financial Markets, LP; Capital
Data; and IMF staff calculations.
1Average of 30-day rolling cross-correlation of
emerging market debt spreads.
Figure 1.5. Emerging Market Financial Conditions
Emerging market spreads—and borrowing costs—remain
unusually low,
accompanied by buoyant capital inflows. In some
regions, rapid credit growth and
soaring equity markets pose potential risks.
0
200
400
600
800
1000
1200
1400
Emerging Market Financing 1600
(billions of U.S. dollars)
High-yield
spread
EMBI+
1999 2000 02 04 Mar. 31,
2006
1999 2000 02 04 Mar.
2006
Interest Rate Spreads
(basis points)
0
50
100
150
200
250
300
350
400
Emerging Equity Markets 450
(2001 = 100;
national currency)
-10
0
10
20
30
40
50
60
Private Credit Growth
(percent change from a year
ago)
Latin
America
Asia
Eastern
Europe
1999 2000 02 04 Mar.
2006
0
10
20
30
40
50
60
Short-Term Interest Rates
(percent)
AAA spread
Other
1999 2000 02 04 Jan.
2006
Other
Asia
Latin
America
Eastern
Europe
Other
Latin
America
Eastern
Europe
Asia
1999 2000 02 04 Feb.
2006
0.0
0.1
0.2
0.3
0.4
0.5
0.6
Russian default
Brazil
devaluation
Comovement of Spreads
1998 2000 02 04 Mar. 31,
2006
Turkey
devaluation
1
Argentina crisis
easing to 4.7 percent in 2007 (Figure 1.8).
Continued headwinds from high oil prices are
expected to be offset by a gradual pickup in
investment, as increasing capacity constraints
encourage corporates to reduce their net savings;
very favorable financial market conditions;
and continued accommodative macroeconomic
policies (Figure 1.9). Looking across key countries
and regions:
• In industrial countries, GDP growth in the
United States is expected to moderate to 3.4
percent in 2006, still the highest among G-7
countries. Despite the surprisingly weak
growth in the fourth quarter of 2005, incoming
data suggest a relatively strong start to
2006, with a more abrupt slowdown in the
housing market the most significant risk (see
Box 1.2, p. 22). In Japan, activity picked up
strongly in the fourth quarter while deflationary
pressures continue to ease; risks are to the
upside, especially if private consumption gains
momentum in response to improving labor
market conditions. Despite slowing fourth
quarter growth, the expansion in the euro area
also seems to be gaining some traction,
although—with consumption remaining
weak—it remains vulnerable to domestic and
external shocks.
ECONOMIC PROSPECTS AND POLICY ISSUES
7
Table 1.2. Emerging Market and Developing Countries:
Net Capital Flows1
(Billions of U.S. dollars)
1995–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Total
Private capital flows, net2 204.8 66.2 80.8 74.3 75.6
97.3 160.4 230.6 254.0 178.8 153.8
Private direct investment, net 120.3 159.0 177.6 167.5
180.3 149.5 157.5 184.3 212.3 220.6 217.5
Private portfolio flows, net 71.0 42.9 72.7 17.6 –70.6
–78.6 –3.7 34.5 38.5 –4.7 –3.2
Other private capital flows, net 13.5 –135.7 –169.5
–110.8 –34.1 26.5 6.6 11.8 3.2 –37.1 –60.5
Official flows, net 6.8 52.3 26.4 –46.0 –0.1 9.0 –61.5
–81.5 –138.6 –161.3 –163.6
Change in reserves3 –103.9 –29.5 –101.3 –128.3 –128.1
–194.7 –351.6 –515.4 –580.2 –584.2 –562.3
Memorandum
Current account4 –88.3 –49.6 42.9 128.6 90.5 138.5
229.4 310.5 511.2 576.5 569.8
Africa
Private capital flows, net2 4.1 7.6 9.0 — 5.7 4.9 4.6
13.0 30.4 16.6 21.1
Private direct investment, net 4.3 6.3 8.6 7.6 23.0
13.3 14.9 15.1 23.2 21.5 21.3
Private portfolio flows, net 4.8 4.3 9.1 –1.8 –7.6
–0.9 0.1 5.5 4.5 5.3 5.4
Other private capital flows, net –4.9 –3.0 –8.7 –5.8
–9.6 –7.5 –10.4 –7.7 2.7 –10.2 –5.6
Official flows, net 0.3 5.3 3.8 2.7 –0.5 4.3 3.7 1.8
–6.6 3.2 4.2
Change in reserves3 –6.3 3.6 –0.4 –12.8 –9.8 –5.7
–11.4 –33.0 –42.1 –46.3 –54.7
Central and eastern Europe
Private capital flows, net2 27.1 27.2 37.0 39.7 11.6
53.5 52.3 71.0 108.2 94.7 84.4
Private direct investment, net 11.7 19.3 22.8 24.2
24.2 25.6 16.6 34.0 41.3 41.3 39.7
Private portfolio flows, net 4.5 –1.3 5.7 3.2 0.5 1.8
6.1 27.4 28.8 27.2 25.0
Other private capital flows, net 10.9 9.1 8.6 12.3
–13.1 26.1 29.5 9.7 38.1 26.2 19.7
Official flows, net 0.3 1.0 –2.6 1.8 5.9 –7.7 –5.3
–6.8 –8.5 –2.7 –2.6
Change in reserves3 –15.6 –9.3 –11.9 –6.6 –4.4 –20.3
–12.4 –14.3 –41.0 –25.5 –12.7
Commonwealth of
Independent States5
Private capital flows, net2 14.4 –1.5 –13.1 –27.3 6.3
16.1 16.7 8.0 24.9 –13.7 –21.3
Private direct investment, net 4.6 5.6 4.7 2.3 5.0 5.2
5.4 13.7 5.2 2.8 3.5
Private portfolio flows, net 16.9 7.8 –0.9 –10.0 –1.2
0.4 –0.5 5.7 1.0 –5.1 –5.3
Other private capital flows, net –7.1 –14.9 –16.9
–19.7 2.4 10.6 11.8 –11.4 18.7 –11.4 –19.6
Official flows, net –1.1 1.7 –2.1 –6.3 –5.2 –10.7 –8.6
–7.7 –15.5 –3.7 –4.6
Change in reserves3 –1.3 12.7 –6.2 –20.4 –12.9 –16.2
–31.7 –56.0 –75.2 –88.0 –76.8
Emerging Asia6
Private capital flows, net2,7 90.1 –53.8 3.1 6.5 19.6
20.8 63.5 120.3 53.8 55.2 51.6
Private direct investment, net 54.0 56.8 71.6 59.0
51.6 50.7 67.9 60.0 71.8 76.5 78.7
Private portfolio flows, net 20.6 8.8 56.9 20.2 –51.2
–59.9 4.4 3.8 –31.1 –24.5 –27.0
Other private capital flows, net7 15.4 –119.4 –125.4
–72.8 19.1 30.0 –8.8 56.4 13.1 3.3 –0.1
Official flows, net –2.3 19.6 1.8 –11.7 –11.7 4.6
–17.6 1.8 5.0 –0.2 –10.4
Change in reserves3 –41.7 –53.1 –88.2 –53.7 –90.2
–148.8 –226.5 –340.1 –281.9 –302.2 –306.0
• Activity in emerging market and developing countries
remains very strong, with forecasts revised
upwards in most countries and regions. In
emerging Asia, GDP growth in both China and
India has continued to surprise on the upside,
driven by strong domestic demand and—in
China—a rapidly rising current account surplus.
Along with the recovery in information
technology (IT), this has supported an acceleration
in activity in the rest of the region,
although investment growth has yet to pick up
substantially. In Latin America, notwithstanding
the slower pace of growth in larger economies,
GDP growth remains solid, aided by booming
commodity prices. While this has aided a
notable reduction in debt ratios, political
uncertainty remains a concern, and many
countries remain vulnerable to an abrupt
deterioration in the external environment. In
the Middle East and Commonwealth of Independent
States, rising oil prices continue to boost
fiscal and external current accounts, with
spending behavior generally more cautious
than in past episodes of rising prices (see
Chapter II, Box 2.1, “How Rapidly Are Oil
Exporters Spending Their Revenue Gains?”).
Inflationary pressures—while generally
manageable—need to be carefully watched,
and in some cases sharply rising asset prices
pose risks. Elsewhere, GDP growth in Emerging
Europe has proved resilient to higher oil prices,
but high current account deficits and rapid
credit growth in many countries remain central
vulnerabilities.
• In the poorest countries, GDP growth in sub-
Saharan Africa is estimated at 5.5 percent in
2005, rising to 5.8 percent in 2006—the highest
in over three decades. Within this, the
pickup owes much to surging growth in oilproducing
countries as new capacity comes on
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
8
Middle East8
Private capital flows, net2 4.0 15.6 0.2 5.5 9.2 4.1
7.9 12.2 11.4 –8.7 –10.1
Private direct investment, net 5.0 9.5 4.1 4.7 9.6 9.8
17.6 13.3 19.6 24.5 23.6
Private portfolio flows, net –2.8 –2.3 0.7 3.3 –3.5
–5.1 –5.4 6.0 7.6 –11.5 –6.1
Other private capital flows, net 1.8 8.4 –4.6 –2.6 3.1
–0.6 –4.3 –7.1 –15.8 –21.7 –27.6
Official flows, net 4.3 10.5 19.0 –27.4 –14.9 — –39.7
–63.6 –87.9 –148.8 –148.8
Change in reserves3 –13.9 8.3 –2.5 –32.1 –12.5 –1.4
–34.1 –47.7 –108.4 –72.9 –77.4
Western Hemisphere
Private capital flows, net2 65.2 71.2 44.7 49.9 23.1
–2.1 15.5 6.0 25.2 34.6 28.1
Private direct investment, net 40.6 61.5 65.9 69.6
66.8 45.0 35.1 48.1 51.2 54.0 50.6
Private portfolio flows, net 27.2 25.6 1.3 2.6 –7.6
–14.9 –8.4 –13.9 27.6 3.9 4.8
Other private capital flows, net –2.6 –15.9 –22.5
–22.3 –36.1 –32.2 –11.2 –28.1 –53.6 –23.4 –27.3
Official flows, net 5.2 14.2 6.4 –5.2 26.3 18.5 6.1
–7.1 –25.2 –9.2 –1.5
Change in reserves3 –25.2 8.4 7.9 –2.8 1.9 –2.2 –35.5
–24.3 –31.6 –49.2 –34.7
Memorandum
Fuel exporters
Private capital flows, net2 5.8 9.7 –23.2 –42.9 –1.3
10.7 12.9 5.4 4.9 –52.8 –60.6
Nonfuel exporters
Private capital flows, net2 199.0 56.5 104.0 117.1
76.9 86.7 147.5 225.2 249.1 231.6 214.4
1Net capital flows comprise net direct investment, net
portfolio investment, and other long- and short-term
net investment flows, including
official and private borrowing. In this table, Hong
Kong SAR, Israel, Korea, Singapore, and Taiwan
Province of China are included.
2Because of data limitations, “other private capital
flows, net” may include some official flows.
3A minus sign indicates an increase.
4The sum of the current account balance, net private
capital flows, net official flows, and the change in
reserves equals, with the opposite
sign, the sum of the capital account and errors and
omissions. For regional current account balances, see
Table 25 of the Statistical Appendix.
5Historical data have been revised, reflecting
cumulative data revisions for Russia and the
resolution of a number of data interpretation issues.
6Consists of developing Asia and the newly
industrialized Asian economies.
7Excluding the effects of the recapitalization of two
large commercial banks in China with foreign reserves
of the Bank of China (US$45 billion),
net private capital flows to emerging Asia in 2003
were US$108.5 billion while other private capital
flows net to the region amounted to
US$36.2 billion.
8Includes Israel.
Table 1.2 (concluded)
1995–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
stream. Perhaps surprisingly, GDP growth in
oil importers has slowed only modestly, reflecting
both improved macroeconomic and structural
policies and the offset from higher
nonfuel commodity prices—particularly in
metals producers—but also more limited
energy price pass-through in 2005, as well as
rising external aid. Notwithstanding the tendency
for past IMF GDP growth forecasts for
Africa to be overoptimistic (see Box 1.3, p. 24,
on the accuracy of WEO forecasts), the
upward trend in growth is encouraging,
although achievement of the Millennium
Development Goals remains far off. Donors
now need to fully deliver on commitments for
higher aid and debt relief, including ensuring
that additional resources are indeed additional,
and not offset by reductions in other
forms of assistance; African countries must
continue to strengthen policies and institutions
to ensure that those resources—as well as
those coming from higher oil and other commodities—
are well used.
Looking forward, notwithstanding the greaterthan-
expected momentum in the global economy,
a number of uncertainties remain. On the
upside, corporates could run down their surpluses
more rapidly than presently expected,
either through higher investment or increased
wages or dividends, although the impact would
be partly offset by higher long-run interest rates.
It is also possible that growth in some emerging
market countries could continue to exceed
expectations (although, particularly in China,
this would also increase the risk of a more
abrupt slowdown later on). But, overall, the balance
of risks remains slanted to the downside,
the more so as time progresses (Figure 1.1 and
Box 1.3). There are four primary concerns, two
of which are uncertainties related to the current
conjuncture and two of which are of lower probability
but potentially high-cost:
• High and volatile oil prices. To date, the
impact of higher oil prices on the global
economy has been more moderate than generally
expected, in part because inflationary
expectations have remained well anchored,
ECONOMIC PROSPECTS AND POLICY ISSUES
9
0 4 8 12 16
-9
-6
-3
0
3
6
9
12
15
Percent Change from December 2004 to March 31, 2006
U.S. dollars per national currency
U.S. dollars per national currency
Figure 1.6. Global Exchange Rate Developments
The U.S. dollar appreciated moderately over the last
year, with appreciations in
emerging market currencies—especially Latin America
and parts of emerging
Asia—offset by depreciations of the yen and European
currencies.
U.S. dollars per national currency
U.S. dollars per national currency
Sources: Bloomberg Financial Markets, LP; and IMF
staff calculations.
Australia and New Zealand.
Denmark, Norway, and Sweden.
Indonesia, Malaysia, the Philippines, and Thailand.
Czech Republic, Hungary, and Poland.
Russia, South Africa, and Turkey.
Hong Kong SAR, Korea, Singapore, and Taiwan Province
of China.
Argentina, Brazil, Chile, Colombia, Mexico, Peru, and
Venezuela.
1
2
3
4
5
6
7
-12 -8 -4 0 4 8
-16
-12
-8
-4
0
4
8
United States
Japan
United
Kingdom
Canada
Euro
area
China
India
Oceania1
Nordics2
ASEAN-43
Central
Europe4
Latin
America7
NIEs6
Other 5
Nominal effective exchange rate Nominal effective
exchange rate
-20 -15 -10 -5 0 5 10
-10
0
10
20
30
40
Percent Change from February 2002 to March 31, 2006
-20 -10 0 10 20 30 40
-10
0
10
20
30
40
50
60
United
States
Japan
United
Kingdom
Canada
Nordics
Oceania1
2
Nominal effective exchange rate
China
India
ASEAN-43
Central
Europe 4
NIEs6
Other5
Latin America7
Nominal effective exchange rate
Euro
area
and the shock has been driven by strong
global demand.4 Looking forward, however,
there are three reasons for concern. First,
the full effects of the recent shock may not
yet have been felt, especially if producers
and consumers are still treating it as temporary,
rather than largely permanent in
nature. Second, with excess capacity still
very low, the market remains vulnerable to
shocks—indeed, with the recent increase in
geopolitical uncertainties in the Middle East,
options market data suggest risks are slanted
to the upside, with a 15 percent probability
of oil prices spiking above $80 per barrel by
mid-2006. Third, with prices increasingly
driven by supply-side concerns, the adverse
impact is likely to be greater than in the
recent past, especially if feed-through to
core inflation increased. This would be of
particular concern for oil-importing developing
countries, which would not in these
circumstances benefit from an offsetting rise
in nonfuel commodity prices. This underscores
the need for progress in improving
the medium-term supply-demand balance in
oil markets, including through eliminating
obstacles to upstream and downstream
investment; ensuring full pass-through to
domestic oil prices accompanied by a suitable
safety net for the poorest; strengthening
conservation efforts; and last—but not
least—improving oil market data. Such
measures would also help reduce price
volatility in the short term, by making markets
less vulnerable to shocks.
• A tightening in financial market conditions.
Current benign financial market conditions
are partly due to strengthening fundamentals,
but also reflect more temporary factors,
including very easy monetary conditions and,
related to that, the continuing search for
yield. Over the coming two years, global
short-term interest rates will rise further,
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
10
0
2
4
6
8
Emerging Market Countries
Sources: Haver Analytics; and IMF staff calculations.
Australia, Canada, Denmark, euro area, Japan, New
Zealand, Norway, Sweden, the
United Kingdom, and the United States.
Brazil, Bulgaria, Chile, China, Estonia, India,
Indonesia, Hong Kong SAR, Hungary,
Korea, Malaysia, Mexico, Poland, Singapore, South
Africa, Taiwan Province of China, and
Thailand.
1
2
-5
0
5
10
15
20 Headline Inflation
Latin America
Rest of Asia
China
Other
-5
0
5
10
Core Inflation 15
Latin America
Other
China
Rest of Asia
Regional Aggregates
0
2
4
6
8 Headline Inflation
World
Industrial
countries1
Emerging
markets2
2000 01 02 03 04 05 Jan.
2006
Core Inflation
Industrial countries
World
1
Industrial Countries
-4
-2
0
2
4
6
8 Headline Inflation
Euro area
Japan Other
United
States
-4
-2
0
2
4
Core Inflation 6
United
States
Other
Japan
Euro area
Figure 1.7. Global Inflation
(Annualized percent change of three-month moving
average over previous
three-month average)
While headline inflation has increased with higher oil
prices, core inflation has
changed little.
Emerging
markets2
2000 01 02 03 04 05 Jan.
2006
2000 01 02 03 04 05 Jan.
2006
2000 01 02 03 04 05 Jan.
2006
2000 01 02 03 04 05 Jan.
2006
2000 01 02 03 04 05 Jan.
2006
4See the September 2004 World Economic Outlook,
pp. 64–65 for a detailed discussion.
accompanied by significant changes in shortrun
interest differentials, as the tightening
cycle in the United States reaches completion
while those in the euro area—and, recently,
Japan—become more advanced (see relevant
country sections below); long-run interest
rates are likely to rise further; and volatility
and risk premiums may pick up. If the implications
of the transition to more normal
financial conditions are fully anticipated, its
impact is likely to be moderate; if not, the
effect could be considerably greater. As discussed
in the April 2006 Global Financial
Stability Report, financial institutions and markets
seem relatively well placed to manage
these changes, especially given the marked
strengthening in their balance sheets in
recent years; emerging market countries have
also taken advantage of current conditions to
improve debt structures, although some
remain vulnerable to a deterioration in financing
conditions. The greatest risks appear to
lie in the household sector, particularly in
countries where housing markets are elevated,
especially since recent house price slowdowns
have led to a noticeable slowing in private
consumption and residential investment.
• Rising global imbalances. With the U.S. current
account deficit being financed with little difficulty,
and exchange rate movements relatively
benign, there may be a temptation to put this
issue on the back burner. But the fundamental
arithmetic—that the U.S. current account
deficit must ultimately fall substantially to
stabilize
its net investment position, while surpluses
in other countries must fall—has not
changed; and—as discussed in Chapter II, “Oil
Prices and Global Imbalances”—higher oil
prices are complicating the adjustment
process. Looking forward, as described in
detail in Box 1.4, p. 28, adjustment in the
imbalances will in all circumstances require
both a significant rebalancing of demand
across countries, and a further substantial
depreciation of the U.S. dollar and appreciations
in surplus countries, notably in parts of
Asia and oil producers; the issue is when and
ECONOMIC PROSPECTS AND POLICY ISSUES
11
-6
-3
0
3
6
9
12
-12
-8
-4
0
4
8
12
-3
-2
-1
0
1
2
3
4
5
6
0
1
2
3
4
5
6
7
8
Sources: Haver Analytics; and IMF staff estimates.
Australia, Canada, Denmark, euro area, Japan, New
Zealand, Norway, Sweden,
Switzerland, the United Kingdom, and the United
States.
Hong Kong SAR, Korea, Singapore, and Taiwan Province
of China.
Indonesia, Malaysia, the Philippines, and Thailand.
Czech Republic, Estonia, Hungary, Latvia, and Poland.
Argentina, Brazil, Chile, Colombia, Mexico, Peru, and
Venezuela.
Israel, Russia, South Africa, and Turkey.
1
2
3
4
6
5
China and
India
Emerging
Asia Latin
America
NIEs2
ASEAN-43
Other 5
emerging
markets6
Central and
eastern
Europe4
Figure 1.8. Global Outlook
(Real GDP; percent change from four quarters earlier)
World
Emerging markets
Euro
area
Japan
1996 98 2000 02 04 06
Industrial
countries1
United States
Following some slowing in the first half of 2005,
global growth is expected to
stabilize around 4#/4 percent in 2006–07.
1996 98 2000 02 04 06
1996 98 2000 02 04 06 1996 98 2000 02 04 06
how those adjustments occur.5 While an
important part of the adjustment will need to
take place in the private sector, a purely
market-driven adjustment will succeed only if
foreigners are willing to increase their net
holdings of U.S. assets substantially in the face
of substantial capital losses from future dollar
depreciation—which do not appear to be
priced into yields on U.S. dollar assets at
present—and if protectionist pressures can be
held in check. If not, as illustrated in Figure
1.10, there is a risk of a much more abrupt
and disorderly adjustment, accompanied by
substantial exchange rate overshooting, a
large increase in interest rates, and a sharp
slowdown in growth worldwide.
• An avian flu pandemic. While both the probability
and potential risks are impossible to
assess with any certainty, a worse-case scenario
could have extremely high human and economic
costs, particularly in developing countries
(see Appendix 1.2 on the avian flu
pandemic). This underscores the importance
of moving ahead with necessary public health
precautions and providing the necessary
assistance to developing countries to do so;
measures to ensure that essential economic
infrastructure—particularly payments systems—
can continue to operate should also be
a priority. In particular, all major financial
institutions need to have a contingency plan
that addresses the consequences of the loss of
key personnel.
Looking forward, policymakers face three
main challenges:
• Making more rapid progress in addressing global
imbalances. As the World Economic Outlook has
argued for some time, a coordinated package
of policies across major regions—including
measures to reduce the budget deficit and
spur private savings in the United States;
structural and other reforms to boost domes-
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
12
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
-1
0
1
2
-0.8 -0.4 0.0 0.4 0.8
-1
0
1
2
Figure 1.9. Fiscal and Monetary Policies in the Major
Advanced Economies
Policy Changes, 2005–06
Germany
United States
Italy
France
United Kingdom
Change in real 6-month LIBOR; percent
Expected Policy Changes, 2006–07
Germany
United States
Italy
France
Euro area United Kingdom
Tighter
Easier
Change in structural fiscal balance; percent of
potential GDP
Change in real 6-month LIBOR; percent
Change in structural fiscal balance; percent of
potential GDP
Tighter
Easier
Real short-term interest rates are generally expected
to rise in 2006–07,
but—outside Germany and the United Kingdom—underlying
fiscal positions show
little improvement.
Source: IMF staff estimates.
For Japan, excludes social security.
Three-month rate for euro area countries.
1
Euro
area
Canada
Canada
Japan1
Japan1
2 2
2
5See “How Will Global Imbalances Adjust?” Appendix
1.2, World Economic Outlook, September 2005, for a
detailed discussion.
ECONOMIC PROSPECTS AND POLICY ISSUES
13
1995 2000 05 10 15
-2
0
2
4
6
1995 2000 05 10 15
-6
-5
-4
-3
-2
-1
0
1995 2000 05 10 15
0
1
2
3
4
5
1995 2000 05 10 15
2
4
6
8
10
1995 2000 05 10 15
0
1
2
3
4
5
Output Growth (percent)
Source: IMF staff estimates.
See Appendix 1.2, September 2005 World Economic
Outlook for a detailed discussion of these
projections. Since the no policies baseline
includes significant short-term real appreciation in
Asia through higher inflation, it may overestimate the
adjustment in current accounts in
the initial period.
Real Effective Exchange Rate (percent change; increase
= depreciation; 1990 = 100)
1995 2000 05 10 15
80
90
100
110
1995 2000 05 10 15
100
110
120
130
1995 2000 05 10 15
70
80
90
100
110
Current Account Balance (percent of GDP)
1995 2000 05 10 15
-1
0
1
2
United States Emerging Asia Japan and Euro Area
Figure 1.10. How Will Global Imbalances Adjust?
No policies scenario Disruptive adjustment
In the absence of policy adjustment, an orderly
adjustment may take place, but only if investors are
willing to hold substantially
higher levels of U.S. assets (despite large capital
losses) and if protectionist pressures are avoided. If
these conditions are not met,
there is a clear risk of a disruptive adjustment and a
global recession. However, strengthened policies—along
the lines described in
the text—would sharply reduce imbalances, with a
modest short-term slowdown offset by stronger
medium-term growth.
1995 2000 05 10 15
4
8
12
16
Net Foreign Assets (percent of GDP)
1995 2000 05 10 15
-20
-10
0
10
20
30
40
1995 2000 05 10 15
-60
-50
-40
-30
-20
-10
0
1
Strengthened policies
1
tic demand in surplus countries; and greater
exchange rate flexibility in China and some
other countries to allow necessary appreciations
to take place—could significantly reduce
risks (see Box 1.4 for a detailed description).
To date, however, only modest progress has
been made in implementing these policies. As
shown in the “strengthened policies” scenario
in Figure 1.10, such a package would lead to a
significantly earlier adjustment in imbalances,
correspondingly reducing the risk of a more
abrupt adjustment; while GDP growth would
slow somewhat in the short term, over the
medium term it would be both stronger and
better balanced. Given the strong global conjuncture,
and that these policies are in the
national as well as the international interest,
the cost of such insurance against a disorderly
adjustment appears relatively modest.
• Ensuring sustainable medium-term fiscal positions,
not least among many major industrial countries
where—outside of Canada and Japan—
underlying fiscal positions have improved only
modestly since 2003 and—except in Germany
and the United Kingdom—IMF staff projections
suggest little further improvement over
the next two years (Table 1.3). This is of particular
concern since, despite some progress
in Europe and Japan, pension and health systems
across the globe remain unsustainable,
with the difficulties associated with implementing
even modest reforms being well illustrated
by recent experience in the United States. A
failure to accelerate progress will increasingly
limit the scope for a fiscal response to future
shocks, put upward pressures on long-run
interest rates, and—over the longer term—
pose risks to macroeconomic stability.
• Putting in place the preconditions to take advantage
of globalization and support global growth in the
future. At the multilateral level, the most
important issues are to resist protectionist
pressures—which have been on the increase
in a number of countries—and ensure an
ambitious outcome to the Doha Round. While
the World Trade Organization (WTO)
Ministerial Meetings in Hong Kong SAR made
some progress (Box 1.5, p. 32), wide differences
in country positions remain; given the
limited flexibility so far displayed, the risks
that the very tight negotiating schedule will
not be met are high. An unambitious outcome—
or failure—of the Doha Round would
have major costs both for the global economy
and the multilateral trading system. The challenge
at the national level is to advance the
structural reform agenda, which in some areas
appears to be in retreat—for instance on
cross-border takeovers. While the priorities
vary across countries, as described below, common
themes included the need for greater
labor market flexibility in the face of rapid
technological change and global competition;
improvements to the business climate and
increased competition in emerging markets;
and the strengthening of financial systems.
With the global economy set for its fourth
consecutive year of 4 percent plus GDP growth,
the current conjuncture is the strongest for
many years. Current policymakers can take considerable
credit for this outcome; past policymakers
can perhaps take even more. The global
economy would not have been so resilient to
recent shocks without the strengthening of
monetary frameworks since the 1980s, which
helped anchor inflationary expectations, and
the improvements in fiscal positions in the
1990s, which allowed room for policy easing
in 2001–02; nor would global growth and trade
be as strong as they are without the successful
completion of the Uruguay Round in 1994.
But behind today’s rather favorable short-term
conjuncture lie major risks and challenges that
have yet to be fully addressed. From an economic
viewpoint, there is unlikely to be a more
favorable environment in which to tackle them;
if progress cannot be made now, it will surely
be even more difficult later on. In those
circumstances,
the risks of adverse shocks will
rise, and the scope to react to them will decline,
making the prospects of achieving the sustained
medium-term global growth envisaged
in the World Economic Outlook baseline increasingly
remote. From that perspective, 2006 may
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
14
ECONOMIC PROSPECTS AND POLICY ISSUES
15
Table 1.3. Major Advanced Economies: General
Government Fiscal Balances and Debt1
(Percent of GDP)
1990–99 2000 2001 2002 2003 2004 2005 2006 2007 2011
Major advanced economies
Actual balance –3.4 –0.4 –1.9 –4.1 –4.9 –4.4 –3.9 –3.9
–3.7 –2.7
Output gap2 0.3 2.1 0.6 –0.8 –1.5 –1.0 –0.9 –0.7 –0.6
—
Structural balance2 –3.4 –1.4 –2.1 –3.8 –4.2 –4.0 –3.6
–3.6 –3.4 –2.7
United States
Actual balance –3.0 1.3 –0.7 –4.0 –5.0 –4.7 –4.1 –4.3
–4.0 –2.8
Output gap2 0.6 3.5 0.9 –0.9 –1.5 –0.8 –0.6 –0.5 –0.4
—
Structural balance2 –3.3 0.1 –1.1 –3.7 –4.4 –4.4 –3.9
–4.0 –3.9 –2.8
Net debt 53.7 39.4 38.3 41.0 43.8 45.3 46.0 47.7 49.3
52.4
Gross debt 69.5 57.1 56.6 58.9 61.8 62.5 62.9 64.2
65.9 69.1
Euro area
Actual balance . . . –1.0 –1.9 –2.6 –3.0 –2.7 –2.3
–2.3 –2.1 –1.5
Output gap2 . . . 1.9 1.5 0.3 –1.1 –1.0 –1.5 –1.4 –1.3
—
Structural balance2 . . . –1.6 –2.3 –2.6 –2.5 –2.2
–1.8 –1.7 –1.5 –1.5
Net debt . . . 57.6 57.4 57.4 59.1 59.8 60.7 60.5 60.1
57.4
Gross debt . . . 69.9 68.6 68.5 69.8 70.2 71.2 70.8
70.1 66.7
Germany3
Actual balance –2.6 1.3 –2.8 –3.7 –4.0 –3.7 –3.3 –3.3
–2.4 –2.0
Output gap2 1.2 1.7 1.5 0.2 –1.3 –1.0 –1.5 –1.5 –1.9 —
Structural balance2,4 –2.5 –1.2 –2.7 –3.2 –3.0 –3.2
–2.6 –2.8 –1.6 –2.0
Net debt 40.5 51.5 52.1 54.3 57.7 59.9 62.4 64.1 64.4
64.1
Gross debt 50.7 58.7 57.9 59.6 62.8 64.5 67.5 69.0
68.7 67.9
France
Actual balance –3.8 –1.5 –1.5 –3.1 –4.2 –3.7 –2.9 –2.9
–3.0 –1.4
Output gap2 –1.3 1.2 1.0 — –1.4 –1.4 –2.0 –1.8 –1.6 —
Structural balance2,4 –2.8 –2.1 –2.1 –3.1 –3.4 –2.7
–2.1 –1.6 –1.9 –1.4
Net debt 39.7 47.0 48.2 48.5 53.0 55.3 57.7 57.3 57.3
54.2
Gross debt 48.9 56.6 56.1 58.1 62.7 65.0 67.3 67.0
67.0 63.8
Italy
Actual balance –7.6 –0.8 –3.1 –2.7 –3.4 –3.4 –4.1 –4.0
–4.3 –3.9
Output gap2 0.2 2.1 1.9 0.4 –0.8 –1.1 –2.2 –2.2 –2.0 —
Structural balance2,4 –7.5 –2.8 –3.9 –3.4 –2.9 –3.2
–3.3 –3.1 –3.3 –3.9
Net debt 108.5 105.6 103.0 100.4 100.4 100.2 102.5
103.0 103.8 105.4
Gross debt 114.7 111.3 108.2 105.4 104.0 103.9 106.3
106.9 107.6 109.4
Japan
Actual balance –2.9 –7.7 –6.4 –8.2 –8.1 –6.6 –5.8 –5.7
–5.4 –4.2
Excluding social security –4.9 –8.2 –6.5 –7.9 –8.2
–6.9 –5.7 –5.5 –5.3 –4.4
Output gap2 — –1.0 –1.6 –3.0 –2.8 –2.1 –1.1 — 0.3 0.1
Structural balance2 –2.9 –7.2 –5.6 –6.9 –7.0 –5.8 –5.4
–5.6 –5.5 –4.2
Excluding social security –4.9 –8.0 –6.1 –7.2 –7.6
–6.5 –5.5 –5.5 –5.4 –4.4
Net debt 27.6 60.6 65.7 72.8 77.2 82.9 87.6 90.9 94.1
101.2
Gross debt 92.9 142.2 151.6 161.2 167.1 172.1 175.5
176.2 177.2 175.2
United Kingdom
Actual balance –3.7 1.5 0.9 –1.5 –3.2 –3.2 –3.6 –3.1
–2.8 –2.0
Output gap2 –0.7 1.1 0.7 — –0.1 0.5 –0.3 –0.3 –0.1 —
Structural balance2 –3.3 1.3 0.3 –1.8 –3.2 –3.4 –3.7
–3.0 –2.6 –2.0
Net debt 32.9 34.2 32.7 32.7 34.6 36.5 38.5 39.4 40.4
41.6
Gross debt 38.4 41.6 38.4 37.9 39.4 41.2 43.3 44.1
45.1 46.0
Canada
Actual balance –4.5 2.9 0.7 –0.1 — 0.7 1.7 1.3 1.1 0.6
Output gap2 –0.6 1.9 0.3 0.3 –0.5 –0.4 –0.3 –0.1 — —
Structural balance2 –4.0 2.0 0.4 –0.2 0.3 0.9 1.9 1.3
1.1 0.6
Net debt 80.5 65.3 60.2 57.9 51.4 46.8 41.9 38.2 35.4
27.0
Gross debt 112.7 101.5 100.3 97.4 91.9 87.9 85.0 78.8
74.2 59.1
Note: The methodology and specific assumptions for
each country are discussed in Box A1 in the
Statistical Appendix.
1Debt data refer to end of year. Debt data are not
always comparable across countries. For example, the
Canadian data include the unfunded
component of government employee pension liabilities,
which amounted to nearly 18 percent of GDP in 2001.
2Percent of potential GDP.
3Beginning in 1995, the debt and debt-service
obligations of the Treuhandanstalt (and of various
other agencies) were taken over by general
government. This debt is equivalent to 8 percent of
GDP, and the associated debt service, to 1/2 to 1
percent of GDP.
4Excludes one-off receipts from the sale of mobile
telephone licenses (the equivalent of 2.5 percent of
GDP in 2000 for Germany, 0.1 percent
of GDP in 2001 and 2002 for France, and 1.2 percent of
GDP in 2000 for Italy). Also excludes one-off receipts
from sizable asset transactions, in
particular 0.5 percent of GDP for France in 2005.
prove a watershed year, both in terms of the outlook
for the global economy itself, and the
legacy that today’s policymakers pass to their
successors.
United States and Canada: Robust
Growth Set to Continue, but the U.S.
Housing Market Is a Key Uncertainty
The U.S. economy slowed sharply in the
fourth quarter of 2005, growing at its slowest
rate since early 2003. Private consumption was
weak—largely due to a sharp drop in auto sales
as buyer incentive programs ended and gasoline
prices surged in the aftermath of Hurricane
Katrina—corporate fixed investment was subdued,
and net exports exerted a substantial drag
on growth. Monthly indicators, however, suggest
that this weakness was concentrated early in the
quarter and that the economy has subsequently
bounced back. In particular, industrial production
has strengthened, capital goods orders are
firm, nonfarm payrolls increased by an average
of 220,000 a month during November–March,
and consumer confidence has rebounded from
its post-Katrina slump.
Consequently, real GDP growth is expected to
rebound in the first quarter of 2006 and to aver-
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
16
Table 1.4. Advanced Economies: Real GDP, Consumer
Prices, and Unemployment
(Annual percent change and percent of labor force)
___________R_e_a_l _G_D__P__________
_______C__o_n_s_u_m_e_r_ _P_ri_c_e_s_______
________U_n_e_m__p_l_o_y_m_e_n_t________
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Advanced economies 3.3 2.7 3.0 2.8 2.0 2.3 2.3 2.1 6.3
6.0 5.8 5.8
United States 4.2 3.5 3.4 3.3 2.7 3.4 3.2 2.5 5.5 5.1
4.9 5.1
Euro area1 2.1 1.3 2.0 1.9 2.1 2.2 2.1 2.2 8.9 8.6 8.3
8.1
Germany 1.6 0.9 1.3 1.0 1.8 1.9 1.8 2.5 9.2 9.1 8.7
8.8
France 2.1 1.4 2.0 2.1 2.3 1.9 1.7 1.8 9.5 9.6 9.6 9.1
Italy 0.9 0.1 1.2 1.4 2.3 2.3 2.5 2.1 8.3 8.1 7.8 7.6
Spain 3.1 3.4 3.3 3.2 3.1 3.4 3.4 3.1 11.0 9.2 8.6 8.5
Netherlands 1.7 1.1 2.5 2.4 1.4 1.5 1.5 1.6 4.6 4.9
4.5 4.3
Belgium 2.4 1.5 2.1 2.4 1.9 2.5 2.4 1.8 8.4 8.4 8.3
8.2
Austria 2.4 1.9 2.2 2.1 2.0 2.1 1.8 1.7 4.8 5.2 4.8
4.5
Finland 3.6 2.1 3.5 2.7 0.1 0.9 1.1 1.3 8.8 8.4 7.9
7.8
Greece 4.7 3.7 3.3 3.2 3.0 3.5 3.3 3.0 10.5 9.9 9.5
9.5
Portugal 1.1 0.3 0.8 1.5 2.5 2.1 2.1 2.1 6.7 7.6 7.7
7.6
Ireland 4.5 4.7 5.0 5.2 2.3 2.2 2.3 2.5 4.5 4.3 4.1
4.0
Luxembourg 4.5 4.3 4.0 3.8 2.2 2.5 2.3 2.2 3.9 4.2 4.5
4.7
Japan 2.3 2.7 2.8 2.1 — –0.3 0.3 0.6 4.7 4.4 4.1 4.0
United Kingdom1 3.1 1.8 2.5 2.7 1.3 2.1 1.9 1.9 4.8
4.8 4.9 4.8
Canada 2.9 2.9 3.1 3.0 1.8 2.2 1.8 2.0 7.2 6.8 6.6 6.6
Korea 4.6 4.0 5.5 4.5 3.6 2.7 2.5 3.0 3.7 3.7 3.5 3.3
Australia 3.6 2.5 2.9 3.2 2.3 2.7 2.8 2.7 5.5 5.1 5.2
5.2
Taiwan Province of China 6.1 4.1 4.5 4.5 1.6 2.3 1.8
1.5 4.4 4.1 4.0 3.9
Sweden 3.7 2.7 3.5 2.4 1.1 0.8 1.5 1.8 5.5 5.6 4.5 4.2
Switzerland 2.1 1.8 2.2 1.7 0.8 1.2 1.0 1.2 3.5 3.4
3.3 3.3
Hong Kong SAR 8.6 7.3 5.5 4.5 –0.4 1.1 1.8 2.1 6.9 5.7
4.5 4.5
Denmark 1.9 3.4 2.7 2.3 1.2 1.8 1.8 2.0 6.4 5.7 5.1
5.3
Norway 3.1 2.3 2.2 2.6 0.4 1.6 2.1 2.3 4.5 4.6 4.1 4.0
Israel 4.4 5.2 4.2 4.2 –0.4 1.3 2.4 2.0 10.3 9.0 8.5
8.2
Singapore 8.7 6.4 5.5 4.5 1.7 0.5 2.0 1.9 3.4 3.0 2.9
2.9
New Zealand2 4.4 2.2 0.9 2.1 2.3 3.0 3.1 2.8 3.9 3.7
4.1 4.6
Cyprus 3.9 3.7 4.0 4.0 2.3 2.6 2.0 2.0 3.6 3.3 3.0 3.0
Iceland 8.2 5.5 5.5 2.3 3.2 4.0 4.0 3.5 3.1 2.1 1.9
2.0
Memorandum
Major advanced economies 3.1 2.6 2.8 2.6 2.0 2.3 2.3
2.1 6.3 6.0 5.9 5.8
Newly industrialized Asian
economies 5.8 4.6 5.2 4.5 2.4 2.2 2.2 2.3 4.2 4.0 3.7
3.5
1Based on Eurostat’s harmonized index of consumer
prices.
2Consumer prices excluding interest rate components.
age 3.4 percent for the year as a whole (Table
1.4). Strong corporate profits and comfortable
financing conditions imply a positive outlook for
business investment. Further, a pickup in growth
in trading partners should mean that the external
sector is less of a drag on growth, while in
the near term there is likely to be higher government
spending associated with rebuilding in the
aftermath of Hurricane Katrina. Consumption
growth, however, is expected to slow this year—
by about #/4 percentage point—as a cooling housing
market and elevated energy prices more
than offset any acceleration in disposable
incomes from employment and wage growth.
With corporate profits expanding robustly and
balance sheets in good shape, business investment
and employment growth could be stronger
than expected, but overall risks to the outlook
are slanted to the downside. Specifically, the
large current account deficit—6.4 percent of
GDP last year (Table 1.5)—makes the United
States vulnerable to a swing in investor sentiment
that could put downward pressure on the
dollar and see a spike in long-run interest rates.
Even more importantly, against a background of
low household saving and high energy prices, a
weaker housing market could trigger a more
abrupt withdrawal of consumer demand than
anticipated.
Indeed, the future course of the housing market
is a key uncertainty for the U.S. economy.
House prices have grown strongly in recent
years, providing a boost to economic activity
through their effect on consumption, residential
investment, and employment. But house prices
are now looking more richly valued—see Box
1.2—and as affordability has declined, buyers
have increasingly resorted to interest-only and
negative amortization loans to gain access to the
market. These nontraditional mortgage products
accounted for over 40 percent of mortgage loans
for purchase during 2005 (Figure 1.11).6 And
there are now indications that the housing market
is cooling—mortgage applications have
declined, the supply of homes on the market is
rising, and confidence among homebuilders has
slipped.
Through the impact on wealth accumulation,
a slowdown in real house price appreciation from
last year’s pace of around 10 percent (year-onyear)
to zero would usually be expected to
reduce consumption growth by 0.5–1 percentage
point after one year. In present circumstances,
UNITED STATES AND CANADA: ROBUST GROWTH SET TO
CONTINUE, BUT THE U.S. HOUSING MARKET IS A KEY
UNCERTAINTY
17
Table 1.5. Advanced Economies:
Current Account Positions
(Percent of GDP)
2004 2005 2006 2007
Advanced economies –0.9 –1.5 –1.7 –1.7
United States –5.7 –6.4 –6.5 –6.5
Euro area1 0.8 — –0.2 —
Germany 3.7 4.1 3.6 4.3
France –0.4 –1.3 –1.9 –2.1
Italy –0.9 –1.5 –1.1 –0.7
Spain –5.3 –7.6 –8.1 –8.5
Netherlands 8.9 6.4 6.9 7.9
Belgium 3.3 4.5 4.8 4.8
Austria 0.2 0.7 0.9 0.9
Finland 5.0 2.4 2.8 2.7
Greece –6.3 –7.9 –7.9 –7.9
Portugal –7.3 –9.2 –9.5 –9.4
Ireland –0.8 –1.9 –2.9 –3.3
Luxembourg 11.1 7.9 7.3 7.3
Japan 3.8 3.6 3.2 2.9
United Kingdom –2.0 –2.6 –2.7 –2.8
Canada 2.2 2.2 3.1 2.9
Korea 4.1 2.1 1.8 1.7
Australia –6.3 –6.0 –5.6 –5.5
Taiwan Province of China 5.7 4.7 5.4 5.5
Sweden 6.8 6.1 5.1 4.5
Switzerland 14.6 13.8 13.7 13.1
Hong Kong SAR 9.6 10.7 10.1 10.1
Denmark 2.1 2.4 2.4 2.6
Norway 13.6 16.8 18.6 19.9
Israel 1.6 1.9 1.0 2.1
Singapore 24.5 28.5 26.7 26.3
New Zealand –6.6 –8.8 –8.9 –7.6
Cyprus –5.7 –5.1 –5.6 –4.6
Iceland –9.4 –16.6 –13.8 –8.6
Memorandum
Major advanced economies –1.7 –2.3 –2.5 –2.5
Euro area2 0.6 –0.3 — 0.2
Newly industrialized Asian
economies 7.0 6.0 5.7 5.6
1Calculated as the sum of the balances of individual
euro area
countries.
2Corrected for reporting discrepancies in intra-area
transactions.
6Data from LoanPerformance MBS/ABS database.
however, the wealth effect could be larger. The
withdrawal of equity from the housing market—
which amounted to 7.5 percent of household disposable
income in the first three quarters of
2005—has provided a convenient way of borrowing,
which has helped boost consumption in
recent years. If house price appreciation were to
slow sharply, equity withdrawal would likely fall.
Further, real estate and related sectors have been
important sources of job creation, and a slowing
housing market could adversely affect employment
in these sectors.7 These factors could
induce a more severe slowdown in consumption
and overall GDP growth (see Box 1.2).
Inflationary pressures have remained muted,
helped by ongoing productivity gains and by
strong competitive pressures—including from
overseas—that are limiting the ability of producers
to pass on cost increases. Consequently, while
headline CPI inflation jumped as gasoline prices
soared—reaching a peak of around 4.5 percent
in September, although it has eased in recent
months—there has been little pass-through into
core inflation, which is running around 2 percent.
Nevertheless, with rising resource utilization,
the Federal Reserve has continued to
tighten monetary policy in recent months.
Looking forward, the financial markets now
expect one or two more 25-basis-point rate hikes
in the coming months before the Fed ends this
tightening cycle. With spare capacity in the
economy nearly exhausted, however, inflationary
pressures could strengthen more than anticipated,
necessitating a stronger-than-expected
monetary policy response. In particular, a tightening
labor market—the unemployment rate
has declined to 4.7 percent and initial claims for
unemployment benefits have fallen in recent
months—may lead to upward pressures on
wages, and, with productivity growth easing, unit
labor costs.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
18
-40
-20
0
20
40
60
60
80
100
120
140
160
180
-6
-3
0
3
6
9
12
15
18
House Prices
(percent change from a year
ago)
Figure 1.11. United States: The Housing Market and
Growth
The strong housing market has supported growth and
employment in the United
States in recent years. There are increasing signs,
however, that housing activity is
slowing, and a key question is how the economy would
react to a period of slower
house price appreciation.
2000 01 02 03 04
House price
index
Median sales price1
Mortgage Applications and
Housing Affordability
Mortgage applications
(left scale)
2
Housing affordability
index (right scale)
2000 01 02 03 04 05
Employment
(12-month percent change)
Net Mortgage Equity Extraction
(percent of household
disposable income)
-2
0
2
4
6
8
0
2
4
6
8
10
2002 03 04 05
Total nonfarm
Associated with
residential real
estate3
2000 01 02 03 04 05:
Q3
Sources: Haver Analytics; CEIC Non-Asia Database;
Greenspan and Kennedy (2005);
LoanPerformance MBS/ABS database (Period: 204,
December 2005); and IMF staff
calculations.
Median sales price for new single family homes.
For the purchase of homes. Index: March 16, 1990 =
100, percent change from a year
earlier.
The sum of employment in the following sectors:
residential building construction,
residential specialty trade contractor, furniture and
home, furnishing stores, building
material and garden supply stores, and real estate.
12
3
0
10
20
30
40
50
0
2
4
6
8
10
12
14
16 Type of Mortgage Loan
(for purchase; percent of total)
Delinquency Rates on Real
Estate Loans at Commercial
Banks (percent)
1991 94 97 2000 03 05
Residential
Nonresidential
2000 01 02 03 04
Interest only
Negative
amortization
05
Feb.
06
Feb.
06
05
05
7Default rates on residential mortgage loans have been
low historically. Together with securitization of the
mortgage
market, this suggests that the impact of a slowing
housing market on the financial sector is likely to be
limited
(see the April 2006 Global Financial Stability
Report).
Despite the substantial increase in short-term
interest rates during this tightening cycle, longterm
yields have risen only modestly, and the
yield curve has at times been slightly inverted in
recent months. In the past, an inverted yield
curve has been a reliable leading indicator of a
slowdown in the U.S. economy (predicting all
but one of the postwar recessions). Nevertheless,
with real short-term interest rates still low, the
correlation between consumption growth and
the yield curve having largely disappeared since
the 1990s, and structural factors, including pension
fund asset reallocation and demand from
oil exporters boosting desired holdings of longdated
U.S. securities, it appears unlikely that the
current shape of the yield curve is portending an
imminent slowing of growth (see the April 2006
Global Financial Stability Report).
Turning to fiscal policy, the federal budget
deficit improved markedly in FY2005, declining
by 1 percentage point of GDP to 2.6 percent of
GDP, due to strong revenue growth. In particular,
corporate income tax receipts surged with
strong profits and the expiration of provisions
that allowed additional depreciation deductions
for investment. The deficit, however, is expected
to widen in FY2006 to around 3 percent of GDP
as revenue growth slows and the costs of rebuilding
in the Gulf coast area, ongoing military operations
in Iraq and Afghanistan, and the
introduction of the recent new prescription drug
benefit scheme boost expenditures. Over the
medium term, the U.S. administration’s plan to
cut the budget deficit in half by FY2009 is
unambitious.
It is also fraught with risks, given the
reliance on an unprecedented compression of
discretionary nondefense spending, ongoing
pressure for Alternative Minimum Tax (AMT)
relief, and the U.S. administration’s push to
extend the tax cuts of 2001 and 2003 beyond
2010. As discussed in the September 2005 World
Economic Outlook, a bolder fiscal adjustment
effort is needed with the aim of achieving broad
budget balance (excluding social security) in the
medium term. This more ambitious fiscal goal
would put the budget in a stronger position to
respond to unexpected future developments and
absorb upcoming pressures from population
aging, as well as contribute to the resolution of
global current account imbalances.
In Canada, the economy continues to perform
strongly, benefiting from the improvement in
the terms of trade caused by high energy and
other commodity prices. Private consumption is
growing strongly, supported by rising employment
and asset prices, while healthy corporate
profits have underpinned a pickup in business
investment. Growth is projected at 3.1 percent
this year, with most of the risks to the outlook
stemming from possible external developments—
in particular, the Canadian economy is
vulnerable to any slowdown in the United States,
an abrupt depreciation of the U.S. dollar, or a
worsening of the terms of trade caused by
weaker global commodity prices. Inflation
remains well contained but, with the output gap
closing, further interest rate increases will likely
be needed in the coming months. The fiscal outlook
remains favorable. The new government
has some fiscal room to maneuver in achieving
its objective of lowering the tax burden and slowing
spending growth, while maintaining fiscal
surpluses and keeping government debt on a
firm downward path. As in most other industrial
countries, however, rising health care costs present
a long-term challenge to fiscal sustainability,
and reforms to the public health system will be
needed to contain costs.
Western Europe: Is the Expansion Finally
Gaining Traction?
The recovery in Europe appears to be
strengthening, notwithstanding some slowdown
in growth during the final quarter of 2005.
Underscoring the vulnerability of activity to
external factors, notably oil prices and world
demand, growth slowed during the fourth quarter
due to falling household consumption and
weaker net exports. Importantly, however, investment
appears to have remained resilient. Also,
recent high-frequency indicators—for example,
the German Ifo index which is at its highest level
since early 1991—continue to point to healthy
WESTERN EUROPE: IS THE EXPANSION FINALLY GAINING
TRACTION?
19
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
20
By the standards of the last two decades of the
twentieth century, long-term interest rates,
whether measured in real or nominal terms, are
currently very low. The British gilts market is a
case in point: in January–March of 2006, the
rate on ultra-long indexed gilts averaged about
70 basis points. But real long-term rates on unindexed
government bonds are also low in the
United States and Europe. In the same period,
the interest rate on 10-year treasuries, deflated
by the expected rate of inflation 10 years ahead,
was about 2 percent.
When viewed from a historical perspective,
however, the recent behavior of real government
bond rates does not appear so unusual.
Consider the behavior of rates in the period
from 1870 to the start of the World War I.
From 1870–95, nominal long-term rates,
which were trending downward, averaged
3!/2 percent (see the figure) for the average of
a group of eight countries (Australia, Canada,
France, Germany, Italy, Japan, the United
Kingdom, and the United States).1 However,
because the early part of this period witnessed
marked deflation, which bondholders would
not likely have foreseen, realized ex post real
rates of return averaged 4!/2 percent, above
what might be inferred to be their expected
rate. Average real rates declined to 2.2 percent
in 1895–1914, a period of prosperity and rising
prices that ended with the outbreak of war.
The variance of real long-term rates also
declined in this period. A somewhat similar
pattern is evident in the 20 years between the
wars, with average realized real rates comparatively
low during the 1920s, and higher during
the Depression. In both the 1920s and the
1930s, however, variance was high, which
reflected the well known economic instability of
the period.
During most of the period since 1945, real
long-term interest rates have been comparatively
low, although real rates have fluctuated
substantially in some subperiods. During
the Bretton Woods era, from 1946 to 1971,
real global long-term rates averaged 2!/2 per-
Box 1.1. Long-Term Interest Rates from a Historical
Perspective
Real Long-Term Interest Rates
(Three-year moving averages)
Source: IMF staff calculations.
Includes Australia, Canada, France, Germany, Italy,
Japan,
the United Kingdom, and the United States.
1
1870 80 90 1900 10 20 30
-20
-10
0
10
20
1870–1936 30
1950 60 70 80 90 2000
-15
-10
-5
0
5
1950–2005 10
Japan Eight country average
United States United Kingdom
1
Note: The principal authors of this box are Luis
Catão and Sandy Mackenzie.
1This figure was computed by deflating the nominal
long bond rate by the current rate of inflation in
each
country and obtaining a global rate as a GDP-weighted
average of the real rates thus measured in the eight
countries in the sample. The median of the annual
global real rates over the entire 1870–95 period is
reported. Deflating the nominal rate by the
10-yearahead
inflation rate, rather than by current inflation,
yields essentially the same estimate of the average
real
interest rate for this period.
activity, unlike during previous episodes of
stalling growth; while some uncertainties
remain, the fourth-quarter slowdown is projected
to prove temporary.
Looking forward, the expansion will continue
to depend on strong global demand, with an
increasing contribution from business investment,
supported by last year’s depreciation of
the euro and the continuation of supportive
financing conditions. Household consumption—
which is particularly weak in Germany—is
expected to remain more subdued until labor
market conditions improve and the effect of oil
prices on real disposable incomes tails off; the
proposed increase in the value added tax (VAT)
rate in Germany, scheduled for January 2007, is
however expected to boost consumption spending
in late 2006 at the expense of spending in
early 2007. Against this backdrop, overall growth
in the euro area is expected to strengthen to
potential, or about 2 percent, in 2006, compared
to 1.3 percent last year. Nevertheless, there are a
number of downside risks, including an appreciation
of the euro against the backdrop of large
global imbalances or a renewed spike in oil
prices. Further, elevated house prices in Spain
WESTERN EUROPE: IS THE EXPANSION FINALLY GAINING
TRACTION?
21
cent.2 In the case of treasuries, after a period of
comparative stability from 1956 to 1973 when
the real rate averaged about 2 percent, the real
rate dropped precipitously to well below zero
because of the unexpected inflationary impact
of the first oil shock. During the disinflation of
the 1980s, the opposite occurred. During the
1990s, the average rate of inflation and its variance
declined, and real rates trended down. A
similar if less pronounced pattern was evident
in other markets during these decades.
In general, when inflation has been both low
and stable, real long-term interest rates will tend
to be low and stable as well. Conversely, when
inflation is high and volatile, real interest rates
will be volatile, and the premium investors
demand for holding fixed-interest securities
will rise.
Theoretically speaking, long-run interest rates
are expected to be no lower than the trend
growth rate of an economy. However, the historical
experience clearly shows that this general
rule can be broken. In about half of the years
since the 1870s (excluding the war years), the
growth rate exceeded the rate of interest for the
eight-country average. Moreover, the rate of
growth has exceeded the rate of interest for as
many as 20 years at a stretch. As discussed in
previous issues of the World Economic Outlook, the
outlook for long-run interest rates depends critically
on economic fundamentals—notably, the
extent to which the desired level of savings continues
to exceed desired investment, as well as
on such factors as the impact of regulatory
change and aging on the demand of financial
institutions for long-term assets—but other
developments such as commodity price shocks,
especially oil price shocks, also play a role (for
econometric evidence on this point, see Catão
and Mackenzie, 2006).
Should low real long-term interest rates persist,
the relative positions of borrowers and
lenders may be significantly affected. Governments
will find it easier to attain or maintain
financial stability, because the primary surplus
they need to target to maintain a given debt-to-
GDP ratio will decline. Lower rates of interest
can also reduce the incentive to undertake
needed but politically difficult fiscal consolidation.
Investors, however, may need to revisit
their assumptions regarding target rates of
return on their portfolios. In particular, households,
which in many countries are shouldering
more of the risks associated with saving for
retirement, may have to retire later, or increase
the savings they planned to make during their
working lives.
2This measure is obtained as explained in footnote
1. For alternative measures using estimates of
inflationary
expectations, but telling essentially the same
story, see Catão and Mackenzie (2006).
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
22
Box 1.2. The Impact of Recent Housing Market
Adjustments in Industrial Countries
House prices in many industrial countries have
been increasing at unprecedented rates in recent
years, providing a boost to economic growth. An
analysis in the September 2004 World Economic
Outlook, however, found that this increase in
house prices had significantly exceeded the
amount justified by fundamentals—such as population
and income growth and interest rates—
in a number of countries, raising the prospect
that house prices would need to adjust in the
period ahead. Further, the analysis also found
that the correlation of house prices across countries
was surprisingly high—particularly given
that housing is a nontraded asset—raising the
possibility that such a weakening in prices could
be synchronized across countries, magnifying
the impact on global growth.
Over the past year, house price growth has
slowed in many countries, consistent with the
historical cross-country synchronization in these
prices. In Australia and the United Kingdom,
house price inflation has declined from 20 percent
a year in late 2003 (middle of 2004 for the
United Kingdom) to zero to 5 percent currently,
while in Ireland prices slowed through mid-
2005, but appear to have accelerated more
recently. In France, Spain, and the United
States, house price appreciation has also slowed
to some degree, although it remains in double
digits on a year-on-year basis. In the Netherlands,
the downturn in the housing market
started much earlier—in 2000—than in other
industrial countries, and price appreciation has
remained subdued in recent years. The slowing
in price appreciation in Australia, Ireland, and
the United Kingdom has brought house prices
in these countries closer to current estimates of
fundamental value, although the United
Kingdom still appears quite richly valued (first
figure). On the other hand, house prices in the
United States and Spain appear to have moved
further away from estimated fundamentals over
the past year.
There are now growing signs that housing
activity in the United States has peaked. A key
question for both the United States and the
global economy is to what extent slowing house
price appreciation will affect growth going forward.
There are several channels through which
house price movements affect aggregate
demand and output. First, house prices affect
households’ net wealth and capacity to borrow
and spend. Bayoumi and Edison (2003), for
example, find that a dollar increase in housing
wealth in industrial countries raises consumption
by around 5 cents, with the impact being
larger in countries with market-based financial
systems (such as Australia, the Netherlands, the
United Kingdom, and the United States) than
in those with bank-based financial systems (such
as France and Spain). As discussed in the main
text, this would suggest that a 10 percentage
point slowing in real house price appreciation
would reduce consumption growth in the
United States by some !/2–1 percentage point in
the first year. Second, house prices alter the
Note: The main authors of this box are Tim Callen
and Marco Terrones.
Sources: Haver Analytics; IMF, International Financial
Statistics; national authorities; and IMF staff
calculations.
Assessing the Global House Price Boom
(1997–2005; cumulative percent change; constant
prices)
Average
Ireland
United Kingdom
Spain
Sweden
France
Australia
Netherlands
United States
20 40 60 80 100 120 140
Projected house price
increase based on
fundamental factors
Actual house price
increase
WESTERN EUROPE: IS THE EXPANSION FINALLY GAINING
TRACTION?
23
incentives for residential construction, although
this relationship has been hard to pin down
empirically. Lastly, strong housing markets generate
employment in the real estate and related
sectors, boosting incomes and consumption.
Combining these effects and allowing for the
cross-country comovement of house prices, estimates
for the United States by Otrok and
Terrones (forthcoming) suggest that a 10 percent
slowing in the rate of real house price
appreciation could slow real GDP growth by as
much as 2 percentage points after one year in
that country. The recent experiences in the
Netherlands, Australia, and the United
Kingdom also suggest that a sharp slowing in
the pace of house price appreciation could
put a significant dent in the growth of private
consumption, residential investment, and real
GDP in the United States (see the second
figure).
A more abrupt adjustment in house prices
would of course have more serious consequences
for growth. The April 2003 World
Economic Outlook found that 40 percent of house
price booms ended in busts, and that these
“busts”—defined as a peak-to-trough decline in
real house prices that falls into the top quartile
of all such price declines—are associated with a
substantial slowing in real GDP growth (for the
average “bust” episode, real GDP growth was
3 percent before the “bust,” but modestly negative
two years after).1 Nearly all such “bust”
episodes were preceded by a significant monetary
policy tightening (generally short-term
interest rates increased by 400 to 500 basis
points). A key question for housing markets
going forward, therefore, is the extent to which
interest rates increase in the period ahead.
A slowing U.S housing market would have
important implications for the world economy
given that the U.S. economy has been a key
engine of global growth in recent years. Should
U.S. growth and imports slow, trading partners—
particularly significant exporters of
consumption goods to the United States—
would be adversely affected (over the past
25 years, the correlation between output growth
in the United States and the rest of the world
has been 0.5). Through its likely impact on
household saving and residential investment,
a slowing in the rate of house price appreciation
in the United States would, however, contribute
to a needed rebalancing of global
growth and a reduction in existing current
account imbalances.
The Recent Slowdown in Housing Prices
(Percent change from a year earlier, constant prices;
x-axis in quarters where zero denotes the quarter in
which housing price growth reached its highest level)
United States, current cycle
Average of other selected industrial countries1
Sources: Haver Analytics; Bank for International
Settlements;
national authorities; and IMF staff calculations.
Simple average of Australia's, the Netherlands', and
the United
Kingdom's recent booms and subsequent slowdowns.
1
-8 -6 -4 -2 0 2 4 6
-3
0
3
6
9
12
15
18
21
-8 -6 -4 -2 0 2 4 6
0
1
2
3
4
5
6 Private Consumption Private Residential
Investment
-8 -6 -4 -2 0 2 4 6
0
3
6
9
12
15
18
21
-8 -6 -4 -2 0 2 4 6
0
1
2
3
4
5
Housing Prices GDP 6
1The analysis in the September 2005 World Economic
Outlook suggested that at least 18 states, accounting
for
more than 40 percent of U.S. GDP, are currently
experiencing
housing booms.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
24
A recent report commissioned by the IMF’s
Research Department evaluated the accuracy of
the forecasts published in the World Economic
Outlook (WEO), and made a number of recommendations
for improving forecasting at the
IMF (see Timmermann, 2006). The report—
written by Allan Timmermann of the University
of California, San Diego—is the fourth in a
series of such evaluations (following Artis, 1997;
Barrionuevo, 1993; and Artis, 1988).1 This box
discusses the findings of the report and the
steps that are being taken to implement the
report’s recommendations.
Assessing the WEO Forecasts
As a first step, the report looked at the forecasting
performance for five key variables—real
GDP growth, inflation, the current account balance,
and import and export volume growth—
for 178 countries in seven economic regions
(Africa, central and eastern Europe, the Commonwealth
of Independent States (CIS) and
Mongolia, Developing Asia, Middle East,
Western Hemisphere, and Advanced Economies)
since 1990. The analysis considered current-
year and next-year forecasts published in
the April and September issues of the World
Economic Outlook (e.g., the April and September
2005 issues of the WEO have projections for
2005—current year—and 2006—next year).
Overall, the report found that the World
Economic Outlook forecasts for variables in many
countries meet the basic forecasting quality
standards in some, if not all, dimensions.2 The
report, however, also raised important issues
that are discussed below on a variable-by-variable
basis.
• Real GDP growth. WEO forecasts for real GDP
growth display a tendency for systematic
overprediction.
Looking at the G-7 countries,
WEO forecasts systematically and significantly
overpredicted economic growth for the
European and Japanese economies during
1991–2003. In contrast, U.S. growth was
underpredicted after 1990, although the bias
was not statistically significant. In Africa, central
and eastern Europe, the CIS, and the
Middle East, growth in individual countries is,
on average, overpredicted by more than 1 percentage
point in both current- and next-year
forecasts. That said, more than four-fifths of
these biases are not statistically significant,
which largely reflects the high volatility in the
underlying growth series. For IMF program
countries, growth was, on average, overestimated
by about 0.9 percentage point in April
current-year forecasts and by 1!/2 percentage
points in April next-year forecasts, often
significantly
so.
• Inflation. The report found a bias toward
underprediction of inflation, with these biases
significant in the next-year forecasts in the
case of many African, central and eastern
European, and Western Hemisphere countries.
The bias tends to be smaller in the current-
year forecasts.
• External current account balances. Fewer problems
were found in the forecasts for current
account balances, except that in some cases
the April next-year forecast errors were significantly
biased or serially correlated.
As well as assessing the performance of the
WEO projections against standard benchmarks
of forecast performance, the report also compared
them to the Consensus Forecasts, a widely
used source that compiles the forecasts of economists
working in the private sector. The analysis
covered the G-7 economies, seven Latin American
economies, and nine Asian economies.
Overall, the performance of the WEO forecasts
was similar to the Consensus Forecasts—for
example, the current year WEO forecasts of
GDP growth in the G-7 economies were generally
less biased than the Consensus Forecasts,
Box 1.3. How Accurate Are the Forecasts in the World
Economic Outlook?
Note: The main authors of this box are Nicoletta
Batini, Tim Callen, and Thomas Helbling.
1Other studies of the World Economic Outlook forecasts
include Batchelor (2001), Beach, Schavey, and
Isidro (1999), and U.S. GAO (2003).
2These dimensions are that the forecast should be
unbiased and serially uncorrelated, that no current
information should be able to predict future forecast
errors, and that the variance of forecast errors
should
decline as more information becomes available.
and Ireland could pose downside risks to consumption
in a rising interest rate environment.
While higher energy prices have kept headline
inflation above 2 percent, core inflation in
the euro area has remained subdued, reflecting
sluggish wages and domestic demand. Underlying
inflation is expected to remain contained
going forward, although higher energy and
administrative prices and the expected VAT
increase in Germany are likely to keep headline
inflation more elevated. Prompted by the persistence
of headline inflation above 2 percent and
WESTERN EUROPE: IS THE EXPANSION FINALLY GAINING
TRACTION?
25
but the bias in the next-year forecasts was
stronger in the WEO than in the Consensus.
Recommendations
The report made a number of recommendations
to improve the WEO forecasting process.
These included: (1) WEO growth forecasts for
some countries could be improved if more
attention were paid to important international
linkages, particularly with the United States;
(2) the accuracy of the forecasts should be
assessed on an ongoing basis by instituting a set
of real-time forecasting performance indicators;
(3) IMF forecasters should more carefully consider
the historical forecast “biases” when making
their forecasts; and (4) the forecast process
should be broadened to more explicitly consider
the risks around the key central projections.
Internally, the IMF has begun taking steps
to implement the first three recommendations.
The rest of this box discusses the fourth
recommendation—
forecast risks—and how these can
be incorporated in the WEO process.
The increased use of policy targets for key
macroeconomic variables—especially inflation—
that are not fully under the control of policymakers
and advances in econometric
methodology have led to a more intense
scrutiny of forecast uncertainty in recent years.
For example, the Bank of England uses “fan
charts” to illustrate the bank’s view about the
uncertainty around its central forecast path for
inflation. Similarly, the Congressional Budget
Office in the United States has started using fan
charts to illustrate the uncertainty in its projection
of the budget deficit. These fan charts are
diagrams that represent forecasts of the probability
distributions of variables of interest. The
aim of such charts is to depict in a practical way
the uncertainty that exists about future economic
outcomes.
The fan chart in Figure 1.1 shows the IMF
staff’s assessment of the range of uncertainty
around the central WEO projection for global
real GDP growth in 2006–07. Specifically, it
shows the 90 percent probability interval for
growth outcomes in 2006–07. Past forecast performance
and judgment about the current balance
of risks,3 as discussed in the main text,
provide the inputs for the construction of the
fan chart. In addition to uncertainty about the
future course of oil prices, the U.S. housing
market, corporate investment, and the future
resilience of emerging market growth, two low
probability, but high cost, events—an avian flu
pandemic and the disorderly unwinding of current
account balances—are also considered. The
fan chart builds on the two-piece normal distribution
used by the Bank of England in its inflation
forecast. This distribution, unlike the
standard normal distribution widely used in
forecasting, allows for asymmetric probabilities
below and above the central forecast.4 In the
case of the balance of risk being tilted to the
downside—which is the view of IMF staff at this
juncture—the expected probability of outcomes
being below the central forecast exceeds 50 percent.
As shown in Figure 1.1, the downside risks
are expected to increase somewhat over time, in
part reflecting the gradually increasing probability
of a disorderly adjustment in global imbalances
in the absence of policy action.
3Recent current-year and next-year forecast errors
provide important information about the extent of
forecast uncertainty.
4See Britton, Fisher, and Whitley (1998); and Wallis
(2004).
perceived upside risks, the European Central
Bank (ECB) raised its policy rate by 25 basis
points in both December and March, and the
market expects further moves over the course of
the year. Nevertheless, with underlying inflationary
pressures contained and domestic demand
still fragile, there appears to be no need to rush
to normalize rates.
Turning to fiscal policy, little progress was
made in reducing the area-wide budget deficit
last year, as policies, particularly in the larger
countries, remained insufficiently ambitious.
While a number of countries made efforts to
meet their commitments under the rules of the
Stability and Growth Pact (SGP), the fiscal
deficit rose sharply in Italy and Portugal during
2005 and also—while meeting the SGP criteria—
in Austria and Luxembourg. The euro area
deficit of 2.3 percent of GDP in 2005 is expected
to be maintained in 2006 as fiscal consolidation,
as projected by IMF staff based on current policy
plans, is again expected to fall short of the SGP
requirements, particularly in the larger economies.
Concrete plans announced by the German
government are expected to bring the deficit
below 3 percent in 2007, and the recent
announcement of a 1 percent cut in real government
expenditures in 2007 in France is welcome,
although the measures to achieve this still
need to be specified. In general, more ambitious
fiscal consolidation of about !/2 percent of GDP
per year on average will be needed to attain balance
by the end of the decade in line with the
SGP and to meet upcoming demographic
challenges.
Despite greater near-term optimism, Europe
faces the fundamental issue of how to raise its
low potential growth rate of output and increase
employment in line with the Lisbon Agenda. As
past issues of the World Economic Outlook have
detailed, there is wide agreement that this
requires fundamental reforms, particularly of
labor markets. Achieving a public consensus for
implementing reforms has, however, proven
more difficult, as recent events in France underscore.
As the Single Market reaches increasingly
sensitive areas, resistance to reform has
increased, reflected in the watering down of the
Services Directive and in government opposition
to foreign takeovers in a number of countries
(including France, Luxembourg, Poland, and
Spain). More generally, there has been increasing
debate about the nature of European social
models, and the appropriate trade-offs between
economic and social outcomes. In contrast to
what is commonly perceived, European social
systems display more diversity than uniformity,
with differences within Europe often greater
than those with other advanced economies
(Figure 1.12). The Anglo-Saxon model has delivered
the best outcome for productivity growth,
while the Nordic and Continental models have
been the most effective in reducing income
inequality and poverty. The Mediterranean
model appears to have performed less well than
the others in reducing inequality and providing
incentives for labor market participation. One
key challenge for policymakers is to draw lessons
from the examples of success within Europe in
balancing the need for labor market flexibility
with effective social safety nets, for example.
While the appropriate approach in individual
countries will vary, a combination of low employment
protection, generous but short-duration
unemployment benefits, and active labor market
policies have in some cases been effective.
Greater education levels also appear to reduce
the probability of poverty by promoting higher
levels of human capital, suggesting that this may
be a more effective use of fiscal resources than
redistributive policies alone.
Turning to other countries, growth in the
United Kingdom slowed to 1.8 percent in 2005,
driven by a slowdown in consumption in
response to the cooling of the housing market,
earlier monetary policy tightening, and higher
energy prices, while business investment and
export growth have remained steady. Looking
forward, as the factors that dampened activity in
2005 wane, growth is expected to pick up to
2.5 percent in 2006 and 2.7 percent in 2007.
The main risks to the outlook are—on the
upside—favorable supply effects from immigrants
joining the workforce and—on the
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
26
downside—a renewed weakening of house price
growth. With no signs of second-round effects
from energy prices and a projected closing of
the output gap, CPI inflation is expected to
remain at about 2 percent. The Bank of
England’s response to the simultaneous slowing
of aggregate demand and the rise in energy
prices in 2005 was appropriate, including the
!/4 percentage point cut in interest rates in
August. Looking forward, monetary policy will
need to focus on averting second-round effects
of higher energy prices and ensuring that the
recovery of demand is sustained. On the fiscal
front, expenditure restraint and the announced
rise in energy company taxes are expected to
help support the stabilization of public debt at
about 40 percent of GDP, but this depends on
specifying concrete measures to contain spending
after 2008. Greater consolidation efforts
would be required to meet the authorities’ more
ambitious fiscal projections over the medium
term. Reforms of the pension system will be
needed to address the inadequate level of private
saving for retirement; the Pensions
Commission’s recommendations are a key first
step in developing a consensus on the extent of
the problem and the required policy measures.
Economic performance in the Nordic countries
has remained robust, fueled by domestic
demand, although the pace of growth has moderated
in Norway and Sweden. With inflation
edging up, monetary conditions have begun to
be tightened in both Norway and Sweden, and
in Norway the government needs to continue
its policy of resisting pressures for excessive
increases in government spending following
the surge in oil revenues. In Iceland, financial
market concerns over the resolution of large
macroeconomic imbalances built up during a
three-year economic boom have led to downward
pressure on the exchange rate and widening
credit spreads for banks. In Switzerland,
growth is expected to improve in 2006 in line
with demand from the euro area. Monetary policy
has been appropriately expansionary and the
move toward a more neutral stance should be
gradual. Credible medium-term fiscal adjust-
WESTERN EUROPE: IS THE EXPANSION FINALLY GAINING
TRACTION?
27
Figure 1.12. Western Europe: Social Policy Indicators
and Outcomes
(U.S. average = 100)
Social policy models within Europe exhibit significant
variations in design and in
their impact on economic efficiency and equity. The
examples of success within
Europe can help guide reform of the models in line
with the Lisbon Agenda.
Nordic
Continental Mediterranean
1 Anglo-Saxon2
3 4
Labor Market Indicators
100
200
300
400
Tax wedge
Benefit
entitlements
Unemployment
benefit duration
Employment
protection legislation
25
50
75
100
Employment
rate
Hours worked
Income
inequality
Productivity growth
Social Policy Outcomes
6
Sources: Eurostat, ESSPROS; Haver Analytics; Klenow
and Rodriguez-Clare (2004);
OECD, Economic Outlook; OECD, Employment Outlook 2005;
and IMF staff calculations.
Denmark, Finland, the Netherlands, and Sweden.
Ireland and the United Kingdom.
Austria, Belgium, France, Germany, and Luxembourg.
Greece, Italy, Spain, and Portugal.
Income tax plus employee and employer contributions
less cash benefits (as a
percent of labor costs) in a two-earner family with
two children, one at 100 percent
average earnings, and the other at 33 percent.
Total factor productivity growth.
1
23
4
5
5
6
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
28
This box updates the analysis of global imbalances
and policy actions designed to facilitate
their resolution presented in the September
2005 World Economic Outlook. Since then there
has been no significant shift in the trend of
external imbalances: the U.S. current account
deficit is estimated to have reached the record
level of 6.4 percent of GDP in 2005, and—at
current exchange rates—is projected to remain
at record levels in subsequent years (see the first
figure). Capital flows to the United States
remain strong, with an increase in purchases of
U.S. bonds by the private sector offsetting a
decline in official flows. As has been the case for
the past four years, the deterioration of the U.S.
net external position in 2005 has once again
been contained by sizable net capital gains on
its external portfolio despite the real appreciation
of the dollar, thanks to the stronger performance
of non-U.S. stock markets relative to
the U.S. market.
As a matter of simple arithmetic, the global
imbalances remain on an unsustainable trend
over the long run, as—unless returns on U.S.-
issued financial instruments continue to substantially
underperform those issued in other
countries, thus generating large further capital
gains for the United States—they would lead to
an ever-accumulating stock of emerging Asian
and oil exporters’ assets and U.S. external
liabilities.
1 Therefore, the issue is not whether but
how and when they adjust. As described in
Appendix 1.2 of the September 2005 World
Economic Outlook, the current configuration of
external imbalances arises from a combination
of shocks and economic trends across several
countries and regions, with both the public and
private sector contributing. It is possible that
Box 1.4. How Much Progress Has Been Made in Addressing
Global Imbalances?
1996 98 2000 02 04 06 08 10
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Current Account Balances and Net
Foreign Assets
(Percent of world GDP)
Current Account Balance
Sources: Lane and Milesi-Ferretti (2006); and IMF
staff
estimates.
Algeria, Angola, Azerbaijan, Bahrain, Republic of
Congo,
Ecuador, Equatorial Guinea, Gabon, I.R. of Iran,
Kuwait, Libya,
Nigeria, Norway, Oman, Qatar, Russia, Saudi Arabia,
Syrian Arab
Republic, Turkmenistan, United Arab Emirates,
Venezuela, and
the Republic of Yemen.
China, Hong Kong SAR, Indonesia, Korea, Malaysia, the
Philippines, Singapore, Taiwan Province of China, and
Thailand.
1
2
1996 98 2000 02 04 06 08 10
-15
-10
-5
0
5
Net Foreign Assets 10
United States Euro area
Japan Oil exporters
Emerging Asia
1
2
Note: The author of this box is Gian Maria Milesi-
Ferretti.
1Hausmann and Sturzenegger (2006) have recently
argued that since U.S. net investment income is still
positive and changed little over the past 25 years,
the
“effective” net external position of the United States
must also have changed little, and as of end-2004 the
U.S. must still have been a net creditor. The main
flaw
in this argument is the assumption that all
investments
should earn the same rate of return (even though the
risk characteristics of the U.S. asset and liability
portfolio
are very different). Allowing for this, there is no
reason why net investment income cannot be positive
even when a country is a net debtor (see “Why Is the
U.S. International Income Account Still in the Black,
and Will this Last?” Box 1.2, World Economic Outlook,
September 2005).
WESTERN EUROPE: IS THE EXPANSION FINALLY GAINING
TRACTION?
29
there will be an orderly private-sector led
adjustment in imbalances even without policy
action, with U.S. private savings rising gradually
as interest rates increase and the housing market
slows, accompanied by substantial real
exchange rate adjustment, including through
rising inflation in Asia (see Figure 1.10). This
benign scenario assumes that foreigners will
continue to purchase U.S. assets (with no significant
interest rate premium, notwithstanding
the risk of large capital losses) and that
protectionist
pressures can be avoided. If this does
not happen, the figure also illustrates the
implications
of a much more abrupt and disorderly
adjustment, characterized by a substantial
overshooting
of exchange rates; a large increase
in interest rates; and a sharp contraction of
global activity.
The question then becomes how public policy
can best assist an orderly rebalancing. The World
Economic Outlook has long argued that the key
actions in this regard include measures to
increase savings in the United States; exchange
rate appreciation in the context of greater
exchange rate flexibility, along with measures to
boost domestic demand in emerging Asia; structural
reform to boost domestic demand and
growth in the euro area and Japan; and measures
to increase demand in oil exporters (see
Box 1.6 in the September 2005 World Economic
Outlook for a detailed description of these policies).
As shown in the “strengthened policies”
scenario in Figure 1.10, this would essentially
bring forward adjustment, but in an orderly way.
Net external positions would be stabilized earlier,
thus reducing the risk of abrupt and disruptive
adjustment, and world growth would be more
balanced. In addition, the proposed policies are
advisable on domestic policy considerations,
being in each country’s and region’s best interest.
Over the last year, how much progress has
been made in implementing these policies?
• In the United States, there are modest signs of an
improvement in savings (see the second figure),
with the general government deficit falling to
4.1 percent in 2005. However, IMF staff projections
suggest little improvement thereafter,
Global Imbalances: Macroeconomic
Indicators
(Percent of GDP, unless otherwise indicated)
-2
-1
0
1
2
3
4
-8
-6
-4
-2
0
2
10
12
14
16
18
20 Euro Area
(percent change)
United States
Private saving
(right scale)
Fiscal balance
(left scale)
Real growth
Domestic demand
2000 02 04 06 2000 02 04 06
Real Effective Exchange Rate
(February 2002 = 100)
70
80
90
100
110
120
130
140
70
80
90
100
Emerging Market 110
Economies
Advanced Economies
United States
Japan
Euro area
2002 03 04 05 2002 03 04 05
GCC
Emerging Asia,
excl. China
China
Other oil exporters
3
4
0
3
6
9
12
15
0
10
20
30
40
50
-2
0
2
4
6
Private consumption
(right scale)
Japan
(percent change)
China
Domestic demand
Real growth
Current account
balance (left
scale)
2000 02 04 06 2000 02 04 06
-3
0
3
6
9
12
15
18
20
25
30
35
40
0.0
0.2
0.4
0.6
0.8
1.0
1990 94 98 2002 06 2003 04 05 06 07
Current
account
balance (left
scale)
NIEs Oil Exporters
Investment
(right scale)
2
Other oil
exporters
GCC
4
3
1
Source: IMF staff estimates.
Newly industrialized Asian economies (NIEs) refers to
Hong
Kong SAR, Korea, Singapore, and Taiwan Province of
China.
Marginal propensity to import out of oil revenues (See
Chapter II, Box 2.1 for details).
Cooperation Council of the Arab States of the Gulf
(GCC): Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia, and United Arab
Emirates.
See footnote 1 in previous figure excluding GCC
countries.
1
2
3
4
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
30
with the deficit remaining above 4 percent of
GDP in 2006–07 and close to 3 percent of GDP
over the medium term, substantially higher
than the broad balance envisaged in the
adjustment scenario. Recent budget proposals
envisage only modest fiscal improvements and
are based on an ambitious compression in
nondefense discretionary spending. A more
determined fiscal retrenchment, which would
help prepare for the inevitable aging-related
increases in spending, is likely to require revenue-
enhancing measures, such as eliminating
tax exemptions; raising energy taxes; or introducing
a federal VAT or sales tax. The private
savings rate would remain relatively stable, as
a higher household savings ratio—partly
reflecting a slowdown in the housing market—
would be offset by a fall in the (currently
very high) savings rate of firms.
• In Asia, exchange rate adjustment remains limited,
although there are some signs of a strengthening in
domestic demand. More specifically:
On exchange rates, China’s July 2005
exchange rate reform was a welcome step, and
the authorities have taken further measures to
liberalize and develop the foreign exchange
market, including an increase in the number
of financial institutions licensed to participate
in the interbank foreign exchange market
(including foreign banks), and the introduction
of over-the-counter (OTC) trading of
spot foreign exchange with 13 banks designated
as market makers. However, the renminbi
continues to move closely with the U.S.
dollar, and the additional flexibility the
reform permits needs to be used more aggressively
to allow the renminbi to respond to
market pressures and appreciate. Elsewhere in
Asia, current account surpluses have declined
in some countries, under the weight of higher
oil prices, while currencies have generally
appreciated, most notably in Korea and
Thailand. Nevertheless, surpluses remain
large in a number of countries, suggesting
that further exchange rate appreciation would
be required over the medium term.
On the demand side, priorities differ across
countries. In China, where investment is
already high, the key is to strengthen private
consumption. IMF staff projections suggest a
stabilization but very little increase in the
share of private consumption to GDP over the
next two years, despite measures to boost
rural incomes. Allowing for higher consumption
over the medium term will require a
number of structural reforms, including
strengthening the financial sector, requiring
state-owned enterprises to pay dividends to
the state, rebalancing public expenditure
toward higher spending on health and education,
and reforming the pension system.
Elsewhere in Asia, there are some signs of a
pickup in investment since 2003, as corporate
restructuring has advanced, bankruptcy rates
have fallen, and debt levels have declined
below pre-crisis levels in many countries.
Nevertheless, further reforms are necessary to
improve the investment climate, including
financial sector reforms that deepen capital
markets and thereby broaden the sources of
corporate financing.
• In Japan, where the expansion is now well
grounded, the current account surplus has begun to
narrow against the backdrop of strengthening
domestic demand, and is set to decline further from
its current high level over the medium term. With
fiscal policy needing to tighten significantly,
boosting productivity in the nontradable sector
is key. Further reforms can be pursued to
improve labor market flexibility, as well as to
enhance competition—especially in retail,
agriculture, and other domestically oriented
sectors. Such steps can promote more robust
domestic demand that, along with population
aging, will work to narrow the external imbalance
over the medium term. Over time an
appreciation of the yen is likely to make a
contribution as well.
• In the euro area, the key contribution—in some
ways similar to Japan—is through measures to
boost growth and domestic demand. While there
are signs that the recovery—primarily in
investment—is becoming better grounded,
further progress is needed on structural
Box 1.4 (concluded)
ment will need to be undertaken to contain the
expansion in public spending and the rising tax
burden. Raising productivity and labor utilization
remain important challenges, and structural
policies need to focus on competition in product
markets and reform of the electricity and
agricultural sectors.
Japan and Other Industrial Countries
in Asia: Managing Three Major
Transitions in Japan
Despite an inevitable slowdown from the
5 percent GDP growth rate in the first half of
2005, Japan’s expansion remains solidly on track.
With incoming data generally exceeding expectations,
GDP growth for 2005 is now estimated at
2.7 percent, some 0.7 percent higher than projected
last September. While export growth has
been supported by strong demand in the United
States and China and a depreciation of the yen,
the expansion is increasingly being driven by
final domestic demand, underpinned by rising
employment, buoyant corporate profits, and a
turnaround in bank credit growth (now positive,
excluding write-offs). Partly reflecting this
improved outlook, the Nikkei has risen by some
40 percent since mid-2005, by far the most rapid
among the G-7 countries.
Looking forward, GDP growth in 2006 is projected
at 2.8 percent, again driven by solid
domestic demand. At this point, the risks are to
the upside, especially if private consumption
gains momentum in response to rising employ-
JAPAN AND OTHER INDUSTRIAL COUNTRIES IN ASIA: MANAGING
THREE MAJOR TRANSITIONS IN JAPAN
31
reforms at the national and European level.
In recent months, the EU Services Directive
has been approved by the European parliament,
but in a much weaker form. In
Germany, the recent package—while containing
welcome measures in other areas—was relatively
weak on product market reform and
further labor market deregulation. For the
area as a whole, past structural reform efforts
have increased wage flexibility and strengthened
employment resiliency, but have not
delivered sufficient job creation, productivity,
and output growth. Thus, comprehensive
strategies to foster product market and financial
sector competition, as well as a better integration
of labor, product, and financial
market reforms remain key priorities.
• In oil exporters, adjustment is—understandably
given the size of additional revenues relative to
domestic economies—relatively gradual.
In oil exporters, scope remains for boosting
expenditures in areas where social returns are
high (education and health; infrastructure;
private sector employment; and strengthened
social protection schemes). To date, oilexporting
countries have, on average, spent
30–40 percent of their additional oil revenues
on imports, with relatively significant variation
across countries—see Box 2.1 for details.
Exchange rates have appreciated noticeably
in real terms in a number of oil exporters and
more modestly in Cooperation Council of the
Arab States of the Gulf (GCC) countries,
whose exchange rates remain tied to the dollar
in the runup to GCC monetary union. In
these latter countries, real effective appreciation
can only take place through inflation as
spending adjusts.
Finally, it is important to stress that adjustment
will require both a rebalancing of demand
and exchange rate adjustment, with currency
depreciation in several deficit countries and currency
appreciation in several surplus countries—
there is not a choice between one or the
other. The longer adjustment is delayed, the
larger these exchange rate adjustments will ultimately
need to be, and the greater the risk of
overshooting. Policymakers and private sector
decision makers need to recognize that—
although the timing is difficult to predict—
exchange rate adjustment will eventually take
place and to ensure that national economies,
financial institutions, and corporations are as
resilient to it as possible.
ment and labor income. Most encouragingly,
with underlying deflationary pressures easing,
there is an increasing prospect of an end to
eight consecutive years of declining prices. Core
CPI inflation—which includes oil prices and,
therefore, results in some upward bias at present—
has turned positive for four consecutive
months, and unit labor costs are picking up as
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
32
The World Trade Organization (WTO)
Ministerial Conference, held in Hong Kong SAR
during December 13–18, 2005, was the second
such conference since the Doha Round of multilateral
trade negotiations was launched in the
Qatari capital in 2001. In contrast to the failed
Cancún Ministerial Conference in September
2003, the Hong Kong SAR meeting largely met
its objectives—though these were disappointingly
modest—and succeeded in instilling the
Doha Round with some renewed political
momentum. Ministers in Hong Kong SAR
focused heavily on agriculture and development—
the two most politically sensitive issues
under discussion—largely leaving aside negotiations
on nonagricultural market access (NAMA),
services and rules.
In agriculture, the most tangible outcome of
the Hong Kong SAR Ministerial Conference was
an agreement to end all forms of export subsidies
in agriculture by 2013, with an accelerated
end date of 2006 for cotton. This was a welcome
achievement, given the highly distortionary
nature of export subsidies in OECD countries.
Only marginal progress was achieved in the
other dimensions of the agriculture negotiations,
namely the need to discipline or eliminate
trade-distorting domestic support and to
increase market access in agricultural products.
On development issues, ministers outlined a
“package” of trade and aid for least-developed
countries (LDCs) and other poor developing
countries in the form of market access privileges,
less stringent disciplines (“special and differential
treatment”), and assistance in trade-related
capacity building. In particular, industrial and
developing countries that declared themselves in
a position to do so, agreed to provide duty- and
quota-free market access for at least 97 percent
of export items originating from LDCs by 2008.
However, the 3 percent exception will allow
highly protected products of significant export
interest to LDCs to be exempted.
Although the Doha Round was dubbed the
Doha Development Agenda (DDA), the “development
dimension” of the Round has remained
controversial. In Hong Kong SAR, there was a
tendency to equate “development” with “policy
space”—that is, the right to exemptions from
global commitments and disciplines. Yet this
understanding is at odds with the experience of
successful development, which suggests that
active trade integration offers the best hopes for
spurring economic growth. Weak commitments
may also reduce developing country leverage in
achieving desired outcomes in their own areas
of interest.
The conference set specific deadlines for
intermediate steps in the negotiations, but made
no headway on several central issues, and much
uncertainty remains as to whether an ambitious
outcome can be reached. Work subsequent to
the Davos World Economic Forum has seen a
serious engagement at the technical level and a
cooling of the political rhetoric that had been
encumbering the negotiations. The key parameters
for liberalizing agriculture and nonagricultural
trade are to be agreed by April 30, 2006,
and final draft schedules of commitments in
services are to be submitted by October 31,
2006. The aim is to conclude the Round by the
end of 2006.
These timelines appear very ambitious in view
of the remaining differences and the pace of the
negotiations so far, but they may help focus decision
makers’ attention on the Round. A successful
outcome to the negotiations is needed to
strengthen the multilateral trading system and
provide impetus to global economic growth.
Box 1.5. The Doha Round After the Hong Kong SAR
Meetings
Note: The author of this box is Jean-Pierre
Chauffour.
labor market conditions tighten. Correspondingly,
CPI inflation is projected to turn slightly
positive in 2006, although—given the margins of
error—it is still too early to conclude that deflation
is conclusively defeated.8
In the period ahead, the Japanese economy
faces three key transitions.
• The shift to a new monetary framework. In early
March, the Bank of Japan ended the quantitative
easing policy, and reverted to targeting
the overnight call rate. Given the uncertainties
noted above, and the large costs of a deflationary
relapse, the monetary policy stance is
appropriately expected to be kept highly
accommodative for the time being; the timing
of interest rate increases will depend on the
extent that incoming data confirm that deflation
is decisively beaten and inflationary
expectations are solidly established. The Bank
of Japan also announced a new monetary
framework, including clarification of its view
that medium-term price stability entails inflation
in the range of 0–2 percent, and greater
transparency about the current view on monetary
policy in its semi-annual report.
• The restoration of budget sustainability, in an
environment
of growing pressures from the rapidly
aging population. Over the past two years,
the general government deficit has been
reduced from 8.1 percent of GDP to 5.8 percent
of GDP in 2005, somewhat faster than
earlier thought, although only modest further
progress is expected in 2006. Further substantial
adjustment will be needed in the future—
indeed, IMF staff projections suggest that the
primary balance excluding social security will
need to improve by some 6 percent of GDP
over the next 10 years even to stabilize net
debt at 105 percent of GDP. The strengthening
economy provides an opportunity to make
more rapid progress; in this regard, the
authorities’ projection that the objective of
primary balance excluding social security
could be achieved in FY2011, one year earlier
than expected, is encouraging. It will be
important to lay out a more detailed plan to
achieve this target, through further curtailing
expenditures, including limiting growth in
health care costs; broadening the tax base,
including by reducing exemptions; and over
time raising the consumption tax rate, which
is low by international standards.
• Reviving productivity growth. After a period of
very rapid convergence in the 1970s and
1980s, Japan’s per capita income fell sharply
relative to the United States during the 1990s,
and has since stabilized at broadly the European
level (Figure 1.13). Given already high
labor utilization rates and deteriorating
demographics,
further convergence toward U.S. per
capita income levels will depend critically on
raising productivity, which is well below both
U.S. and European levels, particularly in the
services sector. This underscores the need to
complete the remaining agenda for financial
and corporate sector restructuring (specifically
regarding regional banks and some inefficient
domestic sectors), and to press ahead
with measures to improve labor market flexibility,
downsize government financial institutions,
enhance domestic competition and
reduce regulation and trade restrictions,
including in agriculture.
To a considerable extent, policies in these
areas—particularly fiscal adjustment and productivity
growth—are linked. In particular, higher
productivity would help directly to improve fiscal
sustainability (underscoring the importance of
designing tax and expenditure measures to minimize
adverse effects on growth). In addition, sustained
higher productivity growth in Japan
would have important benefits from a multilateral
perspective. With the rise of China, the East
Asian region has become relatively less reliant
on Japan, but linkages still remain important; a
1 percentage point increase in productivity
growth could increase GDP growth in the rest of
the region by !/4 percent in the short run. More
JAPAN AND OTHER INDUSTRIAL COUNTRIES IN ASIA: MANAGING
THREE MAJOR TRANSITIONS IN JAPAN
33
8Based on the IMF staff’s past forecasting history,
there would still be a one-third chance of a further
decline in the CPI
in 2006.
generally, higher productivity growth could—
through its impact on domestic demand—contribute
to reducing global imbalances, especially
if it is concentrated in the non-tradeables sector
(where, as shown in Figure 1.13, it has weakened
noticeably in recent years).
In Australia and New Zealand, real GDP
growth slowed in 2005. Private consumption
growth weakened in Australia in the face of the
slowing housing market and high gasoline
prices. Exchange rate appreciation hurt net
exports in both countries, particularly in New
Zealand. Growth is expected to pick up to
2.9 percent in Australia this year as investment
strengthens further in response to capacity
constraints
and high commodity prices. In New
Zealand, by contrast, growth is expected to
moderate to 0.9 percent, given that domestic
demand has begun to slow and there are signs
that the housing market is cooling. The current
account deficit remains high in both countries,
although it has deteriorated more substantially
in New Zealand—reaching 8.8 percent of GDP—
and the exchange rate has depreciated substantially
in recent months. While headline CPI
inflation has risen in both countries, a wait-andsee
approach to further monetary tightening is
appropriate given the slowdown in activity and
the associated decline in inflation risks. Both
countries continue to demonstrate enviable
records of fiscal prudence, with budgets remaining
in surplus and public debt ratios on a firm
downward track. In Australia, recent reforms to
the industrial relations system and changes to
the tax and benefit systems will improve work
incentives, and should set the stage for continued
strong employment growth.
Emerging Asia: Strong Growth Expected
to Continue
Growth in emerging Asia eased slightly to
8.2 percent in 2005 (Table 1.6). This slowdown,
however, was concentrated in the early part of
the year, and growth accelerated in the second
half as exports were boosted by a pickup in corporate
investment in industrial countries, which
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
34
60
66
72
78
84
90
Sources: OECD, Economic Outlook; and IMF staff
calculations.
Ratio of per capita GDP in 2000
purchasing-power-parity (PPP) dollars in Europe and
Japan to the United States.
Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden,
and the United Kingdom.
Employment ratio defined as employed persons as a
percent of population of working
age.
Value added per person. Size of bubble represents the
share of sector in 1991–2003.
1
Figure 1.13. Japan: Reversing the Relative Decline in
Per Capita GDP Growth
Japan
1970 75 80 85 90 95 2000 04
EU15
After a rapid increase in the 1970s and 1980s, Japan's
per capita income has
since fallen sharply relative to the United States.
With labor inputs already high, a
reversal of this trend will require measures to raise
productivity, which is low by
international standards.
Per Capita GDP Relative to the United States1
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5 Growth in Per Capita GDP and
Components Relative to the
United States
1991–2004
1970–91
Hours worked
Employment
Age structure
Productivity
Per capita GDP
60
80
100
120
140
EU15
Japan
Productivity
Employment
Hours worked
Age structure
Per capita GDP
Per Capita GDP and
Components, 2004
(U.S. = 100)
-1 0 1 2 3 4 5 6
-3
-2
-1
0
1
2
3
4
5
Agriculture Mining
Manufacturing
Construction
Electricity
Wholesale
and retail
Social services
Finance
Transportation
Productivity Growth 1970–91 versus 1991–2003
3
2
4
3
Falling
Rising
Productivity growth 1991–2003
Productivity growth 1970–91
2
2
4
offset a weakening in domestic investment. With
global economic conditions expected to remain
favorable—the ongoing domestic demand recovery
in Japan is particularly helpful—this growth
momentum is expected to continue in 2006, and
real GDP in the region is projected to expand by
7.9 percent (a full percentage point higher than
in the September 2005 World Economic Outlook,
largely due to upward revisions in China and
India, see below). The risks to the outlook are
broadly balanced. On the upside, a strongerthan-
expected rebound in corporate investment
in industrial countries and recent equity and
property price increases could underpin
stronger growth. On the downside, avian flu is a
significant, if difficult to quantify, risk (see
Appendix 1.2). Other risks stem from a renewed
rise in oil prices, an increase in protectionist
sentiment
in advanced economies, and the possible
need for further monetary tightening if inflationary
pressures do not abate.
Headline CPI inflation has risen over the past
year in most countries, largely due to higher
energy prices, although core inflation has also
picked up sharply in Indonesia, the Philippines,
and to a lesser extent in Thailand. Asset prices
have continued to rise strongly, with equity markets
posting record highs and property prices
continuing to surge. Against this background,
many central banks have moved to raise interest
rates, although real rates remain low and shortterm
interest rate differentials have generally
moved in favor of the U.S. dollar over the past
year, one factor behind the moderation of non-
FDI capital inflows into the region. Looking forward,
monetary policy may need to be tightened
further in countries where inflationary pressures
have yet to retreat (India, Malaysia, and
Thailand). On fiscal policy, the favorable outlook
provides an opportunity for countries with
high public debt (particularly India, Indonesia,
Pakistan, and the Philippines) to take steps to
put their public finances on a sustainable
medium-term footing.
The current account surplus in emerging Asia
has shown surprising resilience to the sharp hike
in oil prices. Despite a deterioration in the oil
balance of 2!/2 percent of GDP, the overall cur-
EMERGING ASIA: STRONG GROWTH EXPECTED TO CONTINUE
35
Table 1.6. Selected Asian Economies: Real GDP,
Consumer Prices, and Current Account Balance
(Annual percent change unless otherwise noted)
__________R_e_a_l_ G__D_P_ _________
_______C_o_n_s_u_m_e_r_ _P_r_ic_e_s_1______
___C_u__rr_e_n_t_ A_c_c_o_u_n_t_ _B_a_la_n_c_e_2___
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Emerging Asia3 8.4 8.2 7.9 7.6 4.0 3.5 3.8 3.4 3.9 4.5
4.1 4.0
China 10.1 9.9 9.5 9.0 3.9 1.8 2.0 2.2 3.6 7.1 6.9 6.7
South Asia4 7.7 7.9 7.1 6.9 4.3 5.0 5.3 5.2 0.1 –2.3
–3.0 –3.0
India 8.1 8.3 7.3 7.0 3.8 4.2 4.8 4.9 0.2 –2.5 –3.1
–3.1
Pakistan 7.1 7.0 6.4 6.3 7.4 9.1 8.4 6.9 0.2 –2.4 –3.2
–3.0
Bangladesh 5.9 5.8 6.0 6.3 6.1 7.0 6.1 5.6 –0.3 –0.9
–1.0 –1.1
ASEAN-4 5.8 5.2 5.1 5.7 4.6 7.5 8.8 4.6 4.4 3.3 2.8
2.5
Indonesia 5.1 5.6 5.0 6.0 6.1 10.5 14.2 6.6 1.2 1.1
0.4 —
Thailand 6.2 4.4 5.0 5.4 2.8 4.5 3.6 2.2 4.2 –2.3 –2.0
–2.1
Philippines 6.0 5.1 5.0 5.6 6.0 7.6 7.4 4.7 2.7 3.0
2.1 1.6
Malaysia 7.1 5.3 5.5 5.8 1.4 3.0 3.1 2.7 12.6 15.6
14.9 14.7
Newly industrialized Asian
economies 5.8 4.6 5.2 4.5 2.4 2.2 2.2 2.3 7.0 6.0 5.7
5.6
Korea 4.6 4.0 5.5 4.5 3.6 2.7 2.5 3.0 4.1 2.1 1.8 1.7
Taiwan Province of China 6.1 4.1 4.5 4.5 1.6 2.3 1.8
1.5 5.7 4.7 5.4 5.5
Hong Kong SAR 8.6 7.3 5.5 4.5 –0.4 1.1 1.8 2.1 9.6
10.7 10.1 10.1
Singapore 8.7 6.4 5.5 4.5 1.7 0.5 2.0 1.9 24.5 28.5
26.7 26.3
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather
than as December/December changes, as is the practice
in some countries.
2Percent of GDP.
3Consists of developing Asia, the newly industrialized
Asian economies, and Mongolia.
4The country composition of this regional group is set
out in Table F in the Statistical Appendix.
rent account surplus in 2005, at 4.5 percent of
GDP, was higher than in 2002 (Figure 1.14). A
redistribution of surpluses within the region,
however, has taken place. The surplus in China
has risen substantially since 2002 and is estimated
at 7.1 percent of GDP in 2005—and now
accounts for two-thirds of the regional surplus,
compared to around one-quarter in 2002—while
surpluses have also risen in Malaysia, Hong Kong
SAR, Singapore (and to a lesser extent Korea).
On the other hand, the current account has
weakened in other countries, moving into deficit
in India, Pakistan, and Thailand in 2005. These
disparate movements are due to the non-oil balance,
which has generally declined in countries
where domestic demand growth has accelerated
and/or where the real effective exchange rate
has appreciated.
Looking forward, with emerging Asia remaining
central to the current constellation of global
imbalances, the region will need to play a central
and proactive role in managing the risks associated
with these imbalances. This will require
achieving a better balance between externally
and domestically led growth in countries with
current account surpluses. Reforms to domestic
financial systems will need to be at the center of
efforts to boost domestic demand. Exchange rate
appreciation will also be necessary.9 While a number
of regional exchange rates have appreciated
over the past year (notably the Korean won,
Indian rupee, and Thai baht), there has been little
change in exchange rate behavior in either
China or Malaysia despite the reforms introduced
last July (although the real effective
exchange rate has appreciated given the upward
movement of the dollar). In turn, this is likely
constraining other countries from allowing
greater upward exchange rate movement given
regional interdependencies and concerns about
competitiveness losses.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
36
Figure 1.14. Emerging Asia: Understanding Recent
Developments in the Current Account
Despite the rise in oil prices, the current account
surplus in emerging Asia remains
large. A redistribution of these surpluses, however,
has taken place, with those
countries where the real exchange rate has depreciated
and/or domestic demand
growth has weakened generally seeing an increasing
surplus and others a
deteriorating current account position.
Change in the Non-Oil Current Account, 2002–05
-16 -12 -8 -4 0 4 8
-10
-5
0
5
10
15
20
Change in Real Effective
Exchange Rate
Change in real effective exchange rate
2
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
-8
-6
-4
-2
0
2
4
6
8
10
Change in Domestic
Demand
Change in non-oil current account
Change in non-oil current account
Change in domestic demand growth
3
Source: IMF staff calculations.
Consists of developing Asia, the newly industrialized
Asian economies, and Mongolia.
Fitted line excludes Korea.
Fitted line excludes Singapore. For China, real GDP
growth is used because of a large
discrepancy between overall growth and the expenditure
side components in the national
account statistics.
1
2
3
-8
-4
0
4
8
12
16 Change Between 2002 and 2005, Oil and Non-Oil
Current Account
Balance (percent of GDP)
Oil
Non-oil
China India Pakistan
Indonesia Malaysia Philippines
Thailand
Hong Kong
SAR
Korea Singapore
Emerging
Asia1
-5
0
5
10
15
20
25
30
Current Account Balance 35
(percent of GDP)
2002
2005
China India Pakistan
Indonesia Malaysia Philippines
Thailand
Hong Kong
SAR
Korea Singapore
Taiwan
Province of China
Emerging
Asia1
Taiwan
Province of China
9Simulations of the IMF’s Global Economic Model
(GEM) suggest that more flexible exchange rates in
emerging Asia that allowed for real appreciation would
contribute to a reduction in global imbalances
(Appendix
1.2, September 2005 World Economic Outlook).
EMERGING ASIA: STRONG GROWTH EXPECTED TO CONTINUE
37
China recently revised its production-side
GDP estimates, showing higher nominal and
real GDP growth rates over 1993–2004. This
revision is based on the data collected from a
recent economic census, which showed much
larger output from the services sector than previously
estimated; nominal GDP in 2004 is now
about 16.8 percent higher than before. The
highlights of the revision are:
• The services sector’s share of GDP rose 5 percentage
points on average and reached
around 41 percent of GDP in 2004, largely offset
by a lower share of GDP of the manufacturing
sector. The rise in the share reflected
better statistical recording of private businesses,
especially in new areas such as computer
and Internet services, and logistics
support to the manufacturing and construction
sectors. It should be noted that the economic
census only covered 2004, and the
historical data were backfilled by applying a
statistical method that assumes a smooth path
of the increase in services. Thus, the revision
does not provide any information regarding
when the newly uncovered activities emerged
and expanded.
• As a result of the revision, the annual average
real growth during 1993–2004 climbed to
close to 10 percent, about !/2 percentage point
higher than before (see the figure). Annual
growth rates of GDP deflators are also higher
in the revised data, reflecting both the upward
revision of services deflator and the larger
share of services in GDP.
The 2005 nominal GDP under the new
methodology has recently been released. It
makes China the fourth-largest economy in the
world in U.S. dollar terms, and the secondlargest
in PPP adjusted terms. Nevertheless,
China’s per capita income (US$7,204, PPP
adjusted) remains very low. The revision has also
added about 0.1 percentage point to global
GDP growth estimates in recent years.
The nominal expenditure side GDP was also
revised for 2004, bringing the expenditure side
estimate for this year very close to its revised pro-
Box 1.6. China’s GDP Revision: What Does It Mean for
China and the Global Economy?
1993 95 97 99 2001 03
6
7
8
9
10
11
12
13
14
15
Sources: National Bureau of Statistics of China; and
IMF staff
calculations.
China's Real Production-Based GDP Growth
Previous Revised
China: GDP and Components
_______2_0__0_4_______
Previous Revised
GDP: Production based (RMB bln) 13,688 15,988
GDP: Expenditure based (RMB bln) 14,239 16,028
Percent of GDP1
Consumption 53 54
Private 41 40
Public 12 14
Investment 44 43
Net exports 3 3
Statistical discrepancies 0 0
Current account surplus 4.0 3.5
Sources: National Bureau of Statistics of China; and
IMF staff
calculations.
Note: The main author of this box is Li Cui. 1Ratios
based on expenditure side GDP data.
Turning to individual countries, real GDP
growth in China remains very strong—and
recent data revisions indicate that it has been
even stronger in recent years than previously
thought (see Box 1.6)—with investment growth
running at a high rate and the contribution of
net exports increasing significantly. The pace
of expansion is projected to slow modestly this
year to 9.5 percent, from 9.9 percent in 2005,
as the contribution from external demand falls
and the government is assumed to act to slow
investment growth (which is particularly needed
in sectors facing the prospect of future
overcapacity).
The risks to this projection in the near
term are on the upside given that without further
tightening measures the ample liquidity in
the banking system could underpin a rebound
in lending and investment. Inflation pressures,
however, remain limited due to continuing
downward pressures on prices in some sectors
due to excess capacity. The external position
has continued to strengthen, and foreign
exchange reserves increased by over $200 billion
in 2005. Given the current favorable
environment, the authorities have an ideal
opportunity to utilize fully the flexibility available
following the exchange rate reform last
July which should lead to an appreciation of the
renminbi. Greater exchange rate flexibility
would allow monetary policy to be geared
toward the needs of the domestic economy, and
would aid in the development of the foreign
exchange market. Exchange rate appreciation
would also bolster households’ purchasing
power, which together with reforms to the pension,
health, and education systems, and the
financial sector, would boost consumption.
After a weak start to 2005, growth in the
Newly Industrialized Economies (NIEs) has
rebounded as exports have benefited from a
stronger global IT sector (and demand for
pharmaceuticals
and oil rigs in Singapore). Looking
forward, growth is expected to be supported by
the favorable global outlook. With inflation pressures
contained and public debt low, macroeconomic
policies—outside of Singapore—can
remain accommodative until the recovery is fully
established. Turning to the ASEAN-4 countries,
the Thai economy has rebounded from the
tsunami-related contraction in early 2005, while
growth in the Philippines is being supported by
surging remittance inflows. Generally robust
growth, however, has fallen slightly short of
expectations in Malaysia and Indonesia, the latter
due to high interest rates, the adverse confidence
effects of financial market volatility last
summer, and increases in domestic fuel prices.
Policy priorities include containing inflation (all
four countries), reducing public debt (Indonesia,
the Philippines), and greater exchange rate
flexibility
(Malaysia).
In India, growth remains rapid, with strong
momentum in the manufacturing and services
sectors, and projections have been revised up for
both 2006 and 2007. Exports have continued to
grow robustly, but the current account has
moved into deficit as strong domestic demand
and high oil prices resulted in a surge in
imports. Inflationary pressures have picked up,
prompting the Reserve Bank of India to tighten
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
38
duction-side counterpart. The new data imply
shares of consumption and investment in GDP
very similar to those prior to the revision, belying
the speculation that the upward revision of the
services sector would lead to a significantly
higher share of consumption in GDP. In fact, private
consumption as a share of GDP declined,
while the share of government consumption
rose, which could reflect better reclassification of
government spending between consumption and
capital goods. While a fully revised historical
series from the expenditure side has not yet
been published, the basic assessment of China’s
economic situation remains unchanged.
Box 1.6 (concluded)
monetary policy. Nevertheless, with monetary
conditions still accommodative and credit
expanding strongly, further interest rate
increases will likely be needed. After three years
of fiscal consolidation, the general government
deficit remained broadly unchanged in
FY2005/06. The draft budget for FY2006/07
aims to resume fiscal consolidation on the back
of modest base broadening (primarily of the
services tax) and the tight control of current
expenditures, and it is important that this objective
is achieved. The full pass-through of higher
international energy prices into domestic prices
(with adequate compensation mechanisms for
the poor) is needed to curb the rising quasi-fiscal
costs of petroleum subsidies and encourage
improvements in energy efficiency. As the government
recognizes, the reform agenda also
needs to be accelerated in other areas, including
infrastructure development, the power sector,
and the liberalization of labor laws, while the
decision to draw up a roadmap for moving to
full capital account convertibility is welcome. In
Bangladesh and Pakistan, growth has remained
robust despite headwinds from higher oil prices,
devastating natural disasters, and the elimination
of international textile trade quotas. In both
countries, inflation has picked up, and a further
tightening of monetary conditions is needed,
supported by continued prudent fiscal policies.
Regarding structural policies, priorities include
energy sector reforms in Pakistan, and bank
restructuring, trade reforms, and the full passthrough
of higher oil prices into domestic fuel
prices in Bangladesh.
Latin America: Improving the
Business Climate Key to Raising
Long-Term Growth
Robust economic expansion continued in
Latin America in 2005 with overall growth of
4.3 percent (Table 1.7). Within this, many countries
benefited from the strong global demand
for commodities—in particular, fuels and metals
(Chile and the Andean region) and agriculture
LATIN AMERICA: IMPROVING THE BUSINESS CLIMATE KEY TO
RAISING LONG-TERM GROWTH
39
Table 1.7. Selected Western Hemisphere Countries: Real
GDP, Consumer Prices, and
Current Account Balance
(Annual percent change unless otherwise noted)
__________R_e_a_l_ G__D_P_ _________
_______C_o_n_s_u_m_e_r_ _P_r_ic_e_s_1______
___C_u__rr_e_n_t_ A_c_c_o_u_n_t_ _B_a_la_n_c_e_2___
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Western Hemisphere 5.6 4.3 4.3 3.6 6.5 6.3 5.8 5.6 0.9
1.2 0.8 0.2
Mercosur3 6.0 4.2 4.5 3.8 5.6 7.1 6.6 6.6 1.9 1.5 0.9
0.1
Argentina 9.0 9.2 7.3 4.0 4.4 9.6 12.9 15.0 2.2 1.8
1.2 0.5
Brazil 4.9 2.3 3.5 3.5 6.6 6.9 4.9 4.4 1.9 1.8 1.0 0.2
Chile 6.1 6.3 5.5 5.2 1.1 3.1 3.8 3.0 1.5 –0.4 0.5
–1.2
Uruguay 12.3 6.0 4.0 3.5 7.6 5.9 5.5 4.9 –0.7 –2.4
–5.8 –2.5
Andean region 7.8 6.3 4.8 3.8 8.4 6.4 5.7 6.5 4.1 6.5
5.1 4.2
Colombia 4.8 5.1 4.5 4.0 5.9 5.0 4.7 4.2 –1.0 –1.7
–1.6 –2.7
Ecuador 6.9 3.3 3.0 2.2 2.7 2.4 3.4 3.0 –1.1 –0.9 0.2
0.4
Peru 4.8 6.7 5.0 4.5 3.7 1.6 2.7 2.2 — 1.3 1.4 0.3
Venezuela 17.9 9.3 6.0 3.0 21.7 15.9 11.7 17.3 12.5
19.1 14.1 13.4
Mexico, Central America,
and Caribbean 4.0 3.4 3.7 3.3 7.1 4.9 4.5 3.6 –1.4
–1.2 –1.1 –1.2
Mexico 4.2 3.0 3.5 3.1 4.7 4.0 3.5 3.0 –1.1 –0.7 –0.6
–0.8
Central America3 3.9 3.8 3.9 3.8 7.4 8.6 7.4 5.8 –5.7
–4.9 –4.9 –4.8
The Caribbean3 2.3 5.9 5.3 4.5 27.2 6.9 8.3 5.8 1.3
–1.1 –1.0 –1.4
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather
than as December/December changes, as is the practice
in some countries. The December/December changes in
the CPI for 2004, 2005, 2006,
and 2007 are, respectively, for Brazil (7.6, 5.7, 4.5,
and 4.5); Mexico (5.2, 3.3, 3.1, and 3.0); Peru (3.5,
1.5, 2.5, and 2.5) and Uruguay (7.6, 6.5,
5.5, and 4.5).
2Percent of GDP.
3The country composition of this regional group is set
out in Table F in the Statistical Appendix.
(Argentina and Uruguay). In contrast, growth
slowed in Brazil, owing to weak domestic
demand—investment in particular—and in
Mexico as a result of the weaker performance of
the agricultural and manufacturing sectors.
Buoyant exports, sustained by improvements in
the terms of trade, underpinned a third consecutive
year of current account surpluses for the
region and, combined with higher private capital
inflows, resulted in substantial reserve accumulation.
Correspondingly, regional exchange
rates appreciated markedly, although taking
account of their weak levels in 2001–02,
competitiveness
remains generally adequate. Reflecting
their stronger external positions, Brazil and
Argentina have repaid all outstanding IMF
obligations ($15.5 billion and $9.6 billion,
respectively).
Turning to 2006, regional growth is projected
at 4.3 percent, some 0.5 percentage points
stronger than projected in the last World
Economic Outlook, mainly on account of higher
than previously anticipated growth in Argentina
and Venezuela. Recent interest rate cuts in some
countries should support domestic demand
going forward, although external demand will
remain important. There are, however, a few
notable downside risks to the outlook. A softening
in global demand for the region’s primary
and manufacturing exports could weaken the
contribution to growth from the external sector
in many countries, while a deterioration in the
global financial environment also poses risks
given the still high level of public debt in the
region. The region as a whole also faces a busy
electoral schedule, underscoring the importance
of maintaining sound economic policies and
defending the hard-earned credibility among
domestic and foreign investors during political
transitions.
A major achievement in the region has been
the decline in public debt on account of impressive
fiscal discipline and the recent strong
growth performance. Nevertheless, in many
countries public debt still remains above the
25–50 percent of GDP range identified as safe
in the September 2003 World Economic Outlook
(Figure 1.15). Indeed, in the case of Latin
America, the current structure of debt—
including the presence of interest indexation,
short average maturity, or foreign exchange
exposure—argues for debt ratios closer to the
lower end of this range. Sustaining recent efforts
to maintain the downward trajectory of debt is a
key challenge facing policymakers. Continued
expenditure restraint and tax reforms are essential
to the improvement of public finances over
the medium term. However, lasting reductions
in public debt also require high and stable rates
of economic growth that are much less dependent
on the global commodity cycle. This, in turn,
requires structural reforms to raise investment
levels closer to emerging market averages. In
this context, improving the business climate—
which lags other regions along many dimensions,
including as a destination for foreign
investment—is a key priority. While the reform
agenda varies by country, some common factors
that would support higher private sector investment
are a well-developed financial system for
channeling savings toward productive investment;
reforms to strengthen property rights;
reforms of the judiciary and speedy enforcement
of contractual obligations; and greater transparency
and stability in rules and regulations
governing private investment.
An important challenge for the region will be
to achieve an appropriately balanced response to
the likelihood of further upward pressures on
exchange rates if the global environment
remains supportive of continued strong external
performance by Latin America. In this context,
further tightening of fiscal policies would help
to provide scope for monetary easing that could
help diminish incentives for capital inflows,
while maintaining the commitment to entrenching
the gains against inflation and a flexible
approach to exchange rates. Favorable external
conditions also offer opportunities for strengthening
public debt management to reduce longstanding
balance sheet vulnerabilities. In this
connection a number of country authorities are
moving to increase reliance on domestic local
currency issues, while implementing external
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
40
debt buyback programs (e.g. Brazil, Colombia,
Mexico, Peru). Lastly, structural reforms that
boost productivity growth would also help maintain
external competitiveness in the face of currency
appreciation.
Turning to developments in individual countries,
Argentina’s economic expansion remains
strong and broad-based, bolstered by buoyant
domestic demand and robust export growth.
Looking ahead, however, with capacity constraints
likely to become increasingly evident,
and inflation beginning to erode competitiveness,
growth is expected to moderate. Fiscal
policy in 2005 performed better than budgeted,
as strong revenue growth offset a significant
increase in government spending. Going forward,
a combination of larger-than-budgeted fiscal
surpluses, higher interest rates, and greater
exchange rate flexibility will be needed to manage
domestic demand pressures and contain
accelerating inflation, projected to average
around 13 percent this year. The authorities will
need to introduce reforms in the utility sector,
including the liberalization of prices, and raise
investment in infrastructure, to avoid the emergence
of supply bottlenecks and pave the way
for higher medium-term growth. In Uruguay,
growth remains robust against the backdrop of
subdued inflationary pressures and buoyant
exports. While the economy’s short-term public
debt vulnerabilities have declined, continued fiscal
discipline will be necessary to ensure debt
sustainability, complemented with reforms of the
pension and financial systems.
In Brazil, activity slowed sharply last year.
Domestic demand has been subdued, due
primarily to inventory adjustments and some
softening in investment following the earlier
tightening of monetary policy, although private
consumption has remained robust, underpinned
by rising employment and real incomes. There
are recent signs of a pickup in activity, such as in
retail sales and industrial production, and
growth is expected to strengthen in 2006, as
lower interest rates spur a recovery in investment.
With inflationary pressures moderating
further and inflation expectations well
LATIN AMERICA: IMPROVING THE BUSINESS CLIMATE KEY TO
RAISING LONG-TERM GROWTH
41
Developing Asia
10
20
30
40
50
Investment
Investment and Private Direct Investment
Figure 1.15. Latin America: Public Debt Ratios and
Investment
(Purchasing-power-parity weighted averages unless
noted otherwise)
Sources: World Bank, Doing Business Database; and IMF
staff calculations.
Consists of Argentina, Bolivia, Brazil, Chile,
Colombia, Ecuador, Mexico, Paraguay, Peru,
Uruguay, and Venezuela.
Consists of Costa Rica, El Salvador, Honduras,
Nicaragua, and Panama.
Excluding Argentina.
Simple average.
Latin America's gross capital formation in percent of
GDP and private direct investment
as a share of total emerging market and developing
countries.
Consists of China, India, Malaysia, Papua New Guinea,
the Philippines, Sri Lanka,
Thailand, and Vietnam.
1
23
4
5
Public debt ratios have benefited from disciplined
fiscal policies and recent high
growth. Sustaining recent progress will require
increasing private sector investment
to support stable long-term growth.
1998–2001 02 03 04 05
5
Private direct investment
2000 01 02 03 04 05
45
50
55
60
65
70
75
80
South America
and Mexico
Central America
Gross Public Debt
(percent of GDP)
2
3
-4
-3
-2
-1
0
1
2
3
4 Recent Fiscal Performance,
2002–05 (change in percent
of GDP)
Revenue
Primary balance
Non-interest
expenditure
Central
America
South America
and Mexico1 2
Selected Indicators of Doing Business, 2005
(average across all countries = 100)
0
40
80
120
160
200
Latin America
6
Emerging Europe
Cost of starting
business
Time to
acquire
license
Investor
protection
index
Time to
pay taxes
Time to enforce
contracts
4
6
grounded, there is room to continue the gradual
reduction of policy interest rates initiated in
September 2005. Reflecting a strong revenue
effort, the consolidated primary surplus reached
4.8 percent of GDP in 2005, well above the
4.25 percent target. To continue the progress
made in reducing public debt, it will be important
to resist pressures for fiscal easing to sustain
high primary surpluses, and to raise mediumterm
growth through reform efforts, including
by improving the quality of fiscal policy and the
business climate. In Chile, economic activity has
remained robust and—despite some slowdown
in the third quarter of 2005—is expected to
remain buoyant going forward, supported by
higher disposable incomes and solid consumer
confidence. Efforts to boost underlying productivity
will be essential to reduce the economy’s
dependence on copper prices. In this regard,
greater labor market flexibility and increased
investment in research and development would
support greater expansion of the manufacturing
sector.
Real GDP in the Andean region expanded by
6.3 percent in 2005, with activity strengthening
in Colombia and Peru—as rising domestic
demand broadened the recovery beyond
exports—and growth in Venezuela remaining
strong as high oil prices underpinned increased
government spending. In Colombia and Peru,
strong macroeconomic policies have supported
low inflation, although monetary policy needs to
remain vigilant to emerging capacity constraints
(Colombia) and the possible effect of recent
currency depreciation (Peru). In Venezuela,
macroeconomic policies need to be tightened
substantially to rein in double-digit inflation,
while liberalizing the economy and improving
the business climate will be important to boost
private investment. Growth in Ecuador slowed as
oil output stagnated, while a strong expansion in
public spending and bank credit contributed to
rising inflationary pressures in the second half of
the year. Activity in Bolivia has benefited from
favorable energy prices, but maintaining macroeconomic
stability and deepening structural
reforms are the key challenges for the new
administration in order to strengthen growth
prospects.
In Mexico, growth slowed to 3 percent in 2005
due to weakness in the agricultural sector and to
the slowdown in global manufacturing in the
first half of the year. Looking ahead, the strength
of the global manufacturing cycle and the continuing
recovery of domestic investment are
expected to underpin somewhat stronger growth
of 3.5 percent in 2006. The decline in inflation
over the past year, with core inflation having
converged to the 3 percent target, has allowed
an unwinding of earlier monetary tightening.
Although the higher energy revenues of the last
three years have led to some fiscal consolidation,
the fiscal windfall from higher world prices of oil
has been dampened by the long-standing policy
of smoothing the domestic price of gasoline.
Looking ahead, the recently approved fiscal
responsibility law calls for an ongoing balanced
budget and establishes a rule for allocating
unbudgeted oil revenues. It will be important
also to diversify the revenue base to reduce
reliance on high oil prices, while ensuring that
fiscal policymaking focuses on medium-term
objectives. In the face of longer-term challenges
from globalization, particularly given the importance
of the manufacturing sector, enhancing
the competitiveness of the economy through
reforms in the energy and telecommunication
sectors, the labor market, and the regulatory
and business environment remains a priority.
Growth in Central American economies
remained around 4 percent in 2005, despite the
dampening effect of high oil prices on disposable
incomes. Activity was supported by elevated
prices of export commodities and a continued
rise in remittances. Prospects for the region
going forward would be boosted by the prompt
implementation of the Central American Free
Trade Agreement (CAFTA), which has been
delayed beyond the original January 1 target. In
the Caribbean, growth is expected to remain
strong at 5.3 percent in 2006, supported by high
tourism receipts and a construction boom ahead
of the 2007 Cricket World Cup in several countries
of the region. Important fiscal reforms—in
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
42
particular, the introduction of the VAT—are
under way in many countries. These moves will
serve to strengthen fiscal balances over the
medium term. However, decisive steps need to
be taken to reduce the very high public debt
ratios and adapt to the erosion of EU trade
preferences
in bananas and sugar.
Emerging Europe: Addressing Rising
Current Account Deficits
In emerging Europe, regional GDP growth
has moderated to 5.4 percent from the exceptional
level in 2004 (Table 1.8), and is projected
to remain close to this level in 2006, underpinned
by generally strong domestic demand
and—despite appreciating exchange rates—solid
export growth, buoyed by continued solid
import growth in trading partners. Headline
inflation remains generally moderate, with
higher oil prices offset in many cases by rising
currencies, although overheating pressures are a
concern in parts of southern Europe and the
Baltics. Looking forward, the key risks to the outlook
remain the strength of the recovery in euro
area domestic demand; the large regional current
account deficits; and rapid credit growth—
especially for real estate lending—in a number
of countries in the region, much of which is
denominated in foreign currencies.
The regional current account deficit fell modestly
to 5.2 percent of GDP in 2005, and is projected
to remain at broadly that level in 2006
and 2007. Within that, developments differ
widely across the region. In southeastern Europe,
external deficits have increased—particularly in
Bulgaria and to a lesser extent Turkey—driven
by varying combinations of soaring private
domestic demand and credit growth, higher
oil prices, and buoyant capital inflows often
accompanied by appreciating exchange rates.
Elsewhere—particularly in the Czech Republic
and Poland—deficits have been on a declining
trend, although they remain high in the Baltics,
Hungary, and, more recently, the Slovak
Republic. On the financing side, the share of
debt financing (particularly short-term) has
been gradually rising—it is expected to finance
EMERGING EUROPE: ADDRESSING RISING CURRENT ACCOUNT
DEFICITS
43
Table 1.8. Emerging Europe: Real GDP, Consumer Prices,
and Current Account Balance
(Annual percent change unless otherwise noted)
___________R_e_a_l _G_D_P___________
_______C_o_n_s_u_m__e_r_ P_r_ic_e_s_1_______
____C_u_r_re_n_t_ _A_c_c_o_u_n_t_ B_a_l_a_n_c_e_2___
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Emerging Europe 6.6 5.4 5.3 4.8 6.2 4.9 4.2 3.4 –5.7
–5.2 –5.4 –5.3
Turkey 8.9 7.4 6.0 5.0 8.6 8.2 6.5 4.4 –5.2 –6.3 –6.5
–6.1
Excluding Turkey 5.7 4.5 5.0 4.7 5.3 3.5 3.2 3.0 –6.0
–4.7 –4.9 –4.9
Baltics 7.6 8.7 7.5 6.5 3.1 4.1 4.2 3.6 –10.4 –9.7
–9.8 –9.3
Estonia 7.8 9.8 7.9 7.1 3.0 4.1 3.6 3.2 –12.7 –10.5
–10.1 –9.6
Latvia 8.5 10.2 9.0 7.0 6.3 6.7 6.4 5.5 –12.9 –12.5
–12.8 –12.0
Lithuania 7.0 7.3 6.5 6.0 1.2 2.6 3.2 2.7 –7.7 –7.5
–7.5 –7.3
Central Europe 5.0 4.1 4.6 4.3 4.3 2.4 2.0 2.5 –5.2
–3.2 –3.6 –3.7
Czech Republic 4.7 6.0 5.5 4.5 2.8 1.8 2.8 3.0 –6.0
–2.1 –2.3 –2.3
Hungary 4.6 4.1 4.4 4.2 6.7 3.5 2.0 2.7 –8.8 –7.9 –8.2
–7.5
Poland 5.3 3.2 4.2 3.8 3.5 2.1 1.3 2.3 –4.1 –1.6 –2.5
–3.1
Slovak Republic 5.5 6.0 6.3 6.7 7.5 2.8 3.6 2.5 –3.5
–7.2 –6.4 –5.5
Slovenia 4.2 3.9 4.0 4.0 3.6 2.5 2.4 2.4 –2.1 –0.9
–0.3 0.1
Southern and southeastern
Europe 6.9 4.3 5.0 5.4 8.7 7.0 6.8 4.2 –7.3 –8.5 –8.0
–7.8
Bulgaria 5.7 5.5 5.6 5.8 6.1 5.0 7.2 4.1 –5.8 –11.8
–10.2 –9.1
Croatia 3.8 4.1 4.1 4.5 2.1 3.3 3.2 2.5 –5.6 –6.0 –5.9
–5.9
Malta 1.0 1.0 1.3 1.5 2.7 3.1 2.8 2.4 –10.4 –6.7 –6.5
–6.3
Romania 8.4 4.1 5.2 5.6 11.9 9.0 7.9 4.8 –8.4 –8.7
–8.3 –8.1
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather
than as December/December changes, as is the practice
in some countries.
2Percent of GDP.
about half of the regional current account
deficit in 2006—and is particularly significant in
Turkey, Hungary, and the Baltics.
As discussed in previous issues of the World
Economic Outlook, the nature of and risks associated
with these deficits vary widely. In central
Europe, external deficits are closely associated
with fiscal imbalances; in the Baltics and
southeastern
Europe they primarily reflect private sector
behavior. Correspondingly, the risks and
remedy in central Europe are relatively clear; in
the Baltics and southeastern Europe, both are
more complex, although—especially given the
increasing resort to debt financing—there is an
increasing case for policies to lean against the
wind to reduce potential risks. Over the medium
term, as a matter of arithmetic, current accounts
in most countries will need to adjust substantially
to stabilize net investment positions (Figure
1.16). That adjustment is likely to be smoother—
and involve less real exchange rate adjustment—
the more open the economy, the more past
inflows have been invested in the tradables sector,
and the more flexible domestic markets.
Managing this adjustment will be of particular
importance in those countries that have or plan
shortly to move to fixed exchange rate regimes,
including to avoid potential deflationary
pressures.
In Poland, GDP growth slowed to 3.2 percent
in 2005, noticeably below potential, reflecting
flagging domestic demand in the aftermath of
the 2004 EU accession boom, weak labor market
conditions, and higher oil prices. Looking forward,
GDP growth is expected to pick up to
4.2 percent in 2006, with consumption growth
boosted by higher pension payments. Much
depends, however, on external developments—
notably in German growth—and the strength of
investment in light of the complicated post-election
political situation. With inflation projected
to remain at or below the 2.5 percent target in
2006 and 2007, policy interest rates have been
steadily reduced since early 2005. A key challenge
remains to reduce the large general government
deficit—which, barring adjustment
measures, is likely to settle at about 5 percent of
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
44
-120
-100
-80
-60
-40
-20
0
20
40
Source: IMF staff calculations.
Figure 1.16. Emerging Europe: Current Account Deficits
Remain High
Over the medium term, current account deficits will
need to be significantly
reduced—in general primary balances will need to turn
positive—to stabilize net
investment positions. The corresponding real exchange
rate adjustment will be
less the more open the economy, and the more
investment has been directed to
the tradeables sector.
Equity
Net investment position
Net Investment Position
(2004; percent of GDP)
-14
-12
-10
-8
-6
-4
-2
0
2
4
Net investment income
Current Account Deficits
(2004; percent of GDP)
0
20
40
60
80
100
120
Bulgaria
Romania
Slovenia
Slovak Republic
Poland
Hungary
Czech Republic
Lithuania
Latvia
Estonia
Tu rk ey
Bulgaria
Romania
Slovenia
Slovak Republic
Poland
Hungary
Czech Republic
Lithuania
Latvia
Estonia
Tu rk ey
Bulgaria
Romania
Slovenia
Slovak Republic
Poland
Hungary
Czech Republic
Lithuania
Latvia
Estonia
Turk ey
Primary balance
Openness
(real exports as percent of real GDP)
2005
1995
2000
GDP over the medium term—to stabilize public
debt below 50 percent of GDP. With unemployment
at 18 percent, and the investment-to-GDP
ratio the lowest in the region, measures to
improve the functioning of the labor market and
to strengthen the investment climate are also
priorities.
In Hungary, GDP growth remains close to
potential, underpinned by strengthening
exports, the recovery in Western Europe, and
investment related to motorway construction.
Despite higher oil prices, inflationary expectations
remain under control and core inflation is
at an historic low; after steady reductions in the
policy rate through much of 2005, the easing
cycle ended in October and rates remain relatively
high in real terms. The very large external
current account and fiscal deficits—both around
7!/2 percent of GDP in 2005—are significant
risks; moreover, given recent tax cuts and continued
high public expenditure commitments, little
improvement in either is in prospect for 2006.
While the situation is complicated by upcoming
elections, signs of weakening market sentiment
underscore the need for decisive fiscal consolidation.
Substantial foreign exchange borrowing
by households is also a risk, increasing vulnerability
to a further depreciation of the forint.
Slovenia continues to enjoy solid growth and a
stable macroeconomic performance; with inflation
falling back to 2.5 percent, it now meets all
Maastricht requirements, and is well placed to
adopt the euro in January 2007 as scheduled.
GDP growth in the Czech Republic rose to
6 percent in 2005, with slowing domestic
demand growth offset by buoyant net export
growth as past foreign-financed investment
comes on stream, and is expected to moderate
somewhat in 2006. The central bank has begun
to reverse earlier policy easing, although with
inflationary expectations securely anchored
below the inflation target of 3 percent, further
moves should await incoming data on the
strength of the pickup in domestic demand,
which remains fragile. While the general government
deficit was reduced to 2.6 percent of GDP
in 2005, over 2 percent of GDP below target, the
draft 2006 budget more than reverses these
gains, underscoring the need for additional
consolidation
efforts, especially given the pressures
from aging, substantial outstanding public sector
guarantees, and the limited scope for further
privatization revenues. In the Slovak Republic,
the macroeconomic outlook remains strong,
although unemployment—while declining—is
very high. Following the entry into ERM–2 in
late 2005, a key challenge will be to reduce inflation
to meet the Maastricht criterion while
avoiding undue nominal currency appreciation,
a task that would be facilitated by a tighter fiscal
stance than currently planned.
In the Baltic countries, GDP growth has
remained robust, underpinned by generally
sound macroeconomic policies and wide-ranging
structural reforms. However, with domestic
demand fueled by rapid private credit growth,
overheating concerns have risen, reflected in
wide current account deficits; rapidly rising
equity and real estate prices; and—to a lesser
extent—upward pressures on prices, making it
unlikely that any country will meet the Maastricht
inflation criterion this year. While priorities
among countries differ, measures to moderate
credit growth are important, especially for mortgage
lending (the recent tightening of prudential
regulations in Estonia being a welcome
step), along with strengthened financial supervision;
fiscal policy—while generally very prudent—
should also seek to dampen demand
pressures.
In Bulgaria and Romania, domestic demand
has substantially exceeded expectations, spurred
by rapid credit growth, large-scale wage increases,
a tax cut in January 2005 (Romania), and continued
strong investment growth (Bulgaria).
Correspondingly, inflationary pressures have
picked up—in Romania, despite a substantial
appreciation of the leu—and external current
account deficits have widened sharply—in Bulgaria
to 11.8 percent of GDP, one of the highest
in the region. While external deficits are primarily
driven by the private sector, they are an
increasing source of vulnerability, underscoring
the need to restrain credit growth, especially to
EMERGING EUROPE: ADDRESSING RISING CURRENT ACCOUNT
DEFICITS
45
households; tighten fiscal positions; and, in
Romania, increase wage restraint. Structural
reforms are key to invigorate the supply side,
including greater labor market flexibility, advancing
privatization (Romania) and improving the
business climate (Bulgaria).
Following the exceptionally rapid expansion
through 2005, GDP growth in Turkey is
expected to moderate to 6 percent in 2006, with
the main risk facing the economy relating to the
large current account deficit. In contrast to
expectations, GDP growth has become increasingly
reliant on domestic demand, particularly
investment; the external current account has
continued to deteriorate, driven mainly by
higher oil prices and by surging capital inflows—
in part reflecting ample global liquidity and
Turkey’s improving fundamentals—accompanied
by a further real appreciation of the lira.
While the composition of capital inflows has
improved markedly—with the share of shortterm
inflows (including errors and omissions)
nearly halving to 37 percent in 2005—Turkey
remains vulnerable to changes in investor sentiment.
The 2006 budget appropriately provides
for a modest tightening of fiscal policy, which
should allow room for gradual monetary easing
and an additional buildup of reserves. Further
structural reforms, including early passage of the
pension law, strengthening social security collection,
income tax reform, and continued
improvements in bank supervision—the more so
given very rapid private credit growth—remain
key to sustaining the strong economic performance
to date and increasing resilience to a reversal
in currently benign external conditions.
Commonwealth of Independent States: A
Rebalancing of Growth Is Needed to
Sustain the Expansion
Real GDP growth slowed significantly in the
Commonwealth of Independent States (CIS)
during 2005, to 6.5 percent from 8.4 percent in
2004 (Table 1.9). A particularly sharp slowdown
in Ukraine accounted for much of this, although
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
46
Table 1.9. Commonwealth of Independent States: Real
GDP, Consumer Prices, and
Current Account Balance
(Annual percent change unless otherwise noted)
___________R_e_a_l _G_D_P___________
_______C_o__n_s_u_m_e_r_ P__ri_c_e_s_1______
____C_u_r_re_n_t_ _A_c_c_o_u_n_t_ B_a_l_a_n_c_e_2___
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Commonwealth of
Independent States 8.4 6.5 6.0 6.1 10.3 12.3 10.4 9.7
8.1 9.1 9.6 8.1
Russia 7.2 6.4 6.0 5.8 10.9 12.6 10.4 9.5 9.9 11.3
11.8 9.5
Ukraine 12.1 2.6 2.3 4.3 9.0 13.5 13.0 12.5 10.5 2.7
1.2 –2.1
Kazakhstan 9.6 9.4 8.0 8.3 6.9 7.6 7.5 7.5 1.2 1.8 2.3
2.4
Belarus 11.4 9.2 5.5 4.0 18.1 10.3 10.4 13.3 –5.3 1.2
–0.8 –2.0
Turkmenistan 17.2 9.6 6.5 6.0 5.9 10.8 7.9 5.0 0.6 2.8
1.4 1.1
Low-income CIS countries 8.4 11.7 12.7 11.4 7.5 11.9
8.4 7.6 –7.1 –1.0 6.9 17.6
Armenia 10.1 13.9 7.5 6.0 7.0 0.6 3.0 3.0 –4.6 –3.3
–3.9 –4.3
Azerbaijan 10.2 24.3 26.2 22.9 6.7 9.7 8.6 11.8 –30.0
–5.2 17.7 40.0
Georgia 6.2 7.7 6.4 5.0 5.7 8.3 5.3 4.0 –8.3 –7.4 –7.1
–5.5
Kyrgyz Republic 7.0 –0.6 5.0 5.5 4.1 4.3 5.7 4.5 –3.4
–8.1 –6.8 –5.6
Moldova 7.3 7.0 6.0 5.0 12.5 11.9 9.4 8.7 –2.7 –5.5
–5.2 –5.3
Tajikistan 10.6 6.7 8.0 6.0 7.1 7.1 7.8 5.0 –4.0 –3.4
–4.2 –4.8
Uzbekistan 7.4 7.0 7.2 5.0 8.8 21.0 11.3 6.5 10.0 10.8
9.6 9.2
Memorandum
Net energy exporters3 7.6 7.1 6.7 6.5 10.4 12.3 10.1
9.2 8.6 10.3 11.0 9.6
Net energy importers4 11.5 4.2 3.3 4.4 10.2 12.1 11.7
11.6 4.6 1.2 –0.2 –2.5
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather
than as December/December changes, as is the practice
in some countries.
2Percent of GDP.
3Includes Azerbaijan, Kazakhstan, Russia,
Turkmenistan, and Uzbekistan.
4Includes Armenia, Belarus, Georgia, Kyrgyz Republic,
Moldova, Tajikistan, and Ukraine.
the pace of expansion also moderated in other
key countries in the region. Lower output
growth in the energy sector (Russia, Kazakhstan),
political and economic uncertainties that undermined
investment (Ukraine, Kyrgyz Republic),
and an increasingly negative contribution from
the external sector (Ukraine, Russia) all contributed
to this weaker growth.
At the same time as growth has slowed, the
composition of demand has been very unbalanced,
raising concerns about the sustainability
of growth going forward. Investment has
remained weak, averaging just under 21 percent
of GDP in 2005, the lowest of any emerging
market and developing country region (Figure
1.17). Consumption, on the other hand, has
expanded strongly, particularly in Russia,
Ukraine, and Kazakhstan, underpinned by
large hikes in wages and public pensions and
increased access to credit. Indeed, credit has
grown extremely strongly in a number of
countries in the region, and in Ukraine and
Kazakhstan has increasingly been directed at
households and a significant share is denominated
in foreign currency. While the ongoing
process of financial deepening in the region is
welcome—the ratio of bank credit-to-GDP is still
low in many countries—rapid credit growth
poses a risk to financial stability given banks’
generally weak abilities to assess borrower
creditworthiness
and the increasing reliance by banks
in some countries on financing from abroad.
This combination of strong consumption
growth and weak investment has led to increasing
capacity constraints in some countries and
sectors and, together with higher food and
energy prices (although pass-through to domestic
prices has not been complete), contributed
to a sharp increase in inflationary pressures in
the first half of 2005 that have moderated only
slightly in recent months. The current account,
however, remains in large surplus at the regional
level, although there is increasing differentiation
across countries. In energy exporters as a group,
higher oil prices underpinned a further increase
in the surplus during 2005, but in energyimporting
countries the surplus declined due
COMMONWEALTH OF INDEPENDENT STATES: A REBALANCING OF
GROWTH IS NEEDED TO SUSTAIN THE EXPANSION
47
Figure 1.17. Commonwealth of Independent States:
Unbalanced Growth Raises Concerns About the
Outlook
Consumption has grown strongly in a number of
countries, supported by wage and
pension increases and rapid credit growth. Investment,
however, remains relatively
weak, raising concerns about the sustainability of
current growth rates.
0
3
6
9
12
15
Growth in Real Consumption 18
(percent change)
Armenia Belarus Kazakhstan Kyrgyz
Republic
Moldova Russia Ukraine
2002–03 2004–05
0
5
10
15
20
25
30
Investment 35
(percent of GDP)
2005 average1
2003 2005
Armenia Belarus Kazakhstan Kyrgyz
Republic
Moldova Russia Ukraine
-10
0
10
20
30
40
50
60
Growth in Real Bank Credit to the Private Sector 70
(percent change) 2002–03 2004–05
Armenia Belarus Kazakhstan
Kyrgyz Republic
Moldova
Russia
Ukraine
Azerbaijan Georgia
Sources: IMF, International Financial Statistics; and
IMF staff calculations.
1Emerging market and developing countries excluding
China.
-10
-8
-6
-4
-2
0
2
4
Net Foreign Assets of the Banking Sector 6
(percent of GDP)
2002–03 2004–05
Armenia Belarus Kazakhstan
Kyrgyz Republic
Moldova
Russia
Ukraine
Azerbaijan Georgia
both to higher oil imports and an increase in
non-oil import volumes.
Looking forward, growth is projected to slow
further to 6 percent in 2006, although decisive
policy actions will be needed to lock in this pace
of expansion. Monetary policy will increasingly
need to focus on reducing or containing inflation,
with the authorities correspondingly allowing
nominal exchange rates to appreciate as
necessary. And while countries that are benefiting
from higher oil revenues have scope to raise
productive government spending, such increases
will need to be carefully managed in line with
cyclical considerations to ensure they are consistent
with overall macroeconomic policy objectives.
To encourage investment spending, a more
hospitable business climate needs to be created
by reducing uncertainties about government
intervention in the economy and moving to
strengthen the institutional structures necessary
for vibrant market-based economies to flourish.
Structural reforms are also needed to boost
productivity
in the noncommodity sectors to
improve competitiveness in the face of upward
pressures on exchange rates. In terms of the
financial sector, progress has been made in
banking reform, but it has lagged that in countries
in central and eastern Europe. Regulatory
and supervisory systems, in particular, need to be
upgraded in line with the growing importance of
the financial sector.
Turning to individual countries, after a weak
start to 2005, real GDP growth in Russia has
accelerated, and the economy is expected to
expand by 6 percent in 2006 (0.8 percentage
points higher than projected in the September
2005 World Economic Outlook). The expansion is
being driven by private consumption, while
export growth has fallen. Investment, despite a
recent pickup, is relatively subdued, and concerns
remain that the economy may begin to
run into capacity constraints. Real wages are rising
faster than productivity, imports are surging,
and CPI inflation is running at over 11 percent.
Against this background, fiscal policy should not
be relaxed until cyclical pressures have eased,
and monetary policy needs to be tightened.
Without allowing for greater nominal exchange
rate appreciation, it is unlikely the central bank
will be able to meet its end-2006 inflation target
of 8.5 percent. Turning to the financial sector,
credit growth remains rapid, and it is important
that prudential practices are strengthened
under the new deposit insurance scheme to
ensure that risks in the sector are appropriately
managed.
In Ukraine, real GDP growth has slowed
sharply, reflecting a less favorable external
environment and political and policy uncertainties
that have undermined investment.
Growth is expected to slow further this year—
to 2.3 percent—as continued political uncertainties
and a significant hike in import prices
for natural gas weigh on activity. Inflation has
fallen from a peak of 15 percent in mid-2005,
but remains over 10 percent, while credit
growth remains strong. Reflecting uncertainties
about the economic and political situation,
spreads on Ukrainian external bonds have
widened somewhat and the central bank conducted
substantial foreign exchange interventions
to maintain the official hryvina-U.S. dollar
exchange rate. The authorities need to tighten
monetary policy to reduce inflation, support
this with fiscal restraint, and implement reforms
to create a positive investment climate. In
Kazakhstan, growth remains strong, underpinned
by high oil prices. Inflationary pressures,
however, have risen, and the central bank has
raised interest rates, although further tightening
is still required. WTO accession negotiations
are proceeding, but progress with other structural
reforms has been slow.
Growth in the low-income CIS countries
remains very strong, although there are considerable
differences across countries. In
Azerbaijan (oil production), Armenia (remittance
inflows and a good harvest), and Georgia
(agricultural recovery), growth has picked up,
but in the Kyrgyz Republic and Tajikistan it has
slowed. The central challenge for the region
remains to put in place the policies that will
maintain the strong growth needed to reduce
poverty going forward. To achieve this, the
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
48
sources of growth need to be diversified, particularly
by improving the business climate to
encourage investment in the noncommodity sectors,
liberalizing trade regimes, and reducing
high external debt levels.
Africa: Sustaining the Recent Growth
Acceleration
Economic activity in sub-Saharan Africa continued
to expand robustly at 5.5 percent in 2005
(Table 1.10). Among oil exporters, growth
picked up in Nigeria, but slowed in some other
countries—particularly Chad and Equatorial
Guinea—following strong increases over the previous
two years. Among oil importers, higher
metal prices have supported growth in countries
such as South Africa and Zambia, while growth
in excess of 7 percent in Ethiopia, Mozambique,
and Sierra Leone reflects the continuing positive
effects of earlier reforms. The moderation in
food and agricultural raw material prices, however,
along with weather-related food production
shortfalls, affected growth in the Sahel region
and parts of eastern and southern Africa, while
weakness in cotton markets hurt the CFA franc
countries. The removal of textile quotas has also
adversely affected a number of African countries.
Output continued to decline in Côte
d’Ivoire, Zimbabwe, and the Seychelles.
AFRICA: SUSTAINING THE RECENT GROWTH ACCELERATION
49
Table 1.10. Selected African Countries: Real GDP,
Consumer Prices, and Current Account Balance
(Annual percent change unless otherwise noted)
__________R_e_a_l_ G__D_P_ _________
_______C_o_n_s_u_m_e_r_ _P_r_ic_e_s_1______
___C_u__rr_e_n_t_ A_c_c_o_u_n_t_ _B_a_la_n_c_e_2___
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Africa 5.5 5.2 5.7 5.5 8.1 8.5 9.1 7.3 0.1 1.9 2.6 2.7
Maghreb 5.1 4.1 5.2 5.0 2.9 1.5 3.7 3.8 7.1 11.8 10.5
9.1
Algeria 5.2 5.3 4.9 5.0 3.6 1.6 5.0 5.5 13.1 21.3 18.9
16.5
Morocco 4.2 1.8 5.4 4.4 1.5 1.0 2.0 2.0 2.2 0.9 –0.8
–0.9
Tunisia 6.0 4.2 5.8 6.0 3.6 2.0 3.0 2.0 –2.0 –1.3 –1.4
–1.1
Sub-Sahara 5.6 5.5 5.8 5.7 9.7 10.6 10.7 8.3 –2.1 –1.1
0.3 0.8
Horn of Africa3 8.1 8.3 9.9 8.5 8.4 7.8 8.7 5.3 –5.8
–10.1 –7.0 –5.2
Ethiopia 12.3 8.7 5.3 5.7 8.6 6.8 10.8 6.0 –5.1 –9.1
–7.5 –4.3
Sudan 5.2 8.0 13.0 10.3 8.4 8.5 7.5 5.0 –6.3 –10.7
–6.9 –5.4
Great Lakes3 5.6 5.6 5.4 6.1 6.9 11.6 8.2 4.5 –2.7
–4.7 –5.1 –5.8
Congo, Dem. Rep. of 6.9 6.5 7.0 7.2 4.0 21.4 9.3 6.4
–5.7 –4.8 –2.6 –2.1
Kenya 4.3 4.7 3.3 4.9 11.6 10.3 11.5 2.8 –2.5 –7.6
–4.4 –5.9
Tanzania 6.7 6.9 5.8 7.0 4.3 4.6 5.2 5.0 –1.6 –2.6
–7.6 –8.7
Uganda 5.6 5.6 6.2 6.1 5.0 8.0 6.5 4.0 –1.7 –1.2 –3.9
–4.2
Southern Africa3 4.8 5.2 9.2 8.2 47.6 33.2 46.7 34.0
0.3 0.3 3.2 3.2
Angola 11.1 15.7 26.0 20.2 43.6 23.0 13.0 8.3 4.2 8.2
11.3 12.0
Zimbabwe –3.8 –6.5 –4.7 –4.1 350.0 237.8 850.4 584.2
–8.3 –11.1 1.7 –15.0
West and Central Africa3 6.6 5.4 5.1 5.3 7.9 11.6 6.7
4.8 –0.4 4.6 6.7 7.4
Ghana 5.8 5.8 6.0 6.0 12.6 15.1 8.8 7.1 –2.7 –6.6 –7.8
–5.3
Nigeria 6.0 6.9 6.2 5.2 15.0 17.9 9.4 6.5 4.6 12.6
14.2 15.3
CFA franc zone3 7.7 4.1 3.4 4.8 0.2 4.2 2.4 2.3 –3.4
–1.3 0.1 0.0
Cameroon 3.6 2.6 4.2 4.3 0.3 2.0 2.6 1.0 –3.4 –1.5
–1.6 –1.8
Côte d’Ivoire 1.8 0.5 2.4 2.6 1.5 3.9 2.8 3.0 2.7 0.7
1.9 1.9
South Africa 4.5 4.9 4.3 4.1 1.4 3.4 4.5 4.9 –3.4 –4.2
–3.9 –3.6
Memorandum
Oil importers 4.8 4.4 4.6 4.7 7.5 8.3 10.0 8.0 –2.5
–3.7 –3.7 –3.6
Oil exporters4 7.2 7.0 8.2 7.5 9.7 9.1 7.2 5.8 5.8
12.0 12.7 12.3
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather
than as December/December changes, as is the practice
in some countries.
2Percent of GDP.
3The country composition of this regional group is set
out in Table F in the Statistical Appendix.
4Includes Chad and Mauritania in this table.
Despite the increase in international oil
prices, inflationary pressures have remained generally
well contained, reflecting in part a lower
degree of pass-through to domestic fuel prices in
2005 relative to previous years. This has, however,
adversely affected fiscal and current
account balances in a number of oil-importing
countries, which was partially alleviated by external
grants.
The economic outlook in sub-Saharan Africa
remains positive, with growth of 5.8 percent
projected this year—the highest rate in over
30 years—underpinned by high commodity
prices, improved macroeconomic policies, and
structural reforms in some countries. This
acceleration
in growth is largely due to the oil-producing
countries, where capacity increases in
Angola and the Republic of Congo and new production
in Mauritania are expected to drive a
substantial pickup in activity. Growth in non-oil
producers is also expected to pick up, supported
by continued, albeit slower, growth in non-oil
commodity prices, a recovery in agricultural
production,
and stronger investment. While the outlook
for the region’s oil exporters is importantly
tied to oil prices, for non-oil-producing countries,
a softening in the global demand for non-oil
commodities, higher energy prices, and weatherrelated
factors are key risks. For the CFA franc
countries, a weakening in the U.S. dollar against
the euro would adversely affect competitiveness.
The strong projected expansion this year follows
a period where growth in sub-Saharan
Africa has clearly risen above its historical trend
(Figure 1.18). Growth in both oil- and
non-oilproducing
countries has strengthened, the former
spurred by the coming on stream of new
capacity in recent years. In non-oil producers,
reforms implemented in the second half of the
1990s in a number of countries have clearly
started to pay dividends, with investment ratios
importantly reversing their previous downward
trend. Sustaining and further strengthening the
recent economic performance are critical to
making a lasting impact on poverty reduction. In
this regard, continued fiscal discipline and low
inflation are essential anchors for sustaining
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
50
Figure 1.18. Sub-Saharan Africa: Growth, Investment,
and Economic Transitions
Source: IMF staff calculations.
Angola, Cameroon, Chad, Republic of Congo, Côte
d'Ivoire, Equatorial Guinea, Gabon,
Nigeria, and São Tomé and Príncipe.
Benin, Botswana, Burkina Faso, Burundi, Cape Verde,
Central African Republic, Comoros,
Democratic Republic of Congo, Ethiopia, Gambia, Ghana,
Guinea, Guinea-Bissau, Kenya,
Lesotho, Madagascar, Malawi, Mali, Mauritius,
Mozambique, Namibia, Niger, Rwanda,
Senegal, Seychelles, Sierra Leone, South Africa,
Swaziland, Tanzania, Togo, Uganda,
Zambia, and Zimbabwe.
Economic reforms have supported greater investment and
improved growth
performance in recent years. Sustaining progress on
structural reforms will be
important to maintain higher levels of long-term
growth.
1995 96 97 98 99 2000 01 02 03 04 05
-1
0
1
2
3
4
5
6
Real per Capita GDP Growth 7
(percent change)
1995 96 97 98 99 2000 01 02 03 04 05
15
20
25
Investment 30
(percent of GDP)
1995 96 97 98 99 2000 01 02 03 04 05
0
2
4
6
8
Economic Transitions 10
(cumulative number of transitions)
Oil-producing countries 1
Sub-Saharan Africa
Non-oil-producing countries 2
1
2
growth accelerations, but further improvements
in economic institutions—where there have
been few new transitions in recent years—will
help secure stable long-term growth going
forward.10
Lessons from the last World Economic Outlook
suggest that the current favorable economic
environment is particularly conducive to implementing
necessary reforms to strengthen economic
institutions. In particular, the reduction
of trade restrictions and multilateral progress in
trade liberalization in the Doha Round can be
expected to support efforts to strengthen
institutions.
Under the Multilateral Debt Relief
Initiative (MDRI), the IMF has granted debt
relief amounting to $2.5 billion to 13 countries
in Africa. Countries should take advantage of
the opportunities offered by the MDRI to reorient
spending to priority areas, including health
and education, to raise the level of human capital
and long-term growth. The New Partnership
for Africa’s Development (NEPAD) offers an
important opportunity that needs to be fully
grasped for strengthening cooperation at the
regional level, with potentially large benefits
from the improvement in institutional quality in
the immediate neighborhood of countries.
Finally, reforms to improve the business environment,
including streamlining of regulations and
improved governance, will help increase investment
and employment.
Turning to individual countries, economic
activity in South Africa was strong in 2005,
driven by domestic demand and increasingly
supported by exports. Consumer and investment
spending have strengthened, while manufacturing
growth began picking up at end-2005 in
response to domestic and external demand.
Looking ahead, growth is expected to moderate
as output approaches potential. While higher oil
prices and strong domestic demand have led to
some widening in the current account deficit,
inflation has remained well contained and the
recent appreciation of the rand has improved
the inflation outlook. Nevertheless, the continued
strength of domestic demand, high money
and credit growth, and developments in international
oil and food prices present potential
upside risks to inflation. Following persistently
strong fiscal performance and prudent levels of
public debt, the government is appropriately
planning to increase further social spending and
infrastructure investment to help address social
needs and supply bottlenecks. On structural
policies, the authorities are focusing on skills
development, improving efficiency in stateowned
enterprises, and on measures to improve
competition in domestic markets. The positive
impact of these initiatives on growth could be
enhanced by labor market reforms.
In Nigeria, growth strengthened in 2005 due
to robust expansion in both the oil- and non-oil
sectors, but is expected to slow in 2006. Following
insufficient sterilization of oil-related inflows
and low interest rates during much of last year,
monetary policy has begun to be tightened and
inflation is expected to decline from last year’s 18
percent. Reflecting strong oil revenues and lower
capital expenditures, the overall fiscal surplus
reached nearly 10 percent of GDP in 2005,
although the non-oil fiscal balance continued to
deteriorate. Management of oil revenues remains
a key challenge for policymakers, underscoring
the need for lasting institutional reforms to
ensure these revenues are used prudently to pave
the way for stable long-term growth. Budgetary
plans that place higher priorities on identifying
allocations for key reforms, poverty reducing programs
and infrastructure, and explicitly identifying
domestic fuel subsidies are welcome, and
need to be implemented going forward. Risks to
the overall outlook stem mainly from developments
in international oil prices as well as from
any disruptions to oil production facilities.
AFRICA: SUSTAINING THE RECENT GROWTH ACCELERATION
51
10A transition is defined as the first year of a
sustained improvement in the quality of the underlying
economic institutions.
The quality of institutions is assessed using an
overall index composed of indicators encompassing the
size of government,
legal structure and property rights, access to sound
money, the freedom to trade internationally, and
regulation of
credit, labor, and business. See Chapter III of the
September 2005 World Economic Outlook for further
details.
In the Maghreb region, increased oil exports
and sustained activity in the services and
construction
sectors have underpinned strong
growth in Algeria, although inflation has eased
due to a drop in food prices. Public spending—
largely investment—increased by some 4 percent
of nonhydrocarbon GDP, but rising hydrocarbon
revenues have generated very large fiscal and
current account surpluses. Against the backdrop
of high energy prices, the outlook for growth
remains strong, although absorptive capacity
may be limited in the short term. Growth above
5 percent is projected for both Morocco and
Tunisia, with the expiration of textile quotas having
had only a modest impact on overall growth.
Both countries, however, remain vulnerable to
further oil price increases and possible delayed
adverse effects on the textile sectors. Policies to
attract investment and diversify the manufacturing
base of the economy remain key policy
priorities.
Middle East: Booming Asset Prices
Across the Region
Oil-exporting countries in the Middle East
enjoyed a third consecutive year of substantially
higher export earnings, fueling average growth
of 5.9 percent in the region and a current
account surplus of 19 percent of GDP (Table
1.11). While a large proportion of the increase
in oil revenues has been saved in most oilexporting
countries, domestic demand growth
has strengthened considerably, although inflation
has remained subdued. Growth in non-oilproducing
countries in the region has benefited
from the expansion in oil exporters and domestic
reforms in some countries. With oil production
near capacity, strong but moderating
growth is expected in 2006, while current
account surpluses in oil exporters reach 25 percent
of GDP. The main risks to the outlook are
closely related to the prospects for oil prices,
although rising geopolitical uncertainty and
developments in asset markets (see below) pose
additional risks to the region.
The current oil cycle has been accompanied
by a significant rise in money and credit growth,
which has contributed to surging property and
equity prices, with the latter also benefiting
from increased profitability of petrochemical
companies (Figure 1.19). During 2005, Middle
Eastern stock indices were among the best performing
in the world, and regional market capitalization
at nearly $1.3 trillion in early 2006
exceeded that of emerging Europe and Latin
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
52
Table 1.11. Selected Middle Eastern Countries: Real
GDP, Consumer Prices, and Current Account Balance
(Annual percent change unless otherwise noted)
___________R_e_a_l_ G__D_P_ __________
_______C_o__n_s_u_m_e_r_ P__ri_c_e_s_1______
____C_u_r_re_n_t_ _A_c_c_o_u_n_t_ B_a_l_a_n_c_e_2___
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006
2007
Middle East 5.4 5.9 5.7 5.4 8.4 8.4 8.7 8.5 12.4 19.1
20.4 18.1
Oil exporters3 5.7 6.2 5.8 5.5 8.2 8.1 9.8 9.6 14.4
22.1 23.6 21.2
Iran, I.R. of 5.6 5.9 5.3 5.0 15.2 13.0 17.0 17.0 2.5
7.5 7.6 6.2
Saudi Arabia 5.2 6.5 6.3 6.4 0.3 0.4 1.0 1.0 20.5 28.3
28.3 23.9
Kuwait 6.2 8.5 6.2 4.7 1.3 3.9 3.5 3.0 31.1 43.3 49.9
48.7
Mashreq 4.2 4.7 4.8 4.8 8.4 9.5 4.9 4.5 –0.8 –2.5 –3.4
–4.4
Egypt 4.1 5.0 5.2 5.2 10.3 11.4 4.4 4.5 4.3 2.8 1.3
–0.4
Syrian Arab Republic 2.5 3.5 3.6 3.6 4.6 7.2 7.2 5.0
–2.0 –5.5 –7.3 –8.6
Jordan 7.7 7.2 5.0 5.0 3.4 3.5 6.9 5.8 –0.2 –17.8
–16.0 –14.4
Lebanon 6.0 1.0 3.0 3.4 3.0 0.3 2.5 2.0 –18.2 –12.7
–12.9 –12.1
Memorandum
Israel 4.4 5.2 4.2 4.2 –0.4 1.3 2.4 2.0 1.6 1.9 1.0
2.1
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather
than as December/December changes during the year, as
is the practice in some countries.
2Percent of GDP.
3Includes Bahrain, I.R. of Iran, Iraq, Kuwait, Libya,
Oman, Qatar, Saudi Arabia, Syrian Arab Republic,
United Arab Emirates, and Yemen.
America. Many stock markets in the region,
however, experienced significant corrections in
the first quarter of 2006, although valuations still
remain well above long-term averages. Indirect
evidence from the performance of real estate
and construction shares supports other evidence
that real estate prices are also near record
levels.
A key challenge in the region is to channel
liquidity into productive investment in both the
oil and non-oil sectors, given the need to raise
potential growth and provide increased employment
opportunities for the growing working-age
population. In particular, financial sector
reforms that support the development of deeper
capital markets would allow new and smaller
firms to tap into the pool of available liquidity to
fund their investment plans. An increased role
for managed funds could also allow investment
by small investors in diversified portfolios, reducing
portfolio volatility and facilitating greater
flexibility in their spending decisions. More
generally,
however, recent developments have
increased the exposure of bank balance sheets
to any downturn in asset markets—possibly
resulting from an unexpected drop in oil prices
or increased geopolitical uncertainty—and
supervisory authorities will need to carefully
monitor these risks, particularly in terms of lending
to the construction sector.
Turning to developments in individual countries,
the growth outlook for the Islamic
Republic of Iran remains favorable, supported
by high oil revenues, the recovery in agriculture,
and a strong performance of the manufacturing
sector. Inflation, however, still remains in double
digits, underscoring the need for fiscal restraint
and greater exchange rate flexibility. Prudent
macroeconomic policies, reforms of the financial
sector and the public subsidy system, and
increased private sector participation in the
economy are essential preconditions if higher oil
revenues are to be successfully used to foster
growth and employment.
In Saudi Arabia, activity expanded by 6.5 percent
in 2005, supported by both the oil and nonoil
sectors, with substantial current account and
MIDDLE EAST: BOOMING ASSET PRICES ACROSS THE REGION
53
0
250
500
750
1,000
1,250
1,500
1,750
2,000
0
25
50
75
100
125
150
175
200
Figure 1.19. Middle East: Surging Asset Markets
Oil-related revenues have fueled growth in bank credit
and asset prices. Regional
equity markets have grown similar in size to other
emerging market regions.
0
100
200
300
400
500
600
700
800
900
0
5
10
15
20
25
30 Equity and Real Estate
Market Indices
2000 01 02 03 04 Dec.
05
Stock market index
Construction and
real estate index
Growth in Real Money and Real
Credit to the Private Sector
1998–
2002
03 04 05
Broad money
Bank credit
1 2
Percent of GDP
Billions of U.S. dollars
Billions of U.S. dollars
(left scale)
Middle East Developing
Asia
Emerging
Europe
Latin
America
Equity Market Capitalization, 2005
Percent of GDP (right scale)
3
Sources: SHUAA Capital; IMF, International Financial
Statistics; and IMF staff calculations.
Oil exporters: Bahrain, I.R. of Iran, Kuwait, Libya,
Oman, Qatar, Saudi Arabia, Syrian Arab
Republic, Republic of Yemen, and United Arab Emirates.
Indices represent the Arab composite with January 1,
2000 base year.
Emerging Europe includes Russia and Ukraine;
Developing Asia excludes Taiwan Province
of China, Korea, Singapore, and Hong Kong SAR; and the
Middle East includes the countries
of the Cooperation Council of the Arab States of the
Gulf (GCC) plus Egypt, Jordan, and
Lebanon.
1
2
3
fiscal surpluses and subdued inflation. With oil
export volumes not expected to increase substantially
in the short term, growth is projected
to remain broadly unchanged during 2006–07,
with the current account surplus anticipated to
remain high based on current oil price forecasts.
The government’s plans for substantial investment
in the oil sector and infrastructure, accompanied
by further structural reforms aimed at
greater private sector participation, should help
sustain strong growth and reduce unemployment.
The substantial strengthening of the fiscal
position and reduction of public debt will also
create room for additional social spending in
the areas of health and education.
Despite the very difficult security environment,
Iraq has managed to maintain overall
macroeconomic stability. Growth of 10 percent is
projected in 2006, although the outlook is subject
to considerable risks. The fiscal position has
improved on account of higher oil revenues and
the undershooting of some expenditure due to
project implementation difficulties. The
approval of the Stand-By Arrangement with the
IMF in December paves the way for further debt
reduction by Paris Club creditors which, along
with the successful $14 billion debt exchange
with private creditors, is expected to reduce debt
obligations to a more sustainable level. Planned
expansion of the oil sector, reform of public
subsidies,
and improved administrative capacity
remain key challenges in the period ahead.
Economic activity picked up momentum in
Egypt in 2005, with strengthening domestic
demand broadening the expansion and boosting
the prospects for robust growth this year. Inflation
has declined impressively to below 5 percent,
aided by the appreciation of the pound in
early 2005. While the current account surplus
has narrowed—with still buoyant export growth
and rising remittances offset by higher imports
of oil and capital goods—strong private capital
inflows against the backdrop of recent nominal
exchange rate stability poses challenges for monetary
policy. Looking forward, a key macroeconomic
challenge is to steadily reduce
government deficits and public debt, both to
reduce vulnerabilities and create space for more
productive public spending and higher private
investment, the latter a key to raising growth and
reducing high and rising unemployment. The
recent momentum in privatization is welcome
and efforts to resolve nonperforming loans in
state-owned banks should be stepped up.
Elsewhere in the Mashreq, Jordan has successfully
adjusted to higher oil prices and a sharp
decline in external grants through a significant
reduction in fuel subsidies and expenditure
restraint, and growth, while slowing, is projected
to remain robust in 2006. Activity in Lebanon is
expected to rebound in 2006 following the
stabilization
of the political situation. Public
debt—already extremely high—remains on an
upward trajectory, and sustained measures to
raise the primary surplus will be critical to
reducing the debt burden and risks to the
financial system.
Economic activity in Israel expanded by 5.2
percent in 2005, underpinned by robust private
consumption and tourism revenues. The
strength of domestic demand and wages has
increased inflationary risks, prompting the Bank
of Israel to raise interest rates in October and
November. Looking ahead, growth prospects are
favorable, although political and security risks
remain. The government will need to outline
specific spending plans to meet the mediumterm
budget deficit target of 3 percent of GDP
and put high public debt—over 100 percent of
GDP—on a firm downward path.
Appendix 1.1. Recent Developments in
Commodity Markets
The authors of this appendix are Valerie Mercer-
Blackman, To-Nhu Dao, Paul Nicholson, and Hossein
Samiei.
The IMF commodities and energy price index
increased by over 29 percent in dollar terms (30
percent in special drawing right, or SDR, terms)
in 2005, on surging fuel and base metals prices.
Energy prices rose by 39 percent, owing to significant
increases in oil and natural gas prices.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
54
Prices of nonfuel commodities rose by 10 percent
during 2005, reaching record highs in nominal
terms. Most metal prices experienced
significant increases in 2005. Robust economic
activity and limited supply response have been
the main drivers of higher energy and metal
prices. Looking ahead, limited excess capacity in
the oil sector is likely to persist well beyond
2006, and prices will continue to be susceptible
to geopolitical events. In contrast, metal prices
are projected to weaken somewhat as capacity
comes on stream by end-2006.
Crude Oil and Other Petroleum Products
The energy market has remained tight and
increasingly susceptible to short-term events,
reflecting concerns about future supply in the
face of limited excess capacity among members
of the Organization of the Petroleum Exporting
Countries (OPEC).
Price Developments
The average petroleum spot price (APSP)11
rose by another 41 percent in 2005. Prices spiked
sharply in early September, peaking at $66 per
barrel in the wake of Hurricane Katrina. Coordinated
action by the International Energy Agency
(IEA) and the U.S. government to provide additional
supplies from strategic reserves, as well as
OPEC’s accommodative supply stance, temporarily
calmed the market, and by November crude
oil prices dropped back to pre-Katrina levels.
Prices bounced back, however, in January 2006
and have fluctuated mostly in the $60–66 range,
owing to renewed geopolitical concerns in the
Islamic Republic of Iran, Iraq, and Nigeria. These
countries together account for about 11 percent
of world production, well above the current OPEC
spare capacity of 2–3 percent of world production.
Prices of refined products followed a similar
trend up until December 2005 (Figure 1.20).
APPENDIX 1.1. RECENT DEVELOPMENTS IN COMMODITY MARKETS
55
Sources: Bloomberg Financial Markets, LP; and IMF
staff calculations.
Average unweighted petroleum spot price of West Texas
Intermediate, U.K. Brent, and
Dubai Fateh crude.
Five-day weighted average of NYMEX Light Sweet Crude,
IPE Dated Brent, and implied
Dubai Fateh.
1
2
20
40
60
80
100
120
140
Jan.
2004
Mar. Jun. Sep. Dec. Mar.
05
Jun. Sep. Dec. Mar.
06
U.S. Petroleum Products and Natural Gas Spot Prices
(U.S. dollars a barrel)
Gasoline
Heating oil
Natural gas
60
80
100
120
140
160
180
200
220
18
24
30
36
42
48
54
60
66
72
Average petroleum
spot price
Spot and Futures Prices
(U.S. dollars a barrel)
1
Implied futures price
at March 31, 20052
Implied futures price
at March 31, 20062
2002 03 04 05 06 07 08
Figure 1.20. Crude Oil Prices, Futures, and Petroleum
Product Prices
Average Petroleum Spot Prices in U.S. Dollar and SDR
Terms
(January 2003 = 100)
U.S. dollar terms
SDR terms
2003 04 05 Mar.
06
11The IMF average petroleum spot price is an equally
weighted average of the West Texas Intermediate,
Brent,
and Dubai crude oil prices. Unless otherwise noted,
all
subsequent references to the oil price are to the
APSP.
Following a gasoline price spike in the aftermath
of the hurricane, the result of bottlenecks in
refinery capacity, prices fell to pre-Katrina levels
by November. Unlike crude oil, they remained
fairly stable, as relatively warm winter weather in
January kept inventories at comfortable levels,
but increased in March owing to strong demand
in the United States.
U.S. natural gas prices almost doubled in
2005, peaking at $15 per MMBTU (million
British thermal units), following the hurricanes
in the Gulf of Mexico. Prices have eased below
$10 recently, but remain above their five-year
average. As of early February, about 16 percent
of natural gas production in the Gulf of Mexico
was still shut in. Prices in Europe, which have
been lower than in the United States, also spiked
in January owing to price disputes between
Russia and Ukraine.12
Oil Consumption
Global oil consumption in 2005 rose by 1.1
million barrels a day (mbd)—well below the
3 mbd increase in 2004 and somewhat lower
than initial projections by the IEA—mostly on
account of lower consumption growth in China
and the United States (Table 1.12). Record-high
prices—particularly of gasoline—may have
begun to play a role in slowing consumption,
but the evidence is limited and consumption
growth still remains near the average of the past
two decades. Other key factors include hurricane-
related disruptions in the United States and
developments in China—in particular, the
apparent resolution in 2005 of shortage of coalpowered
electricity generation, which had in
2004 increased demand for stand-alone diesel
power generators; and policies in 2005 aimed at
controlling domestic product prices, which
encouraged local refineries to export abroad
and repressed domestic consumption.
Oil Production
To satisfy growing demand in the face of flat
non-OPEC supply in 2005, OPEC production
(including natural gas liquids and condensates)
increased by 1 mbd, to 34 mbd. Production levels
in most OPEC countries (excluding Iraq) are
close to their quotas, but Iraq’s production has
been disappointing. At 1.6 mbd in December,
Iraq’s production was 20 percent below 2004—
and well below its capacity of 2.5 mbd—reflecting
inadequate storage capacity and delivery
bottlenecks, as well as sabotage attacks on production
infrastructure. OPEC’s spare capacity
(excluding Iraq) stood at 1.25 mbd at end-2005
(Figure 1.21).
Non-OPEC supply in 2005, at 50.1 mbd, was
almost unchanged relative to 2004, largely owing
to production shortfalls in Russia (in part resulting
from the production slowdown in former
Yukos fields); and the United States (mainly due
to infrastructure damage in the aftermath of the
hurricanes, with production in the Gulf of
Mexico still 430,000 barrels a day below pre-
Katrina levels). Production also fell slightly in
other oil-producing OECD countries, while
some production gains occurred in non-OPEC
Africa.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
56
Table 1.12. Global Oil Demand by Region
(Millions of barrels a day)
________A_n_n__u_a_l _C_h_a_n_g_e________
________2_0__0_5________
___D_e_m__a_n_d___ Million barrels _2_0__0_4_
2005 2004 a day Percent Percent
North America 25.43 25.34 0.09 0.4 3.3
Europe 16.30 16.33 –0.03 –0.2 1.3
OECD Pacific 8.63 8.53 0.10 1.2 –1.8
China 6.59 6.43 0.16 2.5 15.2
Other Asia 8.72 8.56 0.16 1.9 6.3
Former Soviet Union 3.80 3.76 0.04 1.1 4.7
Middle East 5.91 5.62 0.29 5.2 6.6
Africa 2.90 2.81 0.09 3.2 2.9
Latin America 4.99 4.86 0.13 2.7 4.1
World 83.25 82.23 1.02 1.2 3.8
Source: International Energy Agency, Oil Market
Report, March 2006.
12Prices of natural gas in the three main markets
(Asia, Europe, and the United States) can vary
significantly owing to
the difficulty of transporting natural gas.
Early indications are that global oil production
is somewhat below expectations so far in
2006, mainly due to attacks on oil installations in
Nigeria, weather-related disruptions in the North
Sea and the former Soviet Union, and ongoing
security-related disruptions in Iraq.
Inventories
The behavior of inventories is the most telling
sign of a shift in the oil market balance in 2005
as, despite high prices, OECD commercial crude
inventories have risen to their highest level in
the past five years. Government-controlled inventories
have also risen in both levels and days of
forward cover. This contrasts markedly with the
typically negative relationship between prices
and inventories observed in the past, suggesting
that concerns about future supply have likely led
to precautionary accumulation of stocks on the
part of consumers and governments. The fundamental
negative relationship between inventories
and the spread between spot and long-dated
futures prices still holds (Figure 1.22).
Short-Term Prospects and Risks
Going forward, while mild winter weather in
the United States may have provided some
breathing space, the oil market is likely to be
characterized by robust consumption growth
and production uncertainties, in the context of
buoyant global activity and limited spare capacity.
The IEA projects global oil consumption
growth of 1.5 mbd in 2006, broadly in line with
other analysts’ projections. Consumption in
China is projected to pick up by 0.4 mbd to 7
mbd. Many analysts are becoming increasingly
bullish about prices. Based on the futures market,
prices are expected to remain at $61.25 per
barrel on average in 2006 and increase slightly
to $63 in 2007.
Supply-side risks remain significant, including
in Nigeria (unrest in the oil-producing region);
Iraq (security situation); and the Islamic Republic
of Iran (the nuclear standoff). Recent attempts
to attack oil facilities in Saudi Arabia have further
increased risks of disruptions. Prospects for non-
OPEC supply are also uncertain, given that out-
APPENDIX 1.1. RECENT DEVELOPMENTS IN COMMODITY MARKETS
57
Figure 1.21. World Refinery Capacity, Spare Capacity,
and Production
(Millions of barrels a day)
1978 81 84 87 90 93 96 99 2002 05
50
60
70
80
Global Refinery Capacity and Oil Demand 90
Refinery capacity
Oil demand
1970 75 80 85 90 95 2000 05
0
2
4
6
8
10
Global Spare Oil Production Capacity 12
OPEC-11, including Iraq
OPEC-10
Sources: Bloomberg Financial, LP; British Petroleum
Statistical Review; International
Energy Agency; U.S. Department of Energy; and IMF
staff calculations.
OPEC-11 spare capacity refers to production capacity
that can be brought online
within 30 days and sustained for 90 days.
20
22
24
26
28
30
46
48
50
OPEC Target and OPEC, Non-OPEC Production 52
2001 02 03 04 05 Mar.
06
OPEC target
(left scale)
OPEC production
(left scale)
Non-OPEC
production
(right scale)
1
1
put was virtually flat in 2005 compared with earlier
expectations of an increase of over 1 mbd. In
addition, concerns have increased regarding
Russia’s reliability as an oil and gas supplier,
following
its decision to briefly cut off gas supplies
to Ukraine and Georgia in early January (which
in one case affected supplies to western Europe).
In this context, like many analysts (including the
U.S. Department of Energy), IMF staff believes
that the IEA’s and OPEC’s projections in the 1.2
mbd range for non-OPEC supply growth in 2006
may be optimistic. Even if OPEC’s capacity
increases by a projected 1 mbd, spare capacity
will likely continue to remain low, and consist
mostly of the heavy grades, for which refining
capacity is limited.
Medium-Term Prospects and Policies
In light of the current tightness in the oil market
and risks going forward, the key issue is how
investors and consumers are responding to
higher prices and supply-demand imbalances.
The IEA estimates that investment in the oil sector
is probably 20 percent below what is needed
to meet projected demand over the medium to
long term. In contrast, oil-exporting countries
and major oil companies argue that they are
investing as rapidly as is appropriate. Against this
background, this section discusses prospects for
investment and demand adjustment in the oil
market.
Is Investment Forthcoming?
Many analysts argue that international oil
companies have followed overly conservative
investment strategies and have been slow to
respond to higher oil prices, despite demand
growth surpassing capacity growth for at least
three years. This may have resulted from the
persistence of the cost-cutting mentality of the
1990s. For their part, company managers argue
that short-term price movements can only be a
small factor in their planning decisions because
of the long time horizons in the industry, and
the importance of longer-term fundamentals,
shareholder preferences, and business strategy.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
58
240
260
280
300
320
340
360
380
1800
1900
2000
2100
2200
2300
2400
2500
2600
Millions of barrels
Figure 1.22. Commercial Oil Inventories, Spot and
Futures Prices
Average range
(left scale)
1
Crude Oil Inventories—OECD
Actual inventories
(left scale)
Average petroleum spot price
(right scale; inverted)
2
0
10
60
40
30
20
50
70
Millions of barrels
U.S. dollars a barrel
Sources: Bloomberg Financial, LP; International Energy
Agency; U.S. Department of
Energy; and IMF staff calculations.
Average of each calendar month during 1992–2004, plus
a 40 percent confidence
interval based on past deviations.
Average petroleum spot price of West Texas
Intermediate, U.K. Brent, and Dubai Fateh
crude.
All prices are derived from NYMEX contract prices.
Spread is the spot price minus the
24-month forward futures price.
1
2
3
Oil Price Spread and U.S. Crude Oil Inventories 3
Oil price spread (U.S. dollars a barrel)
-6 -4 -2 0 2 4 6 8 10 12 14
2000 01 02 03 04 05 Jan.
06
Given past experience, they stress the need to
wait and assess the permanence of higher prices
before making investment decisions. To date, oil
corporations appear to have used a large part of
their profits to distribute to shareholders, buy
back shares, accumulate cash reserves, or
acquire other companies.13
Nevertheless, recent evidence does suggest
that investment has increased significantly in
nominal terms. A biannual survey by Lehman
Brothers and Citigroup of 316 oil companies
suggests that spending in 2005 was 20 percent
higher than the previous year, and it could grow
by 14–15 percent in 2006. Moreover, major oil
countries such as Norway, Saudi Arabia, the
United Arab Emirates, Mexico, and Brazil have
markedly increased their capital expenditure, in
some cases by over 50 percent in 2005, and have
announced ambitious investment plans for
2006.
Of course, these investments may not affect
output in the short to medium term, because
the average time between initial exploration of a
field and near-full-capacity upstream production
is at least five years.
However, new investment, while significant in
nominal terms, may not be large in real terms.
Surveys suggest that the industry is facing
increasing costs and a given dollar of investment
will produce less quantity of oil than in the past.
First, as it is becoming more difficult to find
large oil fields where the oil is relatively easy to
extract, production is moving increasingly into
higher cost and riskier areas. Some company surveys
show that the share of investment in exploration
has increased, reflecting smaller average
size of fields and more complex technologies
necessary to extract the oil. Second, costs are
increasing in part as a result of a lack of skilled
and experienced personnel and petroleum engineers
in the industry—reflecting the leaner
operations during the low oil price period of the
1980s and 1990s—and limited supply of drilling
rigs, tankers, and related equipment. These
additions to costs may be cyclical in nature but
are affecting the real value of investments.14
Other factors contributing to higher production
costs and limited investment of international
oil companies are impediments to foreign
investment in some oil-rich countries, either in
the form of increases in royalty and export taxes,
or restrictions on ownership and licensing. Many
non-OECD oil-producing countries only allow
foreign companies to enter as subsidiaries or
contractors, which is much less attractive for
international oil companies than ownership contracts.
Saudi Arabia and Kuwait are effectively
closed to foreign direct investment, as they are
concerned that the international oil companies
tend to extract oil too rapidly, thus reducing the
ultimate recovery rate. Of course, this trend may
not necessarily translate into less investment
everywhere: some national oil companies, in particular
Saudi Aramco, have major investment
plans and have access to the latest technology.
The recent general backlash against privatization
that has occurred in emerging and transition
economies has also affected the oil industry
(e.g., the case of Yukos in Russia, and recent
trends in Argentina, Bolivia, Ecuador, and
Venezuela). While oil-exporting countries may
be justified in requiring larger payments for the
sale of their national assets, higher export and
royalty taxes have become an increasing share of
overall foreign investment costs in the industry.
Demand Adjustment: Substitution and the Role of
Taxes and Subsidies
The delayed adjustment in some important
consumer countries in part reflects the time it
takes for consumers and governments to assess
the permanence of the price increase so as to
APPENDIX 1.1. RECENT DEVELOPMENTS IN COMMODITY MARKETS
59
13National oil companies in India and China are also
purchasing shares in oil fields, on the belief that
this will increase
their domestic energy security.
14Downstream investment has also been plagued by
uncertainty about the mix of grades, loss of know-how
in refinery
building, and excessive regulations in many OECD
countries. Global refinery capacity has increased only
7 percent since
1980, while capacity in the OECD countries has
actually declined by 10 percent.
readjust budgets accordingly. Over the longer
term, the speed of adjustment of demand will
depend markedly on government policies and
on the viability of alternative technologies.
Many alternative energy sources that were not
economically and technologically feasible during
the high oil price episode of the 1970s are now
viable. The most salient close substitutes to
petroleum-based fuels are sugar-based ethanol,
which can now be used in some gasoline-powered
vehicles, and biodiesel (a substitute for
petro-diesel). In Brazil, for example, over 60 percent
of new cars can use ethanol. Both ethanol
and biodiesel now receive fiscal incentives in
many countries, justified by their generally lower
greenhouse gas emissions compared to petroleum-
based fuels. Mandatory mix requirements
may also help spur their demand.15 Nonetheless,
markets for these fuel technologies are still in
their infancy, and in most cases a speedy switch
by consumers is unlikely because it requires a
high sunk cost (such as, for example, switching
to a different type of vehicle). Governments will
also need to encourage the adoption of suitable
infrastructure for the new technologies.16
Improved taxation policies would also help
energy demand adjustment. While pre-tax gasoline
prices are similar across many countries
(Figure 1.23), retail taxes vary significantly.
There is, for example, scope for higher gasoline
consumption taxes in the United States—which
consumes a quarter of the world’s oil—so as to
reduce excessive consumption. On the other
hand, some European countries have very high
taxes, in part aimed at encouraging conservation
and correcting pollution externalities. A better
taxation policy to be considered over the
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
60
Energy Prices and Taxes
(U.S. dollars per gallon)
1
Turkey
Norway
United Kingdom
Germany
Italy
France
Korea
Poland
Japan
Finland
Lithuania
Australia
India
Ecuador
Brazil
Canada
South Africa
United States
Ghana
Jamaica
Mexico
Argentina
Guatemala
China
Russia
Saudi Arabia
Indonesia
Venezeula
0 2 4 6 8
Price excl. tax
Tax
Figure 1.23. Energy Prices, Taxes, and Fuel Subsidies
Sources: Energy Détente; International Energy Agency;
and IMF staff calculations.
Latest 2005 observations.
Fifty-three countries are represented. Fuel subsidies
refer to implicit and explicit costs
borne by the public sector. Estimates may not always
be directly comparable.
12
Fuel subsidies (percent of GDP)
Fuel Subsidies and Net Oil Exports
Net oil exports as a percent of GDP, 2005
Non-OECD
OECD
2
-20
0
20
40
60
80
-2 0 2 4 6 8 10 12 14 16
15The implementation of emission-reduction schemes
under the Kyoto agreement, such as the EU Carbon
Trading Scheme, should further encourage the adoption
of these and other carbon-reducing alternatives in the
years ahead.
16In the United States, for example, plans to offer
gasoline-powered cars that run 85 percent on ethanol
will only be attractive to a wide number of consumers
if
there are sufficient fuel stations that offer the
right fuel
mix.
medium term would be to decouple externality
charges from fuel prices by targeting the externality
directly, for example through congestion
charges (as in the United Kingdom) or producer
emissions fees on all energy sources.
Many developing countries maintain general
implicit and explicit subsidies for diesel,
kerosene, and gasoline at substantial fiscal costs.
These countries need to take steps to reduce
subsidies (especially for diesel and gasoline
where most of the benefits go to the rich) to
allow price signals to work. A set of well-publicized
targeted compensation schemes can be
designed to mitigate the impact on the poor—
for example, through direct or indirect government
grants—lowering taxes that bear more
heavily on the poor whenever it is feasible, or
two-tier pricing systems. Such schemes can be
financed by savings made from lower subsidies.
Demand adjustment by developing country oil
producers, in particular, where even gasoline is
subsidized heavily (Figure 1.23), will be crucial
to maintaining the oil supply-demand balance in
the medium term. At the extremes, a gallon of
gasoline in Venezuela costs $0.15 and in the
Islamic Republic of Iran $0.34, compared to an
average of $4.95 in OECD countries. The implied
fiscal costs are very large, seriously hampering
government’s ability to allocate resources to
more productive social expenditures. The IEA
estimates that, under current policies, the share
of global demand coming from developing
countries will increase from about one-third in
2004 to almost one-half in 2030, with demand
from the largest exporters in the Middle East
and North Africa growing by 73 percent, and
demand from China more than doubling (compared
to the 17 percent increase in the OECD).
Nonenergy Commodities
The IMF nonfuel commodity price index rose
by 10 percent in 2005, picking up strongly in the
second half of the year and reaching a nominal
record high in December 2005—and its highest
level in real terms since 1997—on surging metal
prices (Table 1.13). The recent period contrasts
strikingly with the general downward trend
observed in real nonfuel commodities prices
over many years, in part reflecting substantial
efficiency gains in agriculture and resource
extraction technologies, in particular in the
1980s and 1990s.
A number of factors are contributing to the
current upsurge: (1) strong demand from Asian
emerging markets, in particular China; (2) high
energy prices, which have contributed to higher
prices for many nonfuel commodities—for
example, energy-intensive aluminum and steel,
some agricultural commodities (through higher
fertilizer prices), sugar and edible oils (which
are inputs in alternative fuels, demand for which
has increased), and natural rubber (a substitute
for petroleum-based synthetic rubber); and
(3) increased financial investment in commodity
markets as investors seek diversification from
traditional
stocks and bonds, as well as protection
against potential inflation or changes in the
value of the dollar.
Price performance across commodities also
reflects inherent differences in their production
conditions, in particular between base metals
and other nonfuel commodities (Figure 1.24).
The base metals markets are in some ways closer
to the oil market, although supply response
tends to be speedier—in particular for copper
and zinc. In the case of the food and beverages
market, in contrast, global supply can respond
very quickly. In addition, the regularity of the
cycle around the trend is somewhat more uniform
for base metals because the demand move-
APPENDIX 1.1. RECENT DEVELOPMENTS IN COMMODITY MARKETS
61
Table 1.13. Nonenergy Commodity Prices
(Percent change for 2005)
U.S. Dollar SDR
Terms Contribution1 Terms
Food –0.3 32.8 –0.2
Beverages 21.0 10.8 21.3
Agricultural raw materials 1.8 7.7 2.00
Metals 26.4 48.7 26.9
Overall nonenergy 10.3 100.0 10.6
Sources: IMF, Primary Commodity Price Database; and
IMF staff
estimates.
1Contributions to change in overall nonenergy price
index in U.S.
dollar terms, in percent. Contributions to change in
SDR terms are
similar.
ments among metals tend to coincide more
closely, and their supply is not affected by
unpredictable
weather changes.
Recent Developments and Prospects
The IMF metal price index rose by 26 percent
in 2005, defying analysts’ expectations that
prices would dampen as capacity came on
stream. Higher prices reflect robust demand
owing to strong industrial production growth
and construction activities in China and the
United States, as well as a series of supply
shocks, including labor strikes in the United
States and Chile in the copper industry and
delays in Chinese zinc mine expansion projects
planned for 2005. Higher energy prices forced
closure of some aluminum processing plants,
thus pushing up prices, while increased demand
for uranium for nuclear energy caused a further
significant increase in prices. Looking ahead,
metal prices are expected to increase by 7 percent
in 2006 on the continued strength of
copper, zinc, aluminum, and uranium. Production
is expected to catch up toward the end of
the year.
The food price index remained almost
unchanged in 2005 relative to 2004. Sugar was
the strongest component of the index, rising to
24-year highs, as Brazil and Europe reduced
exports: Brazil’s sugar cane crop has been
increasingly used for the production of ethanol,
and EU exports have been limited by a WTO
ruling and subsequent legislation. Oilseed
prices fell, owing to large harvests and multiyear
high inventories of soybeans, and offset a
demand-driven gain in seafood prices. Overall
beverage prices rose by 21 percent in 2005 on
the strength of Robusta coffee prices reflecting
weather-related supply disruptions in Vietnam,
the world’s largest producer. Looking forward,
food prices are expected to rise slightly in 2006,
as strong growth in sugar prices is offset by a
small decline in the prices of other foods.
The agricultural raw material price index
rose 2 percent in 2005, after falling in the first
half of the year. Natural rubber prices rose on
robust demand, as higher oil prices pushed up
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
62
Figure 1.24. Nonenergy Commodities
Source: IMF staff calculations.
1980 83 86 89 92 95 98 2001 04
40
60
80
100
120
140
160
Metal Price Index 180
(1995 = 100, U.S. dollar terms)
Mar.
06
Peaks
90
100
110
120
130
140
150
160
Nonenergy Price Index 170
(January 2002 = 100)
U.S. dollars
SDRs
2002 03 04 05 Mar.
06
90
100
110
120
130
140
150
160
170
Metals, Agricultural Raw Materials, Beverages, 180
and Food Price Indices (January 2002 = 100)
Beverages
Agricultural raw materials
2002 03 04 05
Food
Mar.
06
50
100
150
200
250
300
Select Commodity Price Indices 350
(January 2002 = 100)
Rubber
Sugar
2002 03 04 05
Coffee
Copper
Mar.
06
the prices of synthetic rubber, its substitute.
Sawnwood prices showed strong recovery in
the second half of 2005, owing to robust construction
activity in China and new demand
from the United States for the reconstruction
of the hurricane-affected areas. In contrast, cotton
prices declined in 2005 owing to good
global harvests.
Semiconductors
Worldwide semiconductor sales revenue grew
6.8 percent in 2005 to reach record levels, after
growing 28 percent in 2004 (Figure 1.25).
Strong growth in unit sales more than offset
falling prices, which resulted from a capacity
overhang. Consumer interest in electronics was
the primary cause of higher quantity demanded,
as prices fell on cutting edge technologies and
new products were introduced. Business purchases
have been slow, owing to uncertainty
regarding inflation, interest rates, and higher
energy costs. In Asia (excluding Japan), consumption
of semiconductors grew 16 percent in
2005.
Global capital spending by semiconductor
producers increased slightly in 2005. In general,
increasing tightness in existing capacity is
expected to increase capital spending in 2006.
Capacity utilization in the fourth quarter of 2005
was reported 91.8 percent, with leading-edge
capacity at 98.4 percent. The global book-to-bill
ratio for semiconductor equipment sales stood
at 1.24 in February.
China’s exports of electronics grew over 30
percent in 2005, while exports of other Asian
countries grew more slowly. Over the medium
term, regional and technological factors may
shift production within Asia. For example, the
increasing replacement of hard drive memory by
flash memory will benefit Japan, Korea, and
Taiwan Province of China over ASEAN-4 countries,
which are heavily geared toward producing
hard drives. And China’s emergence as an
important location for electronics manufacturing
will likely attract new semiconductor investment
to the country.
APPENDIX 1.1. RECENT DEVELOPMENTS IN COMMODITY MARKETS
63
Figure 1.25. Semiconductor Market
(Seasonally adjusted; quarterly percent change of
three-month moving
average)
-30
-20
-10
0
10
20
Global Semiconductor Units and Average Selling Price
30
Units
Average
selling price
Revenue
2000 01 02 03 04 05 Feb.
06
-30
-20
-10
0
10
20
Semiconductor Consumption in Select Areas 30
(in dollar terms)
Other
Asia/Pacific
Japan
Western Europe
Americas
-20
-15
-10
-5
0
5
10
15
20
Select Asian Exports of Electronic Goods 25
China
ASEAN
Korea
Taiwan Province of China
1
Sources: World Semiconductor Trade Statistics; and IMF
staff calculations.
1 Consists of Indonesia, Singapore, Malaysia, the
Philippines, and Thailand.
2000 01 02 03 04 05
2000 01 02 03 04 05 Feb.
06
Feb.
06
Most analysts are optimistic about sales revenues
in 2006. The semiconductor Industry
Association (SIA) forecasts growth in sales revenues
of 7.9 percent in 2006. Strong sales of
consumer products are projected to continue as
prices fall on higher-end products and more new
product releases are scheduled. Business purchases
are expected to grow, owing to expected
new software releases, which may force a replacement
cycle.
Appendix 1.2. The Global Implications of
an Avian Flu Pandemic
The main authors of this appendix are Sandy
Mackenzie, Johannes Wiegand, and Selim Elekdag.
Avian flu—or “A-strain flu”—refers to a type
of influenza virus that is endemic in aquatic
birds but can, in certain circumstances, be
transmitted
to human beings. When avian flu viruses
merge and swap genetic material—a process
called “antigenic shift”—new flu strains emerge
that differ from both parent viruses. Antigenic
shift can cause human epidemics if the new virus
is easily transmitted between humans. The current
H5N1 virus has not yet mutated into so
deadly a form, but it has mutated rapidly in its
avian hosts, and it has jumped the species barrier
from birds to human beings.
The first documented human outbreak of the
H5N1 virus occurred in 1997 in Hong Kong SAR.
It infected 18 people, killing six of them. The
virus resurfaced in December 2003 in poultry in
Korea and spread to other east Asian countries.
It reached southeastern Europe in August 2005,
probably transmitted by migratory birds, and
West Africa, as well as southern and central
Europe, in February 2006. As of April 4, the
World Health Organization (WHO) reported
191 human cases and 108 deaths since 2003.
The cost of a deadly epidemic in human
terms is beyond any reckoning. However, an epidemic’s
impact on the health of a population is
normally characterized by its attack rate—that is,
the share of the population that contracts the
illness—
and the case mortality rate—the share of
the ill who succumb to the illness. There have
been three avian influenza epidemics in the
twentieth century. Although they are thought to
have had similar attack rates, their case mortality
rates have differed greatly. The Spanish flu pandemic
of 1918–19 was by far the most lethal (see
Box 1.7), and is thought to have claimed the
lives of 40–50 million people worldwide.
It is next to impossible to predict what the
case mortality rate of a future pandemic would
be. This appendix discusses possible effects of a
severe outbreak, with attack and case mortality
rates similar to those observed in the United
States during the 1918 pandemic—specifically,
an attack rate of about 25 percent and a case
mortality rate of 2.5 percent, implying overall
mortality of 0.6 percent. It should be emphasized
that such a scenario is not the most likely—
as mentioned above, other influenza epidemics
in the twentieth century have been far less virulent,
and the probability of an epidemic with
human-to-human transmission is still considered
low at this juncture.
For simplicity, the appendix assumes that
attack and case fatality rates would be the same
in all countries. However, in 1918 substantially
higher mortality rates than those observed in the
United States were reported from other areas of
the world. It appears plausible that in some
developing countries, limited availability of medical
care, overburdened public health facilities,
and lack of sanitary infrastructure could cause
higher mortality rates than would occur in
advanced economies today.
Apart from the attack and the case mortality
rates, the key parameters that determine the
impact of an epidemic include its length and the
average duration and number of periods of
infection (i.e., periods when the virus has not
returned to dormancy). Flu-like illnesses tend to
last several weeks. It is not possible to be
categorical
about average periods of infection. The estimates
of this appendix are based on the
assumption that there would be one period of
infection lasting six weeks. This is in line with
the American experience in 1918—although
there were three waves of contagion—in that a
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
64
very large share of flu-related deaths occurred in
one month—October. A further assumption is
that the disease assails all countries within a matter
of weeks.
The appendix draw parallels with the 1918
pandemic wherever possible. History can only
provide very limited guidance to the economic
impact of a pandemic, however, given the huge
changes in economic organization and the
progress in medicine and public health since
then. The recent SARS (Severe Acute Respiratory
Syndrome) epidemic is another possible
APPENDIX 1.2. THE GLOBAL IMPLICATIONS OF AN AVIAN FLU
PANDEMIC
65
The Spanish flu of 1918–19 was by far the
most lethal influenza pandemic of the twentieth
century. It infected about one-fourth of the
global population and took the lives of 40–50
million people. This renders the Spanish flu the
third most deadly pandemic on record, surpassed
only by the plague pandemics of the
sixth and fourteenth centuries. One unusual feature
of the Spanish flu was that it killed not only
the very young and the very old, but also adults
in their prime years with above-average frequency,
creating a “W-shaped” mortality pattern
(Noymer and Garenne, 2000).
Despite its name, the first outbreak of
Spanish flu was recorded in early 1918 in army
camps in the United States. The pandemic
came in three waves, with the second wave—
beginning in August 1918 simultaneously in
Brest/France; Freetown/Sierra Leone; and
Boston/Massachusetts—being the most deadly.
Mortality rates varied greatly between countries,
ranging from an estimated 0.6 percent of the
population in the United States to 5 percent in
India and 20 percent on some Pacific islands,
such as Fiji or Western Samoa. For many countries,
the mortality figures have a large margin
of error, which explains why estimates on the
global death toll vary greatly.
Although data on the U.S. economy in 1918
are better than most, they are not good enough
to allow the drawing of firm conclusions regarding
the economic impact of the Spanish flu. In
particular, there are no comprehensive national
accounts or household survey data. Higherfrequency
indicators show that both U.S. industrial
production and the business activity index
dipped in October 1918—that is, at the height of
the epidemic—but then promptly rebounded.
Factory payroll numbers behaved in a similar
fashion, although data on the labor force as a
whole are lacking. There were also temporary
and modest reductions in passenger rail transport
and retail sales. A recent study by the Canadian
Department of Finance estimates that the
overall impact on annual GDP was only 0.4 percent.
However, it appears implausible that an
outbreak of similar virulence today would have
comparably limited effects (see the main text). In
late 1918, the United States was still on a war
footing,
and there may have been considerable social
as well as economic pressure to stay on the job.
A study by Brainerd and Siegler (2003) concentrates
on the aftermath of the pandemic,
studying U.S. economic growth across states
between 1919–21 and 1930. The authors find
that there was a positive relationship between the
mortality rate and growth: one more death per
thousand resulted in an increase of per capita
growth over the next 10 years of at least 0.15 percent
per year, which would point to a sustained
period of catching up after a short and sharp
shock. However, this result seems at odds with
the observation that the pandemic’s immediate
impact on economic activity was only moderate.
There are only a few pieces of analysis that
shed light on the economic impact of the
Spanish flu in other countries. In a study on
India—where mortality was particularly high—
Schultz (1964) estimates that agricultural production
fell by 3.3 percent during the pandemic,
compared to a reduction in the agricultural
workforce by 8 percent. However, more recent
work by Bloom and Mahal (1997) finds no link
between the population and the production loss.
Box 1.7. The Spanish Flu of 1918–19
Note: The main authors of this box are Sandy
Mackenzie and Johannes Wiegand.
model—better in some respects, given the
improvements in economic statistics and the
greater comparability of economic and medical
institutions—but its relevance is limited by the
virus’s low infectiousness and mortality.
The next section analyzes the channels
through which an avian flu pandemic would
affect the aggregate output of an economy
before turning to the impact on the budget and
financial institutions. The final section summarizes
the overall impact and considers the major
policy conclusions.
Channels of Transmission
The following section examines the effects an
avian flu outbreak would have on the supply side
and demand side, including the impact on external
demand.
Supply of Labor and Capital
The principal supply-side effect of an avian flu
pandemic would be on labor force numbers and
average hours worked. Given the stated assumptions,
deaths caused by the pandemic could
reduce the global labor force by about 20 million
people, with three-quarters of the loss in
developing countries. While the pandemic
raged, large numbers of workers would be ill
and unable to work. Others would be asked to
stay at home, or would choose to do so to avoid
infection or to care for a sick relative. The
temporary
impact of illness and absenteeism on
total hours worked would be much larger than
the immediate impact of mortality. In some sectors
of advanced economies, telecommuting
might compensate for a small part of the impact
of absenteeism.
Once the pandemic had run its course, average
hours worked should recover quickly to
their normal level. They might even rise above
it, as industry increased production to accommodate
a bounce-back in demand (see below). The
working age population would probably be permanently
reduced, although this effect would be at
least partly offset by an increase in the labor
force participation rates of the survivors.
A pandemic would depress investment, at least
temporarily, if it caused investment projects to
be deferred until capacity utilization rates had
recovered. Once the pandemic had subsided,
however, it is likely that previously postponed
investment would proceed. Hence, it is unlikely
that the capital stock would be permanently
affected.
Supply of Energy, Transportation, and Other
Key Inputs
Shortages of key inputs like energy, water, and
transportation would affect factor productivity.
In the short run, the extent of disruptions would
depend on the impact of the pandemic on labor,
especially skilled labor, and on whether absent
employees could be replaced (the impact on air,
maritime, and road transport being possibly of
greatest concern). The widespread adoption of
just-in-time inventory management techniques is
another possible source of disruption. Once the
pandemic had run its course, production ought
to recover quickly.
Overall Effects on Aggregate Supply
Overall, the most likely scenario is a short, but
possibly sharp, decline in aggregate supply. A
purely illustrative estimation of its magnitude
can be derived from assumptions about the size
and duration of the decline in hours worked
and the parameters of an aggregate production
function. Specifically, if 25 percent of the work
force falls sick, stays home, or is sent home for
six weeks and if 0.6 percent of the work force
dies, aggregate labor input would decline by
about 13 percent for one quarter, or about
3 percent for a year. A Cobb-Douglas production
function with a coefficient on labor input of 0.6
then implies a drop in aggregate supply in the
quarter of about 8 percent or a drop in terms of
annual GDP of about 2 percent. This fall is likely
to be reinforced by a temporary decline in factor
productivity.
The American experience of 1918 is not easy
to interpret, but it points to a much smaller
decline. This suggests that absenteeism may
not have been particularly great, possibly
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
66
because of social pressures on workers to stay at
work and the absence of a social safety net to
cushion any declines in earned income. A 1918-
scale pandemic in contemporary circumstances
could well lead to a much larger decline in
labor input.
Domestic Consumption and Investment
The impact of the pandemic on consumption
would come through two main channels. First,
with large numbers of people unable to work,
incomes and, therefore, spending would decline,
particularly for households that have limited
savings or that receive limited sick pay. Second,
during the contagious period, the demand for
consumer goods—especially postponable
durable and semi-durable consumer goods—
would decline, as households shunned physical
contacts in malls, market places, and other retail
establishments or household members convalesced.
The former effect would likely dominate
in low-income countries, where consumer
durables account for a smaller share of total
consumption; the latter in more advanced
economies. Provided that income levels were
maintained or picked up sharply once the pandemic
had ended, demand for consumer goods
could be expected to recover quickly (and in
advanced economies a significant rebound in
purchases of durables could be expected). As
mentioned above, investment postponed during
the pandemic could be expected to recover
once the pandemic had passed.
External Demand
Given the global decline in supply and
demand, the volume of global trade would drop
sharply for a period. Countries specializing in
exports of investment goods, consumer durables
or travel-related services, such as tourism, could
suffer a particularly sharp decline in export
earnings and a deterioration in external current
accounts. SARS reduced airline passenger
arrivals in Hong Kong SAR by nearly two-thirds
in the month following the month of the peak of
the outbreak, although it recovered to its pre-
SARS level four months later. Commodity
exporters would probably experience a temporary
terms-of-trade loss. Trade might also be
affected by more restrictive inspection of goods
in transit. Restrictions imposed on public health
grounds could be a cloak for protectionist measures
in some countries. Once the pandemic had
ended, however, there is no reason why global
trade should not recover fully.
Financial Institutions and Financial Systems
A pandemic could disrupt payments, clearing,
settlement, and trading systems significantly. The
source of vulnerability is basically the same as for
utilities—reliance on specialized workers who
must work together. The key to minimizing the
risk of a serious slowdown or systemic failure is
to implement contingency plans that provide for
an adequate number of replacements, and perhaps
alternative operating and backup systems.
The more successful these efforts, the less likely
would be a general panic entailing a massive and
destabilizing flight to quality that could trigger
major problems with creditor and counterparty
risk (see the IMF’s Global Financial Stability Report,
April 2006, for a detailed discussion of these and
related issues). One key issue is how disruptions
of the financial system in one country would
affect others. Serious problems in major financial
centers could have a destabilizing knock-on
effect. Disruptions in small countries would be
less serious, but could nonetheless trigger contagion.
Avoiding serious disruption to financial systems
will also speed the recovery of countries
from the pandemic.
Even if the core financial system continued to
function adequately, some outflow of capital
from emerging market countries would still be
expected. Some emerging market countries
would be more at risk than others; for example,
countries whose current accounts would be worsened
by the pandemic, or countries already
deemed vulnerable to capital flight. However,
basically stable countries would be unlikely to be
pushed into crisis if the economic impact of the
pandemic would be short-lived and the crisis
well managed.
APPENDIX 1.2. THE GLOBAL IMPLICATIONS OF AN AVIAN FLU
PANDEMIC
67
The Overall Effect and Policy Implications
If a global avian flu pandemic were to break
out, the costs in terms of death and human suffering,
of course, would be beyond calculation.
From a narrow economic perspective, affected
countries could be expected to suffer a sharp
temporary decline in output. While the size is
impossible to assess with any degree of certainty,
the illustrative estimate of an 8 percent drop in
GDP in one quarter from reduced labor input
alone—equivalent to a 2 percent drop in annual
GDP—is not outlandish. This could prove to be
a significant underestimate if the fall in demand
and effects from disruptions of physical and
infrastructure services were large.17 Some countries
could be particularly vulnerable, in particular
economies that depend heavily on exports of
durable goods and services, countries that were
vulnerable to a capital account crisis already
before the pandemic, and developing countries
with a weak public health infrastructure and
relatively
low institutional and financial capacity to
deal with the outbreak. Once infrastructure services
had been restored, economic activity could
be expected to rebound relatively quickly, and
the long-run economic impact of the pandemic
would be modest.
As described above, the pandemic would lead
to substantial reductions in both supply and
demand. In principle, if demand dropped more
than supply as many expect,18 the overall impact
would be deflationary and monetary policy
should be eased; if the reverse, policy should be
tightened. In practice, it will be very difficult to
know which effect is dominating, and for how
long the resulting supply-demand imbalance will
last. In such circumstances, and given the likely
adverse impact on confidence and probable
strong demand for liquidity, monetary policies
should err on the accommodative side. There
may also be a need for temporary regulatory
forbearance,
particularly if asset values suffered a
sharp decline.
On the fiscal side, a pandemic would
temporarily worsen the budgetary balance.
Revenues—particularly sales and VAT receipts
and payroll taxes—would fall sharply, the more
so if tax collection was disrupted; expenditures
on medical and income support programs
would also rise significantly. Given the one-off
nature of these expenditures, the temporary
widening of budget deficits should be accepted,
wherever this would not pose serious risks to
fiscal or external sustainability. Moreover, budgetary
procedures would need to be flexible
enough to reallocate public expenditures
quickly across spending categories. At the
present juncture, the key issue is to ensure
sufficient
funding of preventive measures, to reduce
the risk that a pandemic takes hold and the
costs if it does. Given the public good characteristic
of measures to fight infectious disease, rich
countries should fully subsidize the costs of such
programs in poor countries. Extensive technical
assistance with public health issues may also be
needed.
As will be evident from the discussion above,
the impact of a pandemic will depend critically
on adequate contingency planning to ensure
that the financial and physical infrastructure
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
68
17Several studies have attempted to simulate the
effect of a human H5N1 pandemic on GDP. The results
depend typically
on the assumptions made about mortality and about the
relative size of demand-side effects. One of the most
sophisticated
studies is McKibbin and Sidorenko (2006). The authors
use a model with 20 countries/regions to simulate
epidemic
outbreaks that differ by the degree of severity. The
model allows for differing mortality rates across
countries—they vary
with a proxy for the availability and quality of
health care—and country risk premiums, which vary with
mortality rates.
With these assumptions, some emerging market economies
are hit very hard by the pandemic. Canada, the United
States,
and the euro area are the least affected.
18A recent study of the hypothetical effects of a
pandemic on the U.S. economy concluded that the
demand-side would
be greater than the supply-side impact, on the
assumption the demand for certain services entailing
congregations or
crowds would drop to zero for a time (Congressional
Budget Office, 2005). The recent SARS experience—where
most of
the economic damage was caused by demand-side
effects—provides only limited guidance, as SARS had a
minimal impact
on labor market participation and other supply
parameters.
continue to function. Given extensive global
financial market linkages, countries that already
have well-designed business continuity plans for
their central bank and financial institutions have
an interest in seeing that others achieve a similar
standard. At the present stage, preparations
appear well advanced in a few countries, particularly
those affected by the 2003 SARS outbreak.
However, in general the level of preparedness
and awareness is still low.
References
Artis, Michael J., 1988, “How Accurate Is the World
Economic Outlook? A Postmortem on Short-term
Forecasting at the International Monetary Fund,” in
Staff Studies for the World Economic Outlook
(Washington: International Monetary Fund).
———, 1997, “How Accurate Are the IMF’s Short-
Term Forecasts? Another Examination of the World
Economic Outlook,” in Staff Studies for the World
Economic Outlook (Washington: International
Monetary Fund).
Barrionuevo, Jose M., 1993, “How Accurate Are the
World Economic Outlook Projections?” in Staff
Studies for the World Economic Outlook (Washington:
International Monetary Fund).
Batchelor, Roy, 2001, “How Useful Are the Forecasts of
Intergovernmental Agencies? The IMF and OECD
versus the Consensus” Applied Economics, Vol. 33,
No. 2 (February), pp. 224–35.
Bayoumi, Tam, and Hali Edison, 2003, “Is Wealth
Increasingly Driving Consumption?” DNB Staff
Report No. 101/2003 (Amsterdam: Nederlandsche
Bank).
Beach, William W., Aaron B. Schavey, and Isabel
Isidro, 1999, “How Reliable Are IMF Economic
Forecasts?” A Report of the Heritage Center for
Data Analysis (Washington: The Heritage
Foundation).
Bloom, David E., and Ajay S. Mahal, 1997, “AIDS, Flu,
and the Black Death: Impacts on Economic Growth
and Well-Being” in The Economics of HIV and AIDS:
The Case of South and South East Asia, ed. by David E.
Bloom and Peter Goodwin (Delhi; New York:
Oxford University Press).
Brainerd, Elizabeth, and Mark V. Siegler, 2003, “The
Economic Effects of the 1918 Influenza Pandemic,”
CEPR Discussion Paper No. 3791 (London: Centre
for Economic Policy Research).
Britton, Erik, Paul Fisher, and John Whitley, 1998,
“The Inflation Report Projections: Understanding the
Fan Chart,” Quarterly Bulletin, Bank of England,
February.
Catão, Luis, and G.A. (Sandy) Mackenzie, 2006,
“Perspectives on Low Global Interest Rates,” IMF
Working Paper 06/76 (Washington: International
Monetary Fund).
Congressional Budget Office, 2005, “A Potential
Influenza
Pandemic: Possible Macroeconomic Effects and Policy
Issues” (Washington: Congressional Budget Office).
Available via the Internet: http://www.cbo.gov/
ftpdocs/69xx/doc6946/12–08-BirdFlu.pdf.
Greenspan, Alan, and James Kennedy, 2005,
“Estimates of Home Mortgage Originations,
Repayments, and Debt on One-to-Four-Family
Residences,” Federal Reserve Board Finance and
Economics Discussion Series No. 2005-41
(Washington: Federal Reserve Board).
Hausmann, Ricardo, and Federico Sturzenegger, 2006
“Global Imbalances or Bad Accounting? The
Missing Dark Matter in the Wealth of Nations,”
Harvard University CID Working Paper No. 124
(Cambridge, Massachusetts: Harvard University).
Klenow, Peter J., and Andrés Rodriguez-Clare, 2004,
“Externalities and Growth,” NBER Working Paper
No. 11009 (Cambridge, Massachusetts: National
Bureau of Economic Research).
Lane, Philip R., and Gian Maria Milesi-Ferretti, 2006,
“The External Wealth of Nations Mark II: Revised
and Extended Estimates of Foreign Assets and
Liabilities, 1970–2004,” IMF Working Paper 06/69
(Washington: International Monetary Fund).
McKibbin, Warwick J., and Alexandra Sidorenko,
2006, “Global Macroeconomic Consequences of
Pandemic Influenza” (Sydney, Australia: Lowy
Institute for International Policy). Available via the
Internet: http://apps49.brookings.edu/dybdocroot/
views/papers/mckibbin/200602.pdf.
Noymer, Andrew, and Michel Garenne, 2000, “The
1918 Influenza Epidemic’s Effects on Sex Differentials
in Mortality in the United States,” Population
and Development Review, Vol. 26 (September),
pp. 565–81.
Otrok, Christopher, and Marco E. Terrones,
forthcoming,
“House Prices, Interest Rates, and Macroeconomic
Fluctuations: International Evidence,”
IMF Working Paper (Washington: International
Monetary Fund)
Schultz, Theodore William, 1964, Transforming
Traditional
Agriculture (New Haven: Yale University Press).
REFERENCES
69
Timmermann, Allan, 2006, “An Evaluation of the
World Economic Outlook Forecasts,” IMF Working
Paper 06/59 (Washington: International Monetary
Fund).
United States General Accounting Office, 2003,
“International Financial Crises. Challenges Remain
in IMF’s Ability to Anticipate, Prevent, and Resolve
Financial Crises.” Report to the Chairman,
Committee on Financial Services, and to the Vice
Chairman, Joint Economic Committee, House of
Representatives (Washington: United States
General Accounting Office).
Wallis, Kenneth F., 2004, “An Assessment of Bank of
England and National Institute Inflation Forecast
Uncertainties,” National Institute Economic Review,
Vol. 189 (July), pp. 64–71.
CHAPTER I ECONOMIC PROSPECTS AND POLICY ISSUES
70
Two developments have dominated the
international economic landscape
over the past several years. First, large
global external imbalances have persisted,
including a large current account
deficit in the United States matched by surpluses
in other advanced economies, in emerging
Asia and—more recently—in fuel-exporting
countries (Figure 2.1). These imbalances have
been matched by corresponding shifts in net
foreign asset positions, although—particularly
for the United States—this has been partly
offset by valuation changes, reflecting exchange
rate movements in conjunction with changes
in the relative price of U.S. financial assets.
Second, energy prices have risen sharply since
2003 (Figure 2.2), driven both by strengthening
global demand and most recently by
concerns about future supply.1 With limited
excess capacity, the medium-term supplydemand
balance is expected to remain very
tight, and oil prices will persist near current
levels.
This chapter seeks to examine the implications
of the rise in oil prices for global imbalances
and how these imbalances may evolve,
focusing on three main questions:2
• What has been the impact of higher oil prices
on global imbalances, and what are the key
channels of transmission?
71
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
1990 92 94 96 98 2000 02 04
-10
-8
-6
-4
-2
0
2
4
6
8
1990 92 94 96 98 2000 02 04
-2
-1
0
1
2
Figure 2.1. Current Account Balances and Net Foreign
Asset Positions
(Percent of world GDP)
Large global external imbalances emerged starting
around 1996. In particular, the
United States is now running an unprecedented current
account deficit, with fuel
exporters emerging as the main counterparts. Also, the
United States is by far the
world's largest net debtor. As a group, other advanced
economies remain the largest
creditors; fuel exporters' net foreign assets, while
growing, remain relatively small.
Fuel exporters Other advanced economies
United States Other developing economies
China
Sources: IMF staff calculations; and Lane and
Milesi-Ferretti (2006).
Current Account Balances
Net Foreign Asset Positions
The main authors of this chapter are Alessandro
Rebucci and Nikola Spatafora, with support from Lutz
Kilian, Doug Laxton, Lars Pedersen, and M. Hashem
Pesaran. Christian de Guzman and Ben Sutton provided
research assistance.
1See the April 2005 World Economic Outlook, Chapter
IV,
as well as Hamilton (2005); and Kilian (2006).
2See previous issues of the World Economic Outlook,
including in particular the April and September 2005
issues, for a detailed discussion of how and why
global
imbalances have emerged, the associated risks, and the
appropriate policy response.
• How has the recycling of oil export revenues,
or “petrodollars,” affected global and regional
financial markets?
• How do policy responses—in particular the
pace at which oil exporters spend additional
revenues, and the extent to which oil
importers allow pass-through of energy prices
into core inflation—affect global and regional
saving and investment, and hence the evolution
of external imbalances?
Specifically, the next section documents key
facts about the energy market, external imbalances,
and their financing, contrasting the current
oil price shock with previous episodes. The
chapter then analyzes the likely impact of the
current shock on imbalances and how the imbalances
may evolve over time. In particular, it
offers an econometric analysis of the historical
impact of oil prices on external positions, the
channels of transmission, and the associated
adjustment process. It also investigates through
simulations the impact of factors such as the
speed with which oil exporters spend their additional
revenues, and the extent to which oil
prices are allowed to feed through into core
inflation.
How Does the Current Oil Price Shock
Compare with Previous Episodes?
As a result of the almost $30 per barrel
increase in oil prices during 2002–05—and, to a
much lesser extent, rising production—global
oil exports have boomed. For a broad sample of
fuel exporters,3 the value of oil exports more
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
72
1970 75 80 85 90 95 2000 05
0
200
400
600
Fuel Exporters' Net Oil Exports 800
(billions of 2005 U.S. dollars)
0
20
40
60
80
100
Real Oil Prices 120
(2005 U.S. dollars a barrel)
Figure 2.2. Real Oil Prices and Net Oil Exports
Energy prices started to increase in 1999, with a
sharp rise since 2003. This
upsurge is to a large extent driven by growing demand
in advanced and emerging
economies, as well as by expectations of future market
tightness. However, current
and expected future real oil prices are still
significantly below their value in the late
1970s and early 1980s.
Sources: IMF, International Financial Statistics; and
IMF staff estimates.
1970 75 80 85 90 95 2000 05 07
3This sample consists of Algeria, Angola, Azerbaijan,
Bahrain, Brunei Darussalam, Republic of Congo,
Equatorial Guinea, Gabon, Islamic Republic of Iran,
Iraq,
Kazakhstan, Kuwait, Libya, Nigeria, Norway, Oman,
Qatar,
Russia, Saudi Arabia, Sudan, Syrian Arab Republic,
Trinidad and Tobago, Turkmenistan, United Arab
Emirates, Venezuela, and Yemen. The sample includes
all
the countries in the World Economic Outlook “Fuel
Exporters” analytical group as of February 2005, with
the
addition of Kazakhstan and Norway. The main criteria
for
selection were that, over the past five years, the
average
share of fuel exports in total exports exceeds 40
percent;
than doubled to nearly $800 billion in 2005 and
in real terms is now well above the previous
1980 peak (Figure 2.2). For fuel exporters, the
current shock is in real terms comparable to (or
indeed slightly larger than) the shocks of the
1970s, although as a share of their GDP it is not
quite as large (Table 2.1). Rising exports by fuel
producers have, of course, been matched by rising
imports elsewhere. The increase in the oilimport
bill between 2002 and 2005 amounted to
almost 4 percent of GDP for China, and over 1
percent of GDP for the United States, other
advanced economies, and other developing
countries (Table 2.2). From the perspective of
the global economy, nevertheless, the current
shock is smaller than in the 1970s, whether
measured relative to world GDP, private capital
flows, or the size of financial markets (Table
2.1). It is also worth noting that external imbalances
were apparent well before oil prices
started to edge upwards in 1999, and certainly
before oil prices reached their current peaks
(Figure 2.3). That said, over the past two years
higher oil prices account for one-half of the
deterioration in the U.S. current account
deficit.
Since 2002, fuel exporters have spent a somewhat
smaller share of their additional revenues
than after the first oil price shock. Their imports
over the past few years have remained broadly
constant as a share of GDP; even in absolute
terms, the increase in imports accounts for little
more than one-half of the additional revenues
(as opposed to the three-quarters share observed
in the early 1970s). A more formal statistical
analysis (see Box 2.1, “How Rapidly Are Oil
Exporters Spending Their Revenue Gains?”)
confirms these broad conclusions, while finding
HOW DOES THE CURRENT OIL PRICE SHOCK COMPARE WITH
PREVIOUS EPISODES?
73
Table 2.1. Increase in Fuel Exporters’ Net Oil
Exports1
(Billions of constant 2005 U.S. dollars, unless
otherwise noted)
Percent of World
Trade-Price- Percent of Percent of Percent of World
Stock Market
CPI-Deflated Deflated2 World GDP3 Own GDP3 Private
Capital Flows3 Capitalization3
1973–81 436 289 1.9 48.9 78.6 7.6
1973–76 239 139 1.1 27.8 58.4 5.5
1978–81 218 174 0.8 14.5 39.3 4.5
2002–05 437 382 1.2 33.2 37.3 1.6
Sources: IMF staff calculations, World Economic
Outlook, International Financial Statistics; and World
Bank, Financial Structure and Economic
Development Database.
1All values deflated by the U.S. CPI, except where
otherwise noted.
2Trade-price-deflated figure is calculated using a
trade-weighted average of the G-7 non-oil export-price
deflator.
3World GDP, own GDP, private capital flows, and stock
market capitalization are all computed for the first
year of the relevant period (except
for private capital flows and stock market
capitalization during 1973–76 and 1973–81, when the
final year of the relevant period was used
instead, reflecting limited data availability).
Private capital flows are defined as the sum of net
direct investment, portfolio investment, and other
investment, from the balance of payments. Russia is
excluded from all calculations in the “Percent of Own
GDP” column, since it was not a
market economy during 1973–81.
Table 2.2. Change in Net Oil Exports, 2002–05
Billions of
Constant 2005 Percent of Percent of
U.S. Dollars1 World GDP2 Own GDP2
Fuel exporters3 437 1.24 33.2
United States –124 –0.35 –1.1
Other advanced
economies4 –198 –0.56 –1.3
China –53 –0.15 –3.8
Other developing
countries5 –53 –0.15 –1.2
Source: IMF staff calculations.
1All values deflated by the U.S. CPI.
2Both world GDP and own GDP are computed for 2002.
3Includes all the countries in the World Economic
Outlook group
of fuel exporters, with the addition of Kazakhstan and
Norway.
4Includes all the countries in the World Economic
Outlook group
of advanced economies, except for the United States.
5Includes all other countries.
and the average value of fuel exports exceeds $500
million.
Kazakhstan was included even though data were not
available to gauge whether the first criterion was
met. The
sample excludes large oil producers for which oil is
not a
key export earner, such as Canada, Ecuador, Mexico,
and
the United Kingdom.
significant differences across countries (spending
rates are relatively low in Cooperation
Council of the Arab States of the Gulf, or GCC,
countries, but considerably higher in the Islamic
Republic of Iran). In particular, the public sector
has been cautious about rapidly ramping up
spending: between 2002 and 2005, government
budget surpluses in fuel exporters increased on
average by 11 percentage points of GDP. This
appears to reflect concerns, fueled by past
experience,
about whether such large amounts can
be spent effectively within a short period, and
whether the current oil price shock may prove
transitory (see also IMF, 2005).
Will the shock in fact persist? From a historical
perspective, about one-half of the 1973–74
oil price shock proved enduring, while the
1979–81 shock was eventually completely
reversed. While any long-run oil price forecast is
subject to enormous uncertainty, both market
expectations and an assessment of medium-term
oil market fundamentals suggest that a considerable
proportion of the recent shock will be permanent
in nature (see Chapter IV of the April
2005 World Economic Outlook). Examining this
issue from a different perspective, the shock has
changed not just current income, but also
wealth: the value of fuel exporters’ petroleum
reserves increased by more than $40 trillion
between 1999 and 2005 (Table 2.3). If two-thirds
of this were to prove permanent in nature,
broadly consistent with the estimates in the April
2005 World Economic Outlook, it would imply an
$850 billion increase in permanent income,4
almost three times the observed increase in
aggregate imports to date. That said, the
increase in wealth has been spread very unevenly
across fuel exporters; in some, such as Norway
and Bahrain, the value of total petroleum
reserves is equivalent to current GDP or less.
Fuel exporters’ spending patterns are likely
to affect the relative demand for goods from
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
74
1999 2000 01 02 03 04 05
-500
0
500
1000
1500
2000
74 75 76
-100
0
100
200
300
400
500
600
Figure 2.3. Fuel Exporters' Cumulative
Current Account Balances and Capital Flows
(Billions of 2005 U.S. dollars, cumulative)
Current account surpluses in the 1970s were associated
with significant increases in
official reserves and bank deposits. During the past
few years, there has been
relatively little accumulation of bank deposits, while
portfolio investment flows have
been sizable.
19
Source: IMF staff calculations.
Cumulative, starting from 1974.
Cumulative, starting from 1979.
Cumulative, starting from 1999.
1
3
2
1974–76 1
79 80 81
-100
0
100
200
300
400
500
600
1979–812 700
1999–20053
19
1
Other investment, net
Direct investment, net Portfolio investment, net
Reserve assets
Errors & omissions Current account
4Assuming a U.S. long-term real interest rate of 3
percent,
roughly the average value observed over the past
30 years.
different regions. In particular, fuel exporters
are importing fewer goods, measured as a
share of their total merchandise imports, from
the United States today than they were in the
1970s. In terms of market share of imports, the
United States ranks well below either advanced
economies or most developing economies
(Table 2.4).5 Hence, as the shock redistributes
income from advanced economies and other
developing countries toward fuel exporters, relative
demand for U.S. goods declines. Even
assuming that fuel exporters spend all their
incremental revenues, this “third-country” effect
would still act to increase the U.S. current
account deficit by a further $25 billion, or
0.2 percent of GDP.
For now, however, oil exporters are saving a
considerable share of their income. This raises
the question of how the surplus funds are being
recycled and how they are affecting global
financing conditions, including the extent to
which they are contributing to low global interest
rates. At a broad level, the current account
surpluses of the 1970s and early 1980s were
HOW DOES THE CURRENT OIL PRICE SHOCK COMPARE WITH
PREVIOUS EPISODES?
75
Table 2.3. Petroleum Reserves
Change in Value of Reserves,
Value of Reserves _________1_9_9_9_–__2_0_0_5_________
Percent of
Percent of in Percent of Percent of Percent of World
Crude
World Reserves 2005 GDP1 2005 GDP 2005 world GDP Oil
Production
Sample of selected fuel exporters 88.2 2,156 1,763
98.3 62.4
Kuwait 8.3 8,178 6,708 10.5 3.0
Libya 3.3 5,847 5,034 4.3 2.0
Saudi Arabia 22.1 4,722 3,856 27.6 13.2
Kazakhstan 3.3 4,145 3,663 4.5 1.6
United Arab Emirates 8.2 4,129 3,368 10.3 3.3
Iran, I. R. of 11.1 3,679 3,199 14.8 5.1
Venezuela 6.5 3,329 2,724 8.1 3.7
Azerbaijan 0.6 3,276 2,672 0.7 0.4
Qatar 1.3 2,244 2,143 1.9 1.2
Nigeria 3.0 2,111 1,862 4.0 3.1
Angola 0.7 1,826 1,672 1.0 1.2
Congo, Rep. of 0.2 1,729 1,425 0.2 0.3
Gabon 0.2 1,416 1,123 0.2 0.3
Sudan 0.5 1,290 1,280 0.8 0.4
Equatorial Guinea 0.1 1,133 1,042 0.2 0.4
Oman 0.5 1,033 849 0.6 1.0
Yemen 0.2 1,010 995 0.4 0.5
Brunei Darussalam 0.1 927 761 0.1 0.3
Syrian Arab Republic 0.3 661 572 0.4 0.7
Algeria 1.0 635 522 1.3 2.4
Russia 6.0 529 454 8.0 11.6
Trinidad and Tobago 0.1 399 354 0.1 0.2
Norway 0.8 185 144 1.0 4.0
Turkmenistan — 175 142 0.1 0.3
Bahrain — 53 36 — 0.1
Iraq2 9.7 — — 12.1 2.5
OPEC 74.9 3,601 2,997 95.3 41.0
World 100.0 153 128 128.0 100.0
Sources: BP, Statistical Review of World Energy 2005;
Energy Information Administration; and IMF staff
calculations.
Note: Estimates of reserves refer to end-2004 and of
crude oil production to 2004 (except for Bahrain,
where production estimates refer to
2003).
1Total value of stock of reserves calculated using
average petroleum spot price for December 2005.
2No GDP data available.
5As a caveat, the data reflect the composition of
merchandise trade alone. However, there is anecdotal
evidence that fuel
exporters may be relatively large consumers of U.S.
financial services.
almost entirely associated with increases in official
reserves and bank deposits (Figure 2.4);
much of this was on-lent to emerging market
countries, particularly in Latin America, setting
the stage for the 1981–82 debt crisis (see Box
2.2, “Recycling Petrodollars in the 1970s”).
During the past few years, in contrast, there has
been relatively little accumulation of bank
deposits, whereas portfolio investment flows
have been sizable. However, given the limitations
of published data, it is difficult to be more
precise regarding the current allocation of oil
money by asset, currency, or region. Fuel
exporters’ recorded deposits in BIS-reporting
banks, together with their identified purchases
of U.S. securities, amount to less than one-third
of the cumulative current account surpluses
(Figure 2.5; see also BIS, 2005). In some countries,
prepayment of external debt accounts for
an important share of the difference.6
Anecdotal evidence also suggests other possible
explanations. Purchases of U.S. securities may
be booked largely through intermediaries based
in London or offshore financial centers. Again,
fuel exporters may be investing in more diversified
portfolios—for instance, real estate, private
equity, and hedge funds. They may also be
investing relatively more in non-U.S. and, perhaps,
non-G-7 securities, not least because of
the reporting requirements of the post-9/11
Patriot Act. For instance, some of the savings
may have been invested in regional equity and
real estate, whose price is booming throughout
the Middle East, and in emerging markets more
generally. However, IMF staff estimates of the
currency composition of fuel exporters’ official
reserves indicate that the share held in
dollardenominated
assets, at about 60 percent of all
identified assets, has not changed significantly
since 2002.7
Given the limited hard data available, any
impact of the recycling of oil revenues on financial
market conditions must be estimated indirectly.
To the extent that petrodollars are
currently being recycled through market-based
instruments, rather than bank-based lending,
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
76
Table 2.4. Composition of Merchandise Imports
(Percent of imports of given importing region sourced
from given exporting region)
___________________________E_x_p_o_r_ti_n_g_
R__e_g_io_n___________________________
Fuel Other advanced Other developing
exporters1 United States economies2 China countries3
Total
Importing Region—2004
Fuel exporters1 — 8.4 59.0 7.6 25.0 100
United States 8.3 — 54.0 13.8 23.9 100
Other advanced economies2 19.5 25.8 — 21.3 33.4 100
China 9.2 8.6 65.3 — 17.0 100
Other developing countries3 13.3 19.5 59.3 8.0 — 100
Importing Region—Change Between 1981 and 20044
Fuel exporters1 — –5.7 –9.0 6.6 8.0 . . .
United States –11.4 — –4.9 13.0 3.2 . . .
Other advanced economies2 –19.6 –8.7 — 18.1 10.1 . . .
China 8.5 2.6 –14.7 — 3.6 . . .
Other developing countries3 –9.2 –4.8 7.8 6.3 — . . .
Source: IMF, Direction of Trade Statistics.
1This group is as defined in the text.
2This group included all the countries in the World
Economic Outlook group of advanced economies, except
for the United States.
3This group includes all other countries.
4Percentage point difference in the share of imports
between 1981 and 2004 (i.e., a positive number
indicates an increase since 1981). The
year 1981 is the earliest date available with data
coverage comparable to 2004.
6IMF staff estimates indicate that as much as 10
percent of fuel exporters’ total 2005 hydrocarbon
revenues were allocated
to debt prepayments.
7See IMF (2006), Box 1.6, for a more detailed
discussion.
any effect on financing should be concentrated
on market-based financial systems and on traded
assets. Box 2.3 (“The Impact of Petrodollars on
U.S. and Emerging Market Bond Yields”) analyzes
whether the recycling of petrodollars has
helped lower either U.S. long-term interest rates
or emerging market spreads. There is indeed
strong evidence that capital inflows from abroad
have helped reduce yields on U.S. bonds. The
precise impact of oil-related flows is more difficult
to disentangle, although its magnitude is
likely to be relatively modest (at most a !/3
percentage
point reduction in U.S. nominal yields
in 2005), possibly reflecting the diminished
importance of fuel exporters in the international
financial system.8
Finally, it is worth underscoring that the
current increase in oil prices is taking place in
a very different global environment from the
past. In particular, the pattern of external
imbalances
has changed markedly since the 1970s.
Then, large external deficits were concentrated
in oil-importing developing countries (Figure
2.3). Now, it is the United States that is running
a large external deficit, aggravated by high oil
prices; given the central role of the United
States in the world economy, this must heighten
concerns. Set against this, the nature of the
international financial system has been transformed
over time, with bank-based lending
being largely replaced by intermediation
through financial markets. Now that the recycling
of petrodollars is market-based and less
driven by a few large intermediaries, it may
well prove more sustainable than in earlier
episodes.
How Will the Current Oil Price Shock
Affect Global Imbalances?
The previous section sought to place the
recent oil shock in context. This section looks in
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
77
1999 2000 01 02 03 04
-100
0
100
200
300
400
500
600
700
800
900
Figure 2.4. Fuel Exporters' Cumulative Current Account
Balances and Identified Asset Purchases
(Billions of U.S. dollars, cumulative since 1999)
In contrast to the 1970s, tracking the precise assets
and countries into which oil
revenues have been invested over the past few years is
difficult. Identified purchases
only account for a small share of current account
surpluses.
Sources: Bank for International Settlements; Treasury
International Capital System; and
IMF staff calculations.
U.S. corporate bonds
U.S. treasuries U.S. agency bonds
U.S. equities
Offshore bank deposits Current account balance
8Their gross external assets as of end-2004 accounted
for less than 4 percent of the world total, while
their
share of official reserves was about 10 percent.
more detail at how the global economy—and
particularly global imbalances—are likely to
adjust. Following the initial oil price shock,
adjustment takes place broadly as follows.9
• In fuel importers, the rise in world oil prices
worsens the trade balance, leading to a higher
current account deficit and a deteriorating net
foreign asset position. At the same time,
higher oil prices tend to decrease private disposable
income and corporate profitability,
reducing domestic demand; along with a
depreciation of the exchange rate, this acts to
bring the current account back into equilibrium
over time. The speed and output cost of
adjustment depends on factors such as the
degree of trade openness, structural
flexibility,10 and central bank credibility, as
well as the shock’s expected persistence and
the speed with which it is allowed to feed
through into domestic fuel prices. Among
other things, these determine the extent to
which rising oil prices raise inflationary pressures,
necessitating a monetary tightening that
could lead to a more pronounced slowing in
growth.
• In fuel exporters, the process works broadly in
reverse: trade surpluses are offset by stronger
growth and, over time, real exchange rate
appreciation. One important difference, however,
is that fuel exporters may take longer
than fuel importers to adjust to the increase in
fuel prices.11 Hence, their savings may remain
at high levels for extended periods.
• Consequently, aggregate global demand is likely
to fall. In turn, this sets in train a process of
multilateral adjustment, driven by interest
and exchange rate changes, as well as growth
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
78
Figure 2.5. Current Account and Oil Trade Balances
(Percent of GDP)
In the 1970s, large external deficits, financed by the
recycling of petrodollars, were
concentrated in oil-importing developing countries. In
recent years, the oil price
shock has instead contributed to a widening U.S.
current account deficit and has
redistributed current account surpluses from other
advanced economies and
emerging Asia toward fuel exporters.
Source: IMF staff calculations.
Current account Oil trade balance
United States
1970 75 80 85 90 95 2000 05
-8
-6
-4
-2
0
2
Other Advanced Economies
1970 75 80 85 90 95 2000 05
-6
-4
-2
0
2
4
6
8
1970 75 80 85 90 95 2000 05
-6
-5
-4
-3
-2
-1
0
1
China Other Developing Economies
Fuel Exporters
1970 75 80 85 90 95 2000 05
-10
0
10
20
30
40
1970 75 80 85 90 95 2000 05
-5
-4
-3
-2
-1
0
1
2
3
9See Ostry and Reinhart (1992) and Cashin and
McDermott (2003) for a detailed discussion of the
international
transmission of terms-of-trade shocks.
10See the April 2005 World Economic Outlook, Chapter
III.
11The rise in oil exporters’ revenues is often very
large
as a share of own GDP, and cyclical and/or structural
and
institutional constraints can make it very difficult
to
expand demand quickly and efficiently. In contrast, no
such constraints prevent demand from rapidly adjusting
downward in fuel importers.
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
79
Oil-exporting countries’ export revenues
have increased significantly over the past two
years, with Organization of the Petroleum
Exporting Countries (OPEC) revenues estimated
at about $500 billion in 2005, twice that
in 2003, but lower as a share of world GDP
(1.1 percent) than both in 1974 and in 1979
(around 2 percent). Oil exporters’ response to
higher revenues has an important bearing on
the evolution of global imbalances, as well as
their domestic economic developments. This
box assesses the response of major oil-exporting
countries’ imports to higher oil revenues and
compares it with their past behavior, in particular
with the 1970s’ episodes of sharp
increases in oil prices. To this end, it augments
the use of the simple marginal propensities to
import by a more formal estimation of import
functions.
One might expect that after years of low oil
prices and limited social expenditures in many
oil-exporting countries, spending would adjust
rapidly to higher prices, especially in countries
with large populations (relative to their oil
income) and sizable development needs. In
the 1970s, however, oil exporters took time to
respond to higher revenues, but once spending
took off, it gradually rose to unsustainable
levels, with the average propensity to import
surpassing one by the late 1980s—reflecting in
large part badly planned or wasteful projects
and declining oil prices. Spending was finally
curtailed (with the average propensity to
import falling below one) by the mid-1990s,
after years of low oil prices, suggesting that
oil exporters must have initially assumed a
higher permanent component in the price
hikes than was justified ex post. The experience
with the resulting fiscal deficits, therefore,
could result in a more cautious use of higher
oil revenues this time around, especially in
countries where the ability to absorb the
increased revenues is limited.
A quantitative analysis and comparison of
spending patterns across the three episodes is
not straightforward in part because much
depends on the time periods used and definitions
of spending out of oil revenues. For
example, a casual examination of the first
figure—which depicts nominal imports and oil
exports of OPEC countries—suggests that
spending out of oil revenues has been larger in
the current episode than in the past. Specifically,
in 2004 imports constituted about 90 percent
of oil exports, in contrast to 38 percent in
1974 and 75 percent in 1979.
However, more meaningful than these simple
ratios is the behavior of the marginal propensity
to import out of oil revenues over the shock
periods. There is no single correct way of defining
this propensity. One possible definition is
Box 2.1. How Rapidly Are Oil Exporters Spending Their
Revenue Gains?
OPEC Imports and Oil Exports
(Billions of U.S. dollars)
1970 75 80 85 90 95 2000 05
0
100
200
300
400
500
600
Sources: World Integrated Trade Solution; Source OECD;
and
IMF staff calculations.
OPEC-9, excluding Iraq and Indonesia; data for United
Arab
Emirates start from 1971.
1
1
Value of imports of goods and services
Value of oil exports
Note: The main authors of this box are Pelin
Berkmen and Hossein Samiei.
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
80
one minus the change in the current account
over the change in oil revenues.1 The results,
shown in the table, suggest that OPEC is currently
spending 24 percent of its additional oil
revenues on imports. The figure is 31 percent
for major non-OPEC countries and 15 percent
for the Cooperation Council of the Arab States
of the Gulf (GCC). The latter group also appears
to be spending less rapidly than in most past
episodes, while for OPEC the picture is less
clear-cut. These results, however, could underestimate
spending propensities if, in particular,
additions to non-oil export revenues are also
mostly oil-related (e.g., natural gas and oil
products—
as in many OPEC countries), although the
extent that this may be the case is difficult to
know given data deficiencies. If the above definition
is modified to incorporate the change in
non-oil revenues too, then the marginal propensity
to spend in the recent period will be higher
(and less different from past episodes). The figure
for the GCC (34 percent) is also now close
to that for OPEC (36 percent). These aggregate
trends also mask important differences across
countries. In particular, countries with larger
populations and/or expenditure needs, such as
the Islamic Republic of Iran, Mexico, and Venezuela
have higher propensities to import than
Saudi Arabia and most other GCC members.
The above analysis, while informative, does
not capture the impact of other variables on
imports. As an alternative—and more formal—
statistical analysis, we estimate import functions
for the 1970–2001 period and examine the outof-
sample forecasts for the recent period. This
procedure does not distinguish shock episodes
from other periods and focuses on testing
whether current performance is similar to the
Box 2.1 (concluded)
Marginal Propensity to Import Out of Oil Revenues1
1973– 1973– 1978– 1978– 2003–
1974 1975 1980 1981 2005
GCC2 0.08 0.34 0.18 0.25 0.15
OPEC3 0.14 0.52 0.24 0.42 0.24
Iran, I.R. of 0.17 0.68 0.35 0.24 0.37
Saudi Arabia 0.01 0.32 0.27 0.39 0.26
Venezuela 0.18 0.65 –0.15 0.01 0.46
Major non-OPEC4 . . . . . . . . . . . . 0.31
Russia 0.77 1.37 0.76 1.08 0.20
Norway . . . . . . 0.18 –0.30 –0.13
Mexico . . . . . . . . . . . . 0.78
Sources: World Integrated Trade Solution; OECD; World
Economic Outlook; and IMF staff calculations.
1Defined as (change in imports net of non-oil exports,
investment
income, and transfers)/(change in oil exports).
2The Cooperation Council of the Arab States of the
Gulf
(GCC) includes Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia, and
the United Arab Emirates.
3OPEC-9, excluding Iraq and Indonesia. Data for the
United
Arab Emirates start from 1971.
4Major non-OPEC includes Angola, Canada, Kazakhstan,
Mexico, Norway, Oman, and Russia.
1Or equivalently: (change in imports net of non-oil
exports, investment income, and transfers)/(change
in oil exports). This definition assumes that the
increase in oil income is the only “shock” to external
revenues and that additions to other revenues are
fully
spent on imports.
1972 79 86 93 2000
1
2
3
4
5
6
1972 79 86 93 2000
1
1.5
2
2.5
3
3.5
4
4.5
5
Dynamic Forecasts for Real Imports
(Log of billions of 2000 U.S. dollars)
Source: IMF staff estimates.
Forecast Actual
1972 79 86 93 2000
2.0
2.5
3.0
3.5
4.0
4.5
Iran, I.R. of Saudi Arabia
1972 79 86 93 2000
1.5
2.0
2.5
3.0
3.5
4.0
4.5
OPEC GCC
differentials. The incipient excess of global
saving over investment puts downward pressure
on real interest rates, which supports
investment demand in fuel importers and
weakens incentives to save in fuel exporters.
At the same time, exchange rate changes and
growth differentials shift aggregate demand
from importers to exporters.
• Adjustment is also influenced importantly by
financial market developments. Higher oil prices
will tend to reduce asset prices—including
equities and exchange rates12—in oil-importing
countries and to raise them in oil-exporting
countries. This will tend to reinforce the
adjustment process, particularly in countries—
such as the United States—where wealth
effects are large. In addition, changes in asset
prices have important valuation effects.13 For
example, if oil exporters hold equities or
bonds in oil-importing countries, their gains
from higher oil prices may be partly offset by
capital losses on their asset holdings, as stock
markets in oil importers fall or their exchange
rates depreciate.
To investigate the adjustment process in more
detail, IMF staff used two separate but consistent
vector autoregressions (VARs).14 The first of
these, a standard VAR, investigates the link
between real oil prices and external positions
(measured using both current accounts and net
foreign assets) in the United States and in
selected other country groups. The second, a
Global VAR (GVAR),15 looks in more detail at
the link between oil prices, growth, inflation,
and asset prices, to shed more light on how the
adjustment takes place. Starting with the broad
implications of oil prices for external positions,
the VARs suggest that:
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
81
average of the past. We use an error-correction
formulation, with real GDP and the terms of
trade as explanatory variables.2 The estimation is
done for oil-exporting countries individually, the
GCC, and OPEC (for which comparison with
the past is possible). The results (second figure)
suggest that OPEC’s spending is only slightly
lower than that implied by its past behavior
while the GCC’s spending behavior is clearly
more conservative. Most of the individual countries’
responses (e.g., the Islamic Republic of
Iran and Saudi Arabia) are also consistent with
their spending needs and with the trends in the
marginal propensity to import discussed above.
On balance, these findings suggest that average
spending so far has been gradual, especially
for most GCC exporters. But expenditure needs
are great in many countries and, based on the
1970s experience, it is not at all certain that the
current trend will continue. The outcome will
also depend on perceptions about the magnitude
of the permanent component in higher
prices. Higher spending, when prudent and on
projects with high returns, would help promote
domestic growth in these countries and contribute
to reducing global imbalances.
2The logarithmic change in real imports is regressed
on its lagged values, current and lagged values of
logarithmic changes in GDP and the terms of trade,
and an error correction term. The estimation is
carried
out using an autoregressive distributed lag model,
and employs the Schwarz-Bayesian criterion for lag
selection.
12Bond prices will also fall, as long as nominal
interest rates increase.
13See the April 2005 World Economic Outlook, Chapter
III, for a detailed discussion of valuation effects.
14Adopting two separate but consistent models allows
for more parsimonious specifications. The results are
consistent
with those obtained combining the two models within a
single GVAR.
15As estimated by Dees and others (forthcoming); see
Appendix 2.1 for details.
• Oil price shocks have a marked but relatively
short-lived impact on current accounts
(Figure 2.6).16 A permanent increase in real
oil prices of $10 per barrel was on average
associated with an increase in fuel exporters’
current account surplus of about 2 percent of
own GDP, with the effect dying out within
three years. This was matched by higher
deficits in the United States (about !/4 percent
of GDP), other advanced economies, and
developing economies other than China.17
Among these, the impact on the United
States was statistically the most significant as
well as persistent (with a half-life of about
three years).
• Oil price shocks also have a noticeable—and
predictable—effect on the net foreign asset
position of all regions, except the United
States (see Figure 2.6). A permanent $10 per
barrel oil price shock boosts the net foreign
asset position of oil exporters by about 2 percent
of GDP, in line with the increase in the
current account; the increase has a half-life of
about five years. More surprisingly, the estimated
change in U.S. net foreign assets was
positive (although statistically insignificant),
while other countries experienced a larger
and more persistent reduction in net foreign
assets than implied by the (cumulative)
impact on the current account.18 This may
reflect the valuation effects described above,
with declines in asset prices in the United
States reducing wealth in the rest of the
world.
Against this background, how does the underlying
adjustment to an oil shock occur, and are
there significant differences across countries and
regions? Figure 2.7 compares the adjustment
process across regions in response to a perma-
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
82
-1.00 2 4 6 8 10
-0.5
0.0
0.5
1.0
0 2 4 6 8 10-1.0
-0.5
0.0
0.5
1.0
0 2 4 6 8 10-1.0
-0.5
0.0
0.5
1.0
-1.00 2 4 6 8 10
-0.5
0.0
0.5
1.0
Other Advanced Economies
0 2 4 6 8 10-3.0
-1.5
0.0
1.5
3.0
-3.00 2 4 6 8 10
-1.5
0.0
1.5
3.0
Current Account Response Net Foreign Asset Response
Fuel Exporters 2
-1.00 2 4 6 8 10
-0.5
0.0
0.5
1.0
-1.00 2 4 6 8 10
-0.5
0.0
0.5
1.0
0 2 4 6 8 10-1.0
-0.5
0.0
0.5
1.0
Other Developing Economies 4
United States
Source: IMF staff calculations.
Response to a permanent $10 a barrel annual average
increase in oil prices (measured
in constant 2005 U.S. dollars).
Fuel exporters' response presented on a wider scale.
Net foreign asset data available only after 1980.
China3
Figure 2.6. Impact of Oil Price Shocks on
External Imbalances, 1972–2004
(Percent of GDP, x-axis in years)
1
1
3
2
4
In the short term, oil price shocks lead to external
imbalances. However, the impact
on net foreign assets has historically proved
transitory.
Point estimate 95 percent error bands
Error bands partially out of scale.
16See Appendix 2.1 for a fuller discussion of the
identification
and interpretation of the oil price shock.
17China was a net oil exporter during the first half
of
the sample period.
18For many fuel exporters, complete data on foreign
asset positions are not available. This may explain
the similarity
between the cumulative current account response
and the estimated change in net foreign assets.
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
83
Point estimate 95 percent error bands
Fuel Exporters2 United States China
Figure 2.7. Adjustment to Oil Price Shocks,
1979:Q2–2003:Q4
(Percent unless otherwise indicated, x-axis in
quarters)
1
0 4 8 12 16 20 24-6
-3
0
3
6
-60 4 8 12 16 20 24
-3
0
3
6
0 4 8 12 16 20 24-6
-3
0
3
6
0 4 8 12 16 20 24-2
-1
0
1
2
0 4 8 12 16 20 24-2
-1
0
1
2
-20 4 8 12 16 20 24
-1
0
1
2
Real Output
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
Long-Term Interest Rate6
0 4 8 12 16 20 24-10
-5
0
5
10
-100 4 8 12 16 20 24
-5
0
5
10
Real Equity Price4
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
Inflation3
Real Exchange Rate5
Response to a permanent $10 a barrel annual average
increase in oil prices (measured in constant 2005 U.S.
dollars).
Groups described in Appendix 2.1.
Y-axis in percentage points at a quarterly rate. For
other developing countries, error bands out of scale.
For fuel exporters, data only available for Canada,
Norway, and the United Kingdom. For other developing
countries, confidence
intervals partially out of scale. For China,
insufficient data available.
Error bands partially out of scale. For the United
States, real effective exchange rate vis-à-vis other
groups shown. For all other groups,
CPI-based real bilateral exchange rate vis-à-vis the
United States shown.
Y-axis in percentage points at a quarterly rate;
multiply by four to annualize. For other developing
countries, only Korea and South Africa
1
3
2
4
5
6
Source: IMF staff calculations, based on Dees and
others (forthcoming).
shown. For China, short-term interest rates shown.
nent oil price shock (again, of $10 per barrel).19
The key points are as follows.
• The basic adjustment channels work broadly as
described above, with slowing growth and real
depreciation supporting the trade adjustment
in oil importers, while fuel exporters experience
real appreciation and output growth. In
particular, in the United States, the real effective
exchange rate depreciates, and output
declines by up to !/2 percent, although this
decrease is statistically weak. In other advanced
economies, the exchange rate also depreciates,
but any output declines are smaller than in the
United States (especially in Japan).20
• Inflation in advanced economies rises after one
year by an annualized #/4 percentage point in
the United States, and somewhat less elsewhere.
21 This has historically been accompanied
by an increase in both short- and
long-term nominal interest rates. Long-term
real rates, however, fall temporarily in response
to the shock. This helps support demand in
fuel importers and maintain the global
savinginvestment
balance, until exchange rate
changes and growth differentials work their
way through the adjustment process. In developing
countries, the response of inflation cannot
be estimated precisely, reflecting strong
heterogeneity within this group.22
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
84
2
1
2
Figure 2.7 (concluded)
Point estimate 95 percent error bands
Other Advanced Economies Other Developing Economies
0 4 8 12 16 20 24-2
-1
0
1
2
-20 4 8 12 16 20 24
-1
0
1
2
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24 -1.0
-0.5
0.0
0.5
1.0
Long-Term Interest Rate6
0 4 8 12 16 20 24 -1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
Inflation3
Real Exchange Rate5
-60 4 8 12 16 20 24
-3
0
3
6
0 4 8 12 16 20 24-6
-3
0
3
6
Real Output
-100 4 8 12 16 20 24
-5
0
5
10
0 4 8 12 16 20 24-10
-5
0
5
10
Real Equity Price4
Response to a permanent $10 a barrel annual average
increase in oil prices (measured
in constant 2005 U.S. dollars).
Groups described in Appendix 2.1.
Y-axis in percentage points at a quarterly rate. For
other developing countries, error
For fuel exporters, data only available for Canada,
Norway, and the United Kingdom. For
other developing countries, confidence intervals
partially out of scale. For China,
insufficient data available.
Error bands partially out of scale. For the United
States, real effective exchange rate
vis-à-vis other groups shown. For all other groups,
CPI-based real bilateral exchange rate
vis-à-vis the United States shown.
Y-axis in percentage points at a quarterly rate;
multiply by four to annualize. For other
developing countries, only Korea and South Africa
shown. For China, short-term interest
rates shown.
1
3
2
4
5
6
bands out of scale.
19These results are based on the estimates of Dees and
others (forthcoming). For this exercise, both the
sample
period (1979:Q2–2003:Q4) and the list of countries
included (see Appendix 2.1) are slightly different
from
what was previously used. This reflects the limited
availability
of the quarterly data needed to estimate the
underlying
GVAR model.
20In Japan, there is a marked depreciation. In the
euro
area, in contrast, the real exchange rate does not
respond
(see Appendix 2.1).
21For this sample, which includes the second oil price
shock and the associated delayed policy response, the
hypothesis that inflation is affected even in the long
run
cannot be rejected.
22These results, while based on a different
methodology,
are broadly consistent with earlier IMF staff
estimates
of the impact of an oil price shock. For instance, the
calculations
in IMF (2000) suggest that a $10 per barrel
increase in oil prices would reduce real GDP in the
United States and euro area by about !/2 percent, and
increase inflation after one year by 1 percentage
point.
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
85
The first “oil shock” began in the fall of 1973.
The sudden tripling of world oil prices resulted
in a large windfall gain for oil-exporting countries
at the expense of oil importers. It also led
to a major financial shock, since most exporting
countries spent only a small portion of the
increased revenues. In 1974, the first full year
after the initial shock, the aggregate current
account surplus of major oil-exporting countries
amounted to $68 billion (one-third of their
GDP). The major counterparts were the deficits
of industrial countries ($31 billion, 0.8 percent
of GDP) and of oil-importing developing countries,
or OIDC ($34 billion, 10!/2 percent of GDP).
Although these shifts moderated over time as oil
exporters adjusted to the new market situation
with increased spending, the general pattern
persisted through the rest of the decade.1
Oil exporters faced the question of how to use
their sizable current account surplus. Data on
identified investments, which account for almost
the entire surplus, indicate that most of the
money was channeled into a few well-established
markets. In 1974, more than half was placed in
bank deposits and money market instruments
(including short-term treasury securities) in
advanced economies (see the first table). Of the
liquid investments in the United States, treasury
securities accounted for less than a sixth of the
total, with the rest placed mostly with commercial
banks. About $25 billion was channeled into
long-term investments, such as loans to national
governments and international agencies, as well
as government bonds in the United States and
the United Kingdom. Broadly speaking, the pattern
persisted throughout the rest of the 1970s.
The financial shock from the oil price
increases of the 1970s came at a time when the
potential for large private international capital
flows was just beginning to be realized. The first
relevant development, which began in the late
1960s, was the deregulation and consequent
innovative evolution of Eurocurrency markets.
The oil shock of 1973–74 reinforced this development,
providing new fuel for these markets by
making large sums of liquid assets available for
investment. By then, banks in Europe and in less
regulated “offshore” financial centers were
much better prepared than they would have
been even a few years earlier to accept and
invest dollar-denominated deposits and other
liquid liabilities. A third factor was weak aggre-
Box 2.2. Recycling Petrodollars in the 1970s
Fuel Exporters’ Deployment of Current Account
Surpluses
(Billions of U.S. dollars; by type of financial
investment)
1974 1975 1976 1977 1978 1979
Bank deposits and money market investments
Dollar deposits in the United States 1.9 1.1 1.8 0.4
0.8 4.9
Sterling deposits in the United Kingdom 1.7 0.2 –1.4
0.3 0.2 1.4
Deposits in foreign currency markets 22.8 9.1 12.1
10.6 3.0 31.2
Treasury bills in the United Kingdom and the United
States 4.8 0.6 –1.0 –1.1 –0.8 3.4
Total 31.2 11.0 11.5 10.2 3.2 40.9
Long-term investments
Special bilateral arrangements 11.9 12.4 12.2 12.7 8.7
11.8
Loans to international agencies 3.5 4.0 2.0 0.3 0.1
–0.4
Government securities in the United Kingdom and
the United States 1.1 2.2 4.1 4.5 –1.8 –0.9
Other1 9.7 6.1 8.5 5.8 3.3 2.4
Total 25.1 24.7 26.8 23.3 10.3 12.9
Total new investments 56.3 35.7 38.3 33.5 13.5 53.8
Source: Bank for International Settlements.
1Including equity and property investments in the
United Kingdom and the United States, and foreign
currency lending.
Note: The main authors of this box are James M.
Boughton and Suchitra Kumarapathy.
1The current account balance of industrial countries
swung from a cumulative surplus of $23 billion in
1968–73 to a deficit of $44 billion in 1974–79, while
the
cumulative deficit of OIDC doubled to $139 billion.
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
86
gate demand in industrial countries, which
meant that banks in those countries had to find
other profitable outlets for the “petrodollars”
that oil exporters were investing with them. For
many banks, meeting this challenge meant moving
into new markets where loan demand was
stronger, including Latin America and other
developing countries.
A large part of the initial response to the oil
shocks took the form of official “recycling” of
petrodollars, in which the IMF and other official
creditors provided fast-disbursing loans to
OIDC. The main vehicle for the IMF was an “Oil
Facility,” newly established in 1974, through
which $2.4 billion were lent to 45 developing
countries from 1974 to 1976. Because the shock
was thought to be temporary, this financing was
provided with only token conditionality. Overall,
in 1974–76, official recycling from multilateral
and bilateral creditors and donors amounted to
$48 billion, two-thirds of which was bilateral.
Over time, international private banks took
over much of the financing role. In 1975,
long-term official loans and grants to OIDC
amounted to about $18 billion, and private
financing was estimated at roughly the same
amount, most of it channeled through commercial
banks. But cross-border private flows, especially
through banks, then increased sharply. For
instance, the external foreign currency assets
reported by banks in eight European countries,
Canada, Japan, the United States, and offshore
branches of U.S. banks quadrupled to almost
$1 trillion between 1973 and 1980.2 The
Eurobond market also expanded considerably,
with the total value of international and foreign
bond issues growing from $12 billion in 1974 to
$38 billion in 1980.
A portion of the recycled funds went to
industrial countries with large current account
deficits, including France, Italy, and the United
Kingdom, which relied on a combination of
official and private external financing (see the
second table). In 1974, for instance, the United
Kingdom financed its $7.5 billion current
account deficit by means of compensatory foreign
borrowing and direct inflows of funds from
oil-exporting countries (at the time, the United
Kingdom was still developing the North Sea oil
fields and was a major oil importer). The IMF
also provided financing to several industrial
countries, including large Stand-By Arrangements
for Italy and the United Kingdom, in part
because of the failure of these countries to
adjust policies and aggregate demand fully to
the oil shock.
An even greater share of the recycled petrodollars
went to developing countries, many of
which had initially faced difficulties financing
their increased current account deficits. Weak
overall aggregate demand and a big unanticipated
jump in price inflation kept world interest
rates low in nominal terms and substantially
Box 2.2 (concluded)
Financial Inflows for Selected OECD Economies
in 1974
(Billions of U.S. dollars)
___________F_in__an__ci_a_l _In__fl_o_w_s___________
Traditional Compensatory
capital foreign Official
inflows borrowing1 inflows2 Total
United Kingdom 2.2 4.13 3.24 9.5
Italy 1.0 2.1 5.3 8.4
France 3.8 1.7 0.5 6.0
Source: OECD, Economic Outlook, 1975.
1Official or semi-official borrowing from foreign
private
institutions.
2Private and official borrowing from foreign official
institutions.
3Of which, $2.6 billion representing foreign currency
borrowing
by the public sector under the exchange cover scheme,
and
$1.5 billion drawing on the government Euro-loan.
4Including an increase of $5.3 billion in
sterling-denominated
exchange reserves by oil-exporting countries.
2Since the lion’s share of the recycling in the 1970s
passed through the banking systems or securities
markets
of industrial countries, the Bank for International
Settlements (BIS) was able to estimate the composition
and direction of financial flows, using data
obtained largely from its participating central banks.
Subsequently, financial markets continued to globalize
and diversify into new and more complex instruments,
and a variety of nonbank financial institutions became
major intermediaries for cross-border flows. Since the
mid-1990s the BIS has ceased reporting cross-border
banking claims on a basis comparable to earlier years,
and tracking the course of overall flows has become
much more difficult.
• There also appears to be an active valuation
channel. Equity prices fall by 2–4 percentage
points in major advanced economies, which—
along with the depreciation of the U.S.
dollar—results in a wealth transfer to the
United States from other economies.
The analysis so far describes the average
impact of oil price shocks in the past. However,
the effects of the current shock, including the
speed and nature of the future adjustment
process, may be different, and in particular will
depend on two policy-related factors. First, as
noted above, oil producers appear to be increasing
their spending in response to higher revenues
more slowly than in the past. In addition,
as discussed in Chapter I, the impact of oil
prices on core inflation to date has been surprisingly
mild relative to previous experience, so
that central banks have not had to raise shortterm
interest rates to reduce inflationary pressures.
Partly as a result, growth in oil-importing
countries has been relatively unaffected, implying
that trade balances may take longer to
adjust; set against this, for net debtors, relatively
lower interest payments on external debt have
reduced any negative impact on current
accounts.23
To examine the potential impact of these
various factors on the adjustment of global
imbalances, IMF staff undertook two simulations
using the IMF’s MULTIMOD model.24
The first scenario assumes rapid adjustment in
oil exporters, as compared to the WEO baseline
where their existing current account surpluses
continue into the medium term. Specifically,
the scenario assumes that imports by oil
exporters increase by $150 billion in 2006
(about !/3 of their aggregate 2005 current
account surplus, or !/3 percent of world GDP),
and $350 billion (about #/4 of their current
surplus) by 2010. This more rapid pace of
expenditure shrinks the U.S. current account
deficit, by almost #/4 percent of GDP by 2010,
and also leads to some real dollar appreciation
(Table 2.5). The decline in global savings results
in an increase in real and nominal interest rates
in oil importers, amounting to up to 40 basis
points. There is little net impact on growth in
advanced economies.
In the second scenario, it is assumed that the
low level of pass-through into core inflation cannot
be sustained and that pass-through picks up
in 2006, although its magnitude is still only half
of what would have been expected based on his-
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
87
negative in real terms throughout the 1970s,
encouraging developing countries to take on
loans. For many developing countries that were
exporters of primary commodities, a commodityprice
boom in the mid-1970s made their borrowing
terms look even more attractive. For
instance, in 1973–78 low-income countries as a
group paid an average nominal interest rate of
just over 3 percent on their external debt, while
their export prices—measured in the depreciating
U.S. dollar—rose at an average annual rate
of 18 percent. Latin America emerged as the
largest borrowing region, accounting for twothirds
of total credits issued by reporting banks
to OIDC—a development that laid the basis for
the debt crises of the 1980s.
23In addition, historical experience may prove
misleading in illustrating the potential impact of any
large future oil price
shock, if there are important nonlinearities in the
effects of such shocks.
24For a description of MULTIMOD, see Laxton and others
(1998); see Hunt, Isard, and Laxton (2001) for the
specific
version employed here. MULTIMOD does not have a
separate “oil exporters” group. The estimates reported
aggregate all
those countries whose trade surplus increases in
response to an oil price increase. This includes
Canada, the United
Kingdom, the “small industrial economies” group, and a
group of high-income developing economies that are
mainly oil
exporters.
torical experience through 2003. As core inflation
increases, central banks respond by increasing
nominal interest rates significantly (by
about 70 basis points for the United States in
2007, relative to the baseline), so as to contain
the inflationary impact of the increase in energy
prices (Table 2.6). In turn, higher interest rates
act to depress demand and output, with some
positive effects on the trade balance. Higher
interest rates also increase the interest burden
on the U.S. stock of net foreign liabilities,
which tends to raise both the U.S. current
account deficit and the Japanese current
account surplus.25 Nevertheless, as long as
monetary policy responds promptly to the inflationary
pressures, the effects on both output
and, especially, the current account are relatively
mild. If the monetary policy response were
instead delayed, the eventual effects would
prove much more sizable.26
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
88
Table 2.5. Impact of Oil Price Shock: Greater
Spending by Fuel Exporters
(Relative to baseline)
2006 2007 2008 2009 2010
Current account balance
(in percent of GDP)
United States 0.4 0.4 0.5 0.6 0.7
Japan 0.5 0.7 0.9 1.0 1.1
Euro area 0.5 0.7 0.9 1.0 1.1
Core inflation
(in percentage points)
United States 0.1 0.1 — — 0.1
Japan 0.1 0.1 0.1 0.1 0.1
Euro area 0.2 0.2 0.1 — 0.1
Real short-term interest rate
(in percentage points)
United States 0.3 0.3 0.3 0.3 0.3
Japan 0.4 0.4 0.3 0.3 0.4
Euro area 0.5 0.5 0.3 0.3 0.4
Nominal short-term interest rate
(in percentage points)
United States 0.4 0.4 0.4 0.3 0.4
Japan 0.5 0.5 0.4 0.4 0.4
Euro area 0.6 0.6 0.4 0.4 0.4
GDP (in percent)
United States 0.5 0.1 –0.4 –0.2 –0.1
Japan 0.5 0.2 –0.4 –0.3 –0.1
Euro area 0.7 0.2 –0.5 –0.3 –0.1
Real effective exchange rate
(in percent)
United States –0.8 –0.7 –0.6 –0.6 –0.6
Japan 0.7 0.7 0.7 0.6 0.6
Euro area –0.3 –0.3 –0.4 –0.4 –0.4
Source: IMF staff calculations.
Table 2.6. Impact of Oil Price Shock: Delayed
Pass-Through to Core Inflation
(Relative to baseline)
2006 2007 2008 2009 2010
Current account balance
(in percent of GDP)
United States — — –0.1 –0.1 –0.1
Japan — 0.1 0.2 0.2 0.1
Euro area — — — — —
Core inflation
(in percentage points)
United States 0.1 0.3 0.1 0.1 —
Japan 0.1 0.3 0.1 — —
Euro area 0.1 0.2 0.1 — —
Real short-term interest rate
(in percentage points)
United States 0.2 0.6 0.4 0.3 0.2
Japan 0.2 0.5 0.3 0.2 0.1
Euro area 0.2 0.5 0.2 0.1 —
Nominal short-term interest rate
(in percentage points)
United States 0.3 0.7 0.6 0.3 0.2
Japan 0.3 0.6 0.4 0.2 0.1
Euro area 0.2 0.6 0.3 0.1 —
GDP (in percent)
United States –0.3 –0.8 –0.7 –0.5 –0.4
Japan –0.2 –0.6 –0.6 –0.4 –0.3
Euro area –0.2 –0.5 –0.5 –0.3 –0.2
Real effective exchange rate
(in percent)
United States 0.1 0.3 0.3 0.2 0.1
Japan — 0.1 — 0.1 0.1
Euro area –0.1 –0.4 –0.3 –0.2 –0.2
Source: IMF staff calculations.
25The impact on net foreign assets, however, would be
mitigated by valuation effects working in favor of the
United
States but not present in the model.
26For technical reasons, all scenarios assume that the
oil price is driven only by oil supply shocks. This
tends to overestimate
the positive impact of lower oil prices on real GDP in
oil-consuming countries. However, there is no a priori
reason
why the assumption should affect results for either
scenario relative to the baseline. In addition, all
scenarios assume full
and immediate pass-through of the world oil price into
domestic oil prices. Incomplete pass-through would
result in slower
adjustment.
HOW WILL THE CURRENT OIL PRICE SHOCK AFFECT GLOBAL
IMBALANCES?
89
How does the recycling of oil-export revenues
affect global financial markets? To the extent that
higher oil prices increase world net savings, and
that saved petrodollars are used to purchase given
securities, the outcome would be an increase in
the price of (or, equivalently, a lower interest rate
on) such securities. In turn, this could lead to a
second-round effect on the price of other, similar
securities. This box analyzes the issue by focusing
on the link between oil prices and interest rates
on U.S. and emerging market bonds.
Examining first the United States, direct evidence
of a link between petrodollars, capital
inflows, and interest rates is not available, in
large part because many oil exporters tend to
purchase U.S. securities through third-country
intermediaries. Such third-country trades confound
the country attribution of U.S. capital
flows data. The estimation here therefore proceeds
more indirectly. As a first step, following
Warnock and Warnock (2006), there is evidence
that capital flows to the United States do put
downward pressure on U.S. interest rates (see
the first table, column 1). Foreign flows into
U.S. government securities in the 12-month
period through May 2005 depressed U.S. 10-year
yields by 86 basis points,1 controlling for factors
such as inflation expectations and the federal
funds rate. On this basis, if one assumed that
fuel exporters used one half of their current
account surplus to finance investments in the
United States, the increase in oil prices over the
last two years would have reduced U.S. yields by
about !/3 percentage point (holding constant all
other capital flows).
To investigate the issue further, the Warnock
and Warnock regression analysis was extended
by disaggregating total capital flows into the
United States into two components: those attributable
to East Asian countries, which are
unlikely to directly reflect oil-export revenues;
and all others (“Other Flows”).2 Perhaps surprisingly,
East Asian inflows were found to have a
relatively greater dollar-for-dollar impact on U.S.
yields, although Other Flows have recently been
somewhat larger in absolute terms (see the first
table, column 2). Among possible explanations,
East Asian purchases may have been concentrated
on more thinly traded, longer-maturity
portions of the yield curve, where purchases
have a greater impact. In addition, interventions
by Asian central banks may have been interpreted
as a signal that they were likely to continue
buying dollars in the future.3 Overall, the
regression attributes 52 basis points of the total
Box 2.3. The Impact of Petrodollars on U.S. and
Emerging Market Bond Yields
The Impact of Oil Revenues on U.S. Interest Rates1
Nominal 10-Year
_______T_r_e_a_s_u_ry_ _Y_i_el_d_______
(1) (2) (3)
Foreign capital inflows2,3 –0.24* . . . . . .
East Asian flows . . . –0.42* –0.35*
Other flows . . . –0.14* . . .
Oil-related . . . . . . –0.12
Residual . . . . . . –0.13*
Inflation expectations,
10-year ahead 0.63* 0.67* 0.65*
Interest rate risk premium 1.88* 3.16* 0.90*
Federal funds rate 0.36* 0.33* 0.35*
Structural budget deficit2 0.25* 0.23* 0.22*
R2 0.90 0.90 0.85
Source: Authors’ calculations.
1The sample is monthly, from August 1987 to May 2005.
Yields are measured in percentage points. Asterisks
denote statistical
significance at the 1 percent level. The following
variables
are included but not reported: expected real GDP
growth;
the difference between 1-year ahead and 10-year ahead
inflation
expectations; and a constant.
2Scaled by lagged GDP.
3Twelve-month benchmark-consistent foreign official
flows
into U.S. treasury and agency bonds.
Note: The main authors of this box are Laura
Kodres and Frank Warnock.
1Calculated as 12-month inflows, amounting to 3.65
(percent of lagged GDP), times the estimated
coefficient,
–0.236.
2For the purpose of this box, East Asia consists of
China, Hong Kong SAR, Japan, Korea, and Taiwan
Province of China—countries and territories whose
governments have recently accumulated substantial
positions in U.S. government securities.
3On a more technical note, “Other Flows” may also
contain private flows that are related to other
variables
in the regression. In contrast, East Asian flows are
primarily
official flows, and may more reasonably be
treated as exogenous.
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
90
yield reduction between June 2004 and May
2005 to East Asian flows, but only 34 basis points
to Other Flows.
Of course, Other Flows cannot be entirely
assumed to reflect oil-export revenues—they
have many potential sources. To isolate the
effect of oil revenues, Other Flows were explicitly
regressed on oil prices.4 In this regression,
however, oil prices have very little explanatory
power. Further, the part of Other Flows that is
related to oil prices does not help explain lower
U.S. rates, even though non-oil-related Other
Flows do have a statistically significant impact
(see the first table, column 3).5
Summing up, while one might expect higher
oil prices and the consequent recycling of
petrodollars to exert downward pressure on U.S.
interest rates, such an effect is hard to detect
statistically
among all the competing influences on
U.S. yields. This may well reflect the relatively
limited magnitude of petrodollar flows. Two
caveats should, however, be stressed. First, these
negative findings in part likely reflect the lack of
direct data on capital inflows from fuel-exporting
countries. Second, the above analysis treats U.S.
interest rates as being determined separately
from global interest rates. In an integrated world
capital market, oil prices may also affect U.S.
rates indirectly, through the impact of recycled
petrodollars on interest rates in other countries.
That said, the regressions failed to find a
statistically
significant impact of interest rate differentials
or exchange rates on U.S. yields.6
Even if petrodollars have only a limited effect
on the large U.S. bond market, they might have
a more sizable impact on the smaller market
for emerging market debt. This hypothesis is
explored next, using a model of emerging
market bond spreads that controls for the
impact of country-specific and global macroeconomic
fundamentals and of variables related
to U.S. financial markets. Specifically, the
model recognizes that oil prices (as well as
nonfuel commodity prices, global industrial
production, and U.S. interest rates) influence
emerging market bond spreads through two
separate channels. First, oil prices affect emerging
market “fundamentals,” as proxied by their
credit ratings and outlooks, which in turn affect
their spreads. In particular, for oil importers,
higher oil prices may negatively affect the cur-
Box 2.3 (concluded)
Determinants of Emerging Market Bond Spreads
Explanatory Variable Coefficient1
Oil price2 0.005
Non-fuel commodity prices2 –1.096*
World industrial production2 –1.173
Predicted credit ratings and outlooks3 0.237*
Federal funds three-month future rate 0.076*
R2 Within = 0.49;
Between = 0.73;
Overall = 0.64
Sources: Bloomberg, L.P.; The PRS Group; J.P. Morgan;
Bloomberg; and authors’ calculations.
1Fixed-effects panel regression using 2,345 monthly
observations on 29 countries, from January 1991 to May
2005. The dependent variable is the log of Emerging
Market
Bond Spreads, measured in basis points, using the J.P.
Morgan
Emerging Market Bond Indices (EMBI) relative to the
U.S.
10-year treasury bond. All countries for which EMBI
are
available are included, except that Algeria and Côte
d’Ivoire
are excluded owing to lack of other data; Russia and
Venezuela
are excluded owing to significant oil exports; Nigeria
is
excluded on both grounds; and Argentina is excluded
owing
to its crisis-related spreads in 2001. Asterisks
denote statistical
significance at the 1 percent level. The following
variables are included but not reported: expectations
of
federal funds rate (FF) increase; expectations of FF
decrease;
volatility of FF futures; volatility of FF futures ×
expectations
of FF increase; volatility of FF futures ×
expectations of FF
decrease; volatility of S&P 500 options; a constant;
and a
time trend.
2In logs.
3Predicted value for default risk, from a separate
first-stage
regression.
4Allowing for 24 monthly lags, and deflating by
nominal GDP. An alternative specification also
included oil-export revenues, as proxied by oil prices
times fuel exporters’ total petroleum output, but
these
did not prove significant.
5Over selected subperiods (e.g., starting in January
1999), there is a relationship between Other Flows
and oil prices. However, the portion of Other Flows
attributable to oil prices over such subperiods still
does not help explain U.S. rates.
6Their effect may already be picked up through other
included variables, such as inflationary expectations
or
output. In a similar vein, purchases of U.S. corporate
securities by oil exporters might impact U.S. interest
rates; this effect is again not explicitly modeled.
Conclusions
Global imbalances had emerged long before
the current oil price shock began. Nevertheless,
some of these imbalances have clearly
been exacerbated by higher energy prices. In
particular, the increase in oil prices since 2003
has directly worsened the U.S. current account
deficit by over 1 percent of GDP; at the same
time, higher oil prices have tended to reduce
surpluses in non-oil-exporting developing
countries, notably in Asia. To the extent that
higher net savings by oil exporters have driven
down global interest rates, and that these lower
rates have boosted demand in economies with
market-based financial systems, such as the
United States, the oil price shock may also have
had an additional indirect negative effect on
the U.S. external position. Since it is neither
feasible nor desirable for oil exporters to spend
their newfound revenues immediately, global
current account imbalances are likely to remain
at elevated levels for longer than would otherwise
have been the case, heightening the risk of
a sudden, disorderly adjustment.
In the past, current accounts have tended to
adjust relatively quickly to oil shocks, as higher
energy prices led to a rise in interest rates, a
slowdown in growth and domestic demand, and
changes in exchange rates and asset prices. This
time, in part because of improved monetary
frameworks and credibility, the impact on shortterm
interest rates, growth, and inflation has
been smaller than before, while deeper financial
integration may facilitate the persistence of
deficits. Further, authorities in fuel-exporting
countries are being somewhat more cautious in
increasing spending, even though market
expectations indicate that the current energy
price shock is likely to prove more persistent
than in the 1970s. All this suggests that current
accounts may adjust more slowly now than in
the past.
As with any terms-of-trade shock, much of the
adjustment must take place in the private sector,
but policies can also play an important supporting
role. For consuming countries, this requires
full pass-through of world oil prices into domestic
energy prices, accompanied by a monetary
stance that guards against potential spillovers
into core inflation. For producers, most of
which are developing countries, the rise in oil
revenues represents a major development
opportunity. While the pace at which oil earnings
can be usefully spent will vary by country,
measures to boost expenditures in areas where
returns are high (as well as structural reforms to
boost domestic supply, particularly of nontradables)
would be highly desirable both from a
domestic perspective and to help reduce global
imbalances.
CONCLUSIONS
91
rent account, one of the variables used to establish
credit ratings.
Second, as discussed above, if a significant
share of oil exporters’ revenues is used to purchase
emerging market debt , then higher oil
prices may be associated with lower emerging
market spreads. However, even after controlling
for fundamentals, estimates suggest that any
link between higher oil prices and lower emerging
market spreads becomes statistically
insignificant when industrial production is also
included in the regressions (see the second
table). Oil prices and industrial production
both move in sync with the global economic
cycle, making their independent influence on
spreads difficult to disentangle. Interestingly,
nonfuel commodity prices do have a statistically
significant, negative impact on spreads. Either
their positive influence on fundamentals in
those nonfuel commodity exporters included in
the sample (such as Chile) is not sufficiently
captured by credit ratings, or the associated
export revenues are being used to purchase
emerging market debt.
Appendix 2.1. Oil Prices and Global
Imbalances: Methodology, Data, and
Further Results
The authors of this appendix are Alessandro Rebucci
and Nikola Spatafora.
This appendix describes more fully the empirical
evidence, presented earlier in this chapter,
regarding the effects of oil price shocks on
external imbalances and the associated adjustment
process. Specifically, the appendix
describes the econometric models and data used
and the identification of the oil price shocks. It
also reports additional results underlying the
aggregate responses depicted in Figure 2.7.
The Econometric Models
The econometric models used to analyze the
response to oil price shocks of the current
account or net foreign assets (NFA) are standard
VARs, which include one lag of the following
endogenous variables:27
• The real oil price, defined as the average
annual nominal oil price deflated by the U.S.
CPI, in first-difference form; and
• The current account (in the first VAR), or
NFA as estimated by Lane and Milesi-Ferretti
(2006) (in the second VAR), both as a share
of world GDP.
The model also includes the following exogenous
variables (as well as a constant and a time
trend):
• World growth and world consumer price
inflation.28
• A measure of the change in world oil supply
due to events that are exogenous to the oil
market, from Kilian (2006).
The model is estimated for the following
countries and country groups: the United States;
fuel exporters, as defined earlier; China; other
advanced economies;29 and other developing
economies.30 The current account and NFA of
each country group are constructed as the sum
of the values for individual countries.31
The econometric model used to analyze the
broader macroeconomic adjustment process is
instead the global, multiregion VAR (GVAR)
estimated by Dees and others (forthcoming).32
In this GVAR, country-specific VARs are first
estimated
for 33 countries (see below for model
details and sample), under the assumption that
foreign variables are weakly exogenous. Then,
the country-specific VARs are combined to solve
for a global model in which world variables and
country-specific variables are jointly determined.
Each country-specific model embeds a set of
co-integrating relations derived from a standard,
New-Keynesian small open economy model.33
Hence, the GVAR may be interpreted as the
empirical counterpart to a simplified, global,
dynamic general equilibrium model.34
Each of the underlying country-specific VARs
incorporates the following variables, subject to
data availability: the level of real GDP; consumer
price inflation; the real bilateral exchange rate
versus the U.S. dollar; short and long nominal
interest rates; real equity prices; and the foreign
counterparts of these variables. The (nominal)
oil price is endogenous in the VAR for the
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
92
27Data frequency is annual, and the sample period is
1972–2004.
28We treat these variables as exogenous because, while
they are likely to affect oil prices quickly, it may
take significant
time for oil prices to affect them; and endogenizing
world growth and inflation would use up a needed
degree of
freedom.
29Consisting of Australia, Canada, Cyprus, Denmark,
euro area, Iceland, Israel, Japan, New Zealand,
Sweden,
Switzerland, and the United Kingdom.
30Consisting of all other countries in the Lane and
Milesi-Ferretti (2006) data set.
31Inclusion of the global discrepancy in the empirical
analysis does not change the results.
32Data frequency is quarterly, and the sample period
is 1979:Q2–2003:Q4. On GVAR modeling, see also
Pesaran,
Schuermann, and Weiner (2004).
33For each country, these restrictions are first
tested using an unrestricted model; if not rejected,
they are then imposed
on the data.
34Technically, it may also be seen as an approximation
to a global common factor model.
United States and hence in the GVAR, but
weakly exogenous in all other country-specific
VARs (see Dees and others, forthcoming, for
more details on all these variables). Lag length is
selected at the level of the country-specific VARs,
using standard selection criteria.
After estimating the responses of individual
countries, weighted averages of these individual
responses (with weights given by PPP-adjusted
GDP) are used to construct aggregate responses
for the following country groups: fuel exporters,
both advanced and developing;35 other
advanced economies, consisting of Japan, available
euro area economies36 and other small
advanced economies;37 and other developing
economies, consisting of East Asia,38 Latin
America,39 and others.40
Description and Identification of Oil Price Shocks
Figure 2.6 reports the generalized impulse
responses (GIRs) to a permanent shock to the real
oil price.41 The magnitude of the shock is normalized
to $10 per barrel at constant 2005 prices.
The GIRs are rescaled to show the impact on current
account and NFA in terms of own GDP,
although the models are estimated using current
account and NFA as a share of world GDP.
The VARs for external positions control separately
for those changes in world oil supply that
are due to exogenous events, such as wars,
domestic political instability, or other geopolitical
events. Hence, the oil price shock should be
viewed as that part of the change in real oil
prices that is not due to such geopolitical events.
The rationale for discarding such events is that,
while wars, revolutions, and the consequent disruption
of economic activity will undoubtedly be
associated with changes in current accounts and
NFA, the relevant channels (at least in the case
of the directly affected countries) may go well
beyond changes in oil prices, and hence have little
to do with those economic mechanisms that
are the focus of this chapter.
As a result, the oil price shock being analyzed
embodies a mixture of demand and supply factors
(for instance, expected future market tightness,
long production lags, or discoveries of new
oil reserves). And there is no a priori reason to
expect that the responses to pure demand and
supply shocks would be the same. No attempt is
made to separate demand from supply shocks,
since no generally accepted procedure for doing
so exists.
Figure 2.7 reports the GIR to a permanent
shock to the nominal oil price. The magnitude
of the shock is again normalized to $10 per barrel
at constant 2005 prices, for greater ease of
comparison.42
Additional Details on GVAR Results
Figure 2.7 only reports the GIR to a permanent
oil price shock for selected countries and
country groups—specifically, the United States,
China, all fuel exporters, all other advanced
economies, and all other developing economies.
Figure 2.8 presents more disaggregated
APPENDIX 2.1. OIL PRICES AND GLOBAL IMBALANCES:
METHODOLOGY, DATA, AND FURTHER RESULTS
93
35Advanced economy fuel exporters are Canada, Norway,
and the United Kingdom. Developing economy fuel
exporters
are Indonesia, Mexico, and Saudi Arabia.
36Austria, Belgium, Finland, France, Germany, Italy,
the Netherlands, and Spain.
37Australia, New Zealand, Sweden, and Switzerland.
38Korea, Malaysia, the Philippines, Singapore, and
Thailand.
39Argentina, Brazil, Chile, and Peru.
40India, South Africa, and Turkey.
41Also shown are two-standard-deviation error bands,
computed analytically. GIRs illustrate the effects of
changes in
observed variables (such as oil prices) on the
evolution of other variables in the system, taking
into account the historical
correlations between shocks to all variables in the
system. The use of GIRs allows the computation of
impulse responses
without the large number of arguably arbitrary
identification assumptions typically needed to
orthogonalize shocks. The
disadvantage is that the shocks are not structural and
are therefore harder to interpret as supply or demand
shocks.
42Since the GVAR is estimated using quarterly data,
the distinction between real and nominal oil prices
makes little difference
to the results. Also shown are error bands, computed
using bootstrap simulation, which contain 95 percent
of the
simulated distribution.
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
94
Advanced Fuel Exporters Developing Fuel Exporters
Other Major
Developing Economies
0 4 8 12 16 20 24-2
-1
0
1
2
0 4 8 12 16 20 24-2
-1
0
1
2
-20 4 8 12 16 20 24
-1
0
1
2
Real Output
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
Long-Term Interest Rate 6
0 4 8 12 16 20 24-10
-5
0
5
10
-100 4 8 12 16 20 24
-5
0
5
10
Real Equity Price4
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
Inflation 3
Real Exchange Rate5
0 4 8 12 16 20 24-6
-3
0
3
6
-60 4 8 12 16 20 24
-3
0
3
6
0 4 8 12 16 20 24-6
-3
0
3
6
Point estimate 95 percent error bands
Figure 2.8. Additional Results: Adjustment to Oil
Price Shocks, 1979:Q2–2003:Q4
(Percent unless otherwise indicated, x-axis in
quarters)
1
2 2 2
APPENDIX 2.1. OIL PRICES AND GLOBAL IMBALANCES:
METHODOLOGY, DATA, AND FURTHER RESULTS
95
Japan Euro Area 2
0 4 8 12 16 20 24-2
-1
0
1
2
0 4 8 12 16 20 24-2
-1
0
1
2
-20 4 8 12 16 20 24
-1
0
1
2
Real Output
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
Long-Term Interest Rate 6
Real Equity Price 4
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
-1.00 4 8 12 16 20 24
-0.5
0.0
0.5
1.0
0 4 8 12 16 20 24-1.0
-0.5
0.0
0.5
1.0
Inflation3
Figure 2.8 (concluded)
Real Exchange Rate5
0 4 8 12 16 20 24-6
-3
0
3
6
-60 4 8 12 16 20 24
-3
0
3
6
0 4 8 12 16 20 24-6
-3
0
3
6
Point estimate 95 percent error bands
Other Small
Advanced Economies 2
0 4 8 12 16 20 24-10
-5
0
5
10
-100 4 8 12 16 20 24
-5
0
5
10
0 4 8 12 16 20 24-10
-5
0
5
10
Source: IMF staff calculations, based on Dees and
others (forthcoming).
Response to a $10 a barrel annual average increase in
oil prices (measured in constant 2005 U.S. dollars).
Groups described in Appendix 2.1.
Y-axis in percentage points at a quarterly rate.
Developing fuel exporters and Turkey partially out of
scale.
Insufficient data available for developing fuel
exporters. For other major developing countries, only
India and South Africa shown. Euro area
and other major developing countries partially out of
scale.
CPI-based real bilateral exchange vis-à-vis the United
States shown. Developing fuel exporters and Japan
partially out of scale.
Y-axis in percentage points at a quarterly rate. For
developing fuel exporters, short-term interest rates
for Indonesia and Mexico shown. For
other major developing countries, only South Africa
shown.
2
1
3
4
5
6
responses; all groups referenced therein are
defined as discussed above. Estimated responses
for short-term interest rates are also available,
although not reported.
References
Bank for International Settlements (BIS), 2005, 75th
Annual Report, Chapter 2. Available via the Internet:
http://www.bis.org/publ/arpdf/ar2005e2.htm.
Cashin, Paul, and C. John McDermott, 2003,
“Intertemporal Substitution and Terms of Trade
Shocks,” Review of International Economics, Vol. 11
(September), pp. 604–18.
Dees, Stephane, Filippo di Mauro, M. Hashem
Pesaran, and Vanessa Smith, forthcoming,
“Exploring the International Linkages of the
Euro Area: A Global VAR Analysis,” Journal of
Applied Econometrics.
Hamilton, James D., 2005, “Oil and the Macroeconomy”
(La Jolla, California: University of
California, San Diego). Available via the Internet:
http://dss.ucsd.edu/~jhamilto/JDH_palgrave_oil.pdf.
Hunt, Ben, Peter Isard, and Douglas Laxton, 2001,
“The Macroeconomic Effects of Higher Oil Prices,”
IMF Working Paper 01/14 (Washington: International
Monetary Fund).
International Monetary Fund, 2000, “The Impact of
Higher Oil Prices on the Global Economy”
(Washington). Available via the Internet:
http://www.imf.org/external/pubs/ft/oil/2000/
oilrep.pdf
———, 2005, “Regional Economic Outlook: Middle
East and Central Asia” (Washington). Available via
the Internet: http://www.imf.org/external/pubs/
ft/reo/2005/eng/meca0905.pdf.
———, 2006, Global Financial Stability Report,
April,World
Economic and Financial Surveys (Washington).
Kilian, Lutz, 2006, “Exogenous Oil Supply Shocks:
How Big Are They and How Much Do They Matter
for the U.S. Economy?” (Ann Arbor, Michigan:
University of Michigan). Available via the Internet:
http://www-personal.umich.edu/~lkilian/
oil1jan01_06.pdf.
Lane, Philip, and Gian Maria Milesi-Ferretti, 2006,
“The External Wealth of Nations Mark II: Revised
and Extended Estimates of Foreign Assets and
Liabilities, 1970–2004,” IMF Working Paper 06/69
(Washington: International Monetary Fund).
Laxton, Douglas, Peter Isard, Hamid Faruqee, Eswar
Prasad, and Bart Turtelboom, 1998, MULTIMOD
Mark III: The Core Dynamic and Steady-State Models,
IMF Occasional Paper No. 164 (Washington:
International Monetary Fund).
Ostry, Jonathan D., and Carmen M. Reinhart, 1992,
“Private Savings and Terms of Trade Shocks:
Evidence from Developing Countries,” IMF Staff
Papers, International Monetary Fund, Vol. 39
(September), pp. 495–517.
Pesaran, M. Hashem, Til Schuermann, and Scott
Weiner, 2004, “Modeling Regional Interdependencies
Using a Global Error-Correcting Macroeconometric
Mode,” Journal of Business and
Economics Statistics, Vol. 22, pp. 129–62.
Warnock, Francis E., and Veronica Cacdac Warnock,
2006, “International Capital Flows and U.S. Interest
Rates” (Charlottesville: University of Virginia).
Available via the Internet: http://www.faculty.darden.
virginia.edu/warnockf/research.htm.
CHAPTER II OIL PRICES AND GLOBAL IMBALANCES
96
Inflation in advanced and many emerging
market economies has remained remarkably
subdued over the past two years
despite a significant rise in commodity
prices, strong growth, and a broadly accommodating
monetary policy stance in the major
currency areas. Is this situation sustainable or
does it foreshadow unwelcome inflation surprises
in the near future? Some analysts have
argued that low and stable inflation reflects
more intense global competition, which prevents
firms from raising prices and puts downward
pressures on wages in many sectors.1 If so,
and given that lower-cost producers in emerging
markets and developing countries will continue
to integrate into the global trading system, these
forces are likely to ensure low inflation in the
foreseeable future, reminiscent of the secular
deflation associated with broad productivity
increases during the classical gold standard in
the late nineteenth century. However, such
views are not universally shared. Other analysts
have offered alternative explanations for the
recent inflation performance, including
improved monetary policy credibility, broad
productivity gains of uncertain duration, or
cyclical conditions.2
Looking forward, the issue of whether or not
globalization has indeed been a factor driving
recent inflation behavior has important implications
for the conduct of monetary policy. For
example, if it could be established that the tailwind
from declining prices of many internationally
traded goods matters for inflation and is
likely to continue, monetary policy would likely
have to be less restrictive to meet a certain
inflation
target than it would have to be otherwise. If
the magnitudes and duration of the tailwind
were overestimated, however, monetary policy
may risk being too expansionary.
Against this background, this chapter explores
the relationship between globalization and inflation,
using both aggregate and sectoral analysis.
The chapter seeks to address the following
questions.
• How has globalization affected inflation over
the past 15 years or so?
• How has globalization affected prices and
costs at the sectoral level?
• Will globalization put downward pressure on
inflation in the future, and, if so, what are the
implications for monetary policy?
Two points should be noted at the outset.
• The chapter will take the now firmly
entrenched goals of low and stable inflation as
given.
• As usual, one needs to be specific in delineating
the scope of globalization. For the purposes
of the chapter, globalization is defined
broadly as the acceleration in the pace of
growth of international trade in goods, services,
and financial assets relative to the rate of
growth in domestic trade.3 At the global level,
this encompasses the growth spurts in key
emerging market economies—notably China
and, to a lesser extent, India. Globalization
has also overlapped with economic and financial
deregulation in many countries and with
the information technology revolution. While
an attempt is made to distinguish between
these phenomena, this is often difficult to
accomplish in practice.
97
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
The main authors of this chapter are Thomas Helbling,
Florence Jaumotte, and Martin Sommer, with consultancy
support
from Laurence Ball. Angela Espiritu provided research
assistance.
1See, among others, BIS (2005); Greenspan (2005); or
Fisher (2006).
2See, among others, Ball and Moffitt (2001); Kamin,
Marazzi, and Schindler (2004); or Buiter (2000).
3See Chapter III of the April 2005 World Economic
Outlook.
The chapter is organized as follows. The next
section provides an overview of salient features
of recent inflation developments. The chapter
then discusses the broad channels through
which globalization affects inflation. The fourth
section looks at the relationship between inflation
and globalization at the aggregate level.
The focus is on how globalization affects inflation
variability over the cycle and how large
declines in relative import prices influence
aggregate inflation. The ensuing section then
analyzes the relationship at the sectoral level,
focusing on the impact of globalization on
domestic (relative) producer prices. The last
section provides a summary and policy
conclusions.
Recent Inflation Developments
For a meaningful analysis of globalization and
inflation in recent years, the relationship needs
to be seen against the background of recent
inflation developments. Following current central
bank practice, aggregate inflation is measured
by changes in consumer price indices. The
picture would be broadly similar if other aggregate
price measures were used.
• Average inflation in industrial countries has been
low since the early 1990s, reflecting success in
stabilizing inflation after the 1970s and early
1980s (Figure 3.1). Specifically, inflation rates
have fluctuated around an average of 2–3 percent,
with very little dispersion across countries.
In contrast, the average was about 9
percent in the early 1980s and dispersion was
wider. The low, roughly constant average inflation
rates since the early 1990s closely match
the central banks’ explicit or implicit inflation
targets.
• Inflation in industrial countries has also become
less
volatile. Magnitudes of inflation fluctuations
around the average are thus smaller, reflecting
in part the determined policy efforts in keeping
inflation close to targets (Figure 3.2). As a
result, expected deviations from an inflation
target will now be smaller, everything else
being equal.
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
98
0
20
40
60
80
0
20
40
60
80
Industrial Countries1 Asian Emerging Markets2
Median Lower and upper quartiles
Inflation declined significantly during the 1980s and
1990s in industrial countries
and, with a lag, major emerging markets.
Figure 3.1. Inflation
(Distribution of five-year averages of year-on-year
CPI inflation across
countries)
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
0
3
6
9
12
15
18
>100 >100
Source: IMF staff calculations.
Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, the United Kingdom, and the
United States.
China, India, Indonesia, Korea, Malaysia, the
Philippines, and Thailand.
Argentina, Brazil, Chile, Colombia, Dominican
Republic, Ecuador, Mexico, Peru, and
Venezuela.
Czech Republic, Egypt, Hungary, Poland, Romania,
Russia, South Africa, and Turkey.
1
2
3
4
3
Latin American
Emerging Markets Other Emerging Markets4
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
0
2
4
6
8
10
12
14
• The relationship between current and past inflation
in industrial countries has weakened. This decline
in the so-called persistence means that deviations
of actual inflation from its average are
shorter-lived, and that the impact of disturbances
to inflation has declined.4
• The declines in inflation and inflation volatility
in
the major emerging market economies have lagged
the declines in industrial countries. High inflation
remained a problem in many major emerging
market economies, notably in Latin America,
until the early 1990s. Since then, however,
progress in stabilizing inflation at single-digit
levels has been remarkable. In the emerging
market economies of Asia, inflation typically
was close to levels observed in the industrial
countries.
• Prices of services in industrial countries have
typically
increased faster than those for goods. This has
reflected generally faster productivity growth
and higher trade openness in goods production
but also the increasing expenditure
shares on services associated with rising per
capita incomes (Figure 3.3).5 That said, the
differential between services and goods price
inflation has recently narrowed in a number
of countries and for a number services that
have been subject to increased competition,
especially in business services (see below).
Understanding Globalization and
Inflation: A Broad Framework
There is widespread agreement that globalization
has accelerated since the early 1990s. In
particular, cross-border trade in financial
instruments
has skyrocketed, both in advanced and
UNDERSTANDING GLOBALIZATION AND INFLATION: A BROAD
FRAMEWORK
99
0
20
40
60
80
0
20
40
60
80
100
0
2
4
6
8
10
>100
Source: IMF staff calculations.
Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, the United Kingdom, and the
United States.
China, India, Indonesia, Korea, Malaysia, the
Philippines, and Thailand.
Argentina, Brazil, Chile, Colombia, Dominican
Republic, Ecuador, Mexico, Peru, and
Venezuela.
Czech Republic, Egypt, Hungary, Poland, Romania,
Russia, South Africa, and Turkey.
1
2
3
4
Asian Emerging Markets
Other Emerging Markets
2
4
Industrial Countries1
3
With declining average rates, inflation volatility has
also declined significantly.
Figure 3.2. Inflation Volatility
(Standard deviations of rolling five-year windows of
year-on-year CPI
inflation; distribution across countries)
Median Lower and upper quartiles
Latin American
Emerging Markets
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
1970–74
75–79
80–84
85–89
90–94
95–99
2000–04
0
1
2
3
4
4The extent of the decline remains subject to debate
and partly depends on the underlying methodology and
data. See, among others, Pivetta and Reis (2004);
O’Reilly
and Whelan (2005); or Stock (2002).
5This trend is documented for the major industrial
countries in Clark (2004) and Gagnon, Sabourin, and
Lavoie (2004). For similar reasons, broad indices of
domestically produced goods and services have usually
risen faster than broad price indices for imports,
which
remain determined mainly by goods price developments.
major emerging market economies (Figure 3.4).
In international trade, the locational fragmentation
in the production of manufactured goods
and the growing importance of emerging market
economies in world trade have reshaped
many markets and industries. Measures of trade
and financial integration obviously are highly
correlated, and in the subsequent analysis, trade
openness is used to quantify the exposure to
globalization.
How have such globalization-related changes
affected inflation? As a first step toward answering
this question, it is useful to review the main
broad channels through which globalization
affects national inflation.
• Policy incentives. Determined monetary policy
efforts aimed at reaching and maintaining low
inflation have been a major factor in the
global decline in inflation and inflation volatility
during the 1980s and 1990s documented
earlier. These efforts have reflected a number
of factors. Policymakers have learned from the
mistakes of the 1970s. Financial deepening,
improved fiscal policies, and smaller disturbances
have also played a role.6 Globalization
may have played a subtle role in the strengthened
conduct of monetary policy by changing
the incentives of policymakers (e.g., Rogoff,
2003). In particular, globalization may reduce
their ability to temporarily stimulate output
(e.g., Romer, 1993) and/or may increase the
costs of imprudent macroeconomic policies
through the adverse response of international
capital flows (e.g., Fischer, 1997; or Tytell and
Wei, 2004). Central banks in industrial countries
are unlikely to lower their inflation targets
further despite continued globalization.
This is because of concerns about the adverse
consequences of targets that are too close to
zero at times of weak aggregate demand conditions.
However, in many developing and
emerging market countries, globalization is
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
100
Figure 3.3. Prices of Goods and Services
1958 64 70 76 82 88 94 2000
60
80
100
120
140
160
Japan
1958 64 70 76 82 88 94 2000
-10
-5
0
5
Difference Between Goods and Services Inflation 10
(percent)
Real Price of Goods
(1995 = 100)
Price increases in services have typically exceeded
those in goods prices, reflecting
both supply and demand factors.
Sources: Eurostat; Haver Analytics; national
authorities; and IMF staff calculations.
Ratio of consumer prices of goods to overall CPI.
The group of advanced economies includes Australia,
Canada, France, Germany, Italy,
Japan, the United Kingdom, and the United States.
1
United States
United States
Advanced
economies2
United Kingdom Germany
Japan
United Kingdom
Germany
1
Advanced
economies2
2
6See, among, others Sims (1999); Romer and Romer
(2002); Sargent (1999); Cogley and Sargent (2002 and
2005); Stock (2002); Goodfriend and King (2005); and
Sargent, Williams, and Zha (2005).
likely to continue to affect inflation through
its impact on central banks’ inflation objectives
(Box 3.1, “Globalization and Inflation in
Emerging Markets”).
• Trade integration and price level declines.
Globalization and the associated rise in trade
integration have reduced the barriers to market
access by foreign producers. This tends to
bolster price competition in domestic markets
and increase imports. It has also led to the
relocation of production of many internationally
traded goods and, to a much smaller
extent, of services to the most cost-efficient
firms in the countries with a comparative
advantage. As a result, the prices of affected
goods or services typically decline compared
to the general price level—in other words,
their relative price declines. A case in point is
the observed fall in the relative prices of many
manufactured goods, such as textiles, that has
accompanied the rapid integration of emerging
market economies into the world trade
system. Because such goods prices are a component
of consumer prices (and other aggregate
prices), their fall has, to some extent,
contributed to low overall inflation. In addition
to such direct effects, increased competition
may also have indirect effects by
moderating domestic producer prices, input
prices, and markups in some industries more
generally, given the availability of close substitutes
produced abroad.
• Productivity growth, aggregate supply, and relative
prices. Globalization can raise productivity
growth, reflecting increased pressures to innovate
and other forms of nonprice competition.
By increasing aggregate supply, such productivity
gains typically lower prices, which may
affect aggregate inflation, along the lines discussed
above, with the effects possibly amplified
by positive feedback from low inflation to
productivity growth. Clearly, globalizationrelated
productivity increases have overlapped
with increases due to other factors, including
the information technology revolution.
• Inflation response to domestic output fluctuations.
Globalization may have affected the strength
UNDERSTANDING GLOBALIZATION AND INFLATION: A BROAD
FRAMEWORK
101
1970 75 80 85 90 95 2000 05
0
20
40
60
80
100
120
140
20
25
30
35
40
Industrial Countries 45
1970 75 80 85 90 95 2000 05
0
10
20
30
40
50
10
20
30
40
50
60
Emerging Markets4 70
3
Sources: Lane and Milesi-Ferretti (2006); and IMF
staff calculations.
Measured as the sum of exports and imports in percent
of GDP (five-year moving
average).
Measured as the sum of the stocks of external assets
and liabilities of foreign direct
investment and portfolio investment in percent of GDP.
Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, the United Kingdom, and the
United States.
Argentina, Brazil, Chile, China, Colombia, Czech
Republic, Dominican Republic, Ecuador,
Egypt, Hungary, India, Indonesia, Korea, Malaysia,
Mexico, Peru, the Philippines, Poland,
Romania, Russia, South Africa, Thailand, Turkey, and
Venezuela.
1
2
3
4
Figure 3.4. Trade and Financial Openness
(Percent of GDP)
In the early 1990s, international trade and financial
openness increased for both
industrial and emerging market economies, reflecting
an acceleration in globalization.
Trade openness (right scale) 1 Financial openness
(left scale)2
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
102
Average inflation in emerging market
economies has declined dramatically since the
early 1990s—in many cases from double- and
triple-digit levels—to about 5 percent at the
present time. This decline in inflation, which
has now been sustained for more than half a
decade, is impressive compared with the experience
from the mid-1970s to the mid-1990s when
recurring episodes of loose fiscal and monetary
policies, combined with commodity price
shocks, kept inflation high (see figure).1
The inflation performance has reflected policymakers’
increasing preference for low and stable
inflation. This policy shift in part resulted
from the earlier experience with high and variable
inflation in both emerging markets and
advanced economies. In the early 1980s, the
perceived costs of double-digit inflation
increased, as high inflation coincided with low
growth and rising unemployment.2 Governments
in the advanced economies responded
first by strengthening institutional and policy
frameworks to foster monetary stability.3 The
combination of falling external inflation, learning
from successful policies elsewhere, and public
dissatisfaction with inflation explain much of
the subsequent shift to low-inflation policies in
emerging markets. Moreover, the gradual deepening
of domestic financial markets and greater
central bank independence have made inflationary
financing of fiscal deficits less common.
Aside from these factors, globalization may
also have strengthened policymakers’ incentives
to conduct prudent monetary policy. Rogoff
(1985 and 2003) and Romer (1993) noted that
in open economies, policymakers benefit less
from accommodative policies because monetary
expansion has a smaller impact on domestic output
than in closed economies.4 In addition, rising
trade and financial integration tends to
weaken the co-movement between domestic
consumption and production, which increases
the welfare costs of inflation variability (Razin
and Loungani, 2005). Finally, international capital
markets may have a disciplining effect on
monetary policy, including through the risk of a
reduction in foreign investment (see, for example,
Tytell and Wei, 2004).
Box 3.1. Globalization and Inflation in Emerging
Markets
1960 65 70 75 80 85 90 95 2000
0
10
20
30
40
50
60
70
Source: IMF staff calculations.
Includes Argentina, Brazil, Chile, China, Colombia,
Czech
Republic, Dominican Republic, Ecuador, Egypt, Hungary,
India,
Indonesia, Korea, Malaysia, Mexico, Peru, the
Philippines, Poland,
Romania, Russia, South Africa, Thailand, Turkey, and
Venezuela.
1
Inflation in Emerging Markets
(Annual percent change)
1
Median Lower and upper quartiles
Note: The main author of this box is Martin Sommer.
1In the Central and Eastern European countries,
inflation spikes were associated with the initial
stage of
economic transformation.
2See the May 2001 issue of the World Economic
Outlook for a detailed review of inflation
developments
in emerging markets.
3For example, by boosting the central bank
transparency
and independence and—in some countries—
adopting an explicit inflation target (see the
September 2005 issue of the World Economic Outlook).
4For the recent empirical analysis of links between
trade openness and inflation, see Gruben and McLeod
(2004). The early research includes Triffin and Grubel
(1962) and Iyoha (1977).
UNDERSTANDING GLOBALIZATION AND INFLATION: A BROAD
FRAMEWORK
103
How much has globalization contributed to the
decline of inflation in emerging market economies?
To answer this question, IMF staff estimated
an econometric model that links the likelihood
of good inflation performance—defined as
annual inflation below 10 percent—to the factors
discussed above.5 Specifically, the model
specification
includes trade openness, inflation in
advanced economies, the depth of the domestic
financial sector, and the fiscal balance. In addition,
the model also controls for monetary policy
credibility and conduct—as measured by central
bank independence––and the exchange rate
regime (see table).6 The results suggest that
more open economies tend to experience lower
inflation rates, even after accounting for the
other inflation determinants. Coefficient estimates
vary across specifications, but, on average,
a country whose trade-to-GDP ratio is 25 percentage
points higher than in another country7 is
over 10 percentage points more likely to achieve
single-digit inflation. Moreover, since average
openness in the sample increased from approximately
30 to 60 percent over the past four
decades, globalization has increased the probability
of low inflation by about 10 percent in the
whole group of emerging markets.8
While growing openness may have boosted
incentives for the prudent conduct of monetary
policy and thus helped to reduce inflation, the
model confirms that the other policy determinants
discussed above have played a key role.
The model attributes a significant weight to
Inflation in Emerging Markets: Probit Estimates
___________D__e_p_e_n_d_e_n_t _V_a_r_ia_b_l_e_:
_P_r_o_b_a_b_il_it_y_ o_f_ A_c_h_i_e_v_in_g_ _L_o_w_
_I_n_fl_a_ti_o_n_1___________
(1) (2) (3) (4)
Openness2 0.39*** 0.76*** 0.45** 0.30**
Fiscal balance3 1.17*** 2.48*** 1.36*** 2.55***
Inflation in advanced economies4 –2.95*** –6.12*** . .
. –4.42***
Depth of financial sector5 0.94*** 1.04** 1.05** –0.35
Pegged exchange rate regime6 . . . 36.46*** . . . . .
.
Central bank independence7 . . . –10.30** . . . . . .
Other . . . . . . Time dummies Country dummies
Sample 1960–2004 1975–2004 1960–2004 1960–2004
Number of observations 815 484 815 804
Sources: IMF, International Financial Statistics;
Reinhart and Rogoff (2002); World Bank, World
Development Indicators; World
Economic Outlook; and IMF staff calculations.
1Low inflation is defined as annual inflation below 10
percent. The probability is scaled between 0 and 100.
All explanatory variables
are lagged by one year. *** denotes statistical
significance at the 1 percent level; and ** at the 5
percent level.
2Trade in percent of GDP.
3Central government balance in percent of GDP.
4Expressed as a percentage. The group of advanced
economies consists of Australia, Canada, France,
Germany, Italy, Japan, the
United Kingdom, and the United States.
5Money in percent of GDP.
6The dummy takes value of 1 (peg) or 0 (otherwise) and
is calculated from the Reinhart-Rogoff (2002) data
set.
7Proxied by the central bank governor’s turnover.
Higher turnover may be associated with lower central
bank independence.
5The probit model is estimated for 24 emerging
market economies over 1960–2004 (see figure footnote
for the complete list).
6See Catão and Terrones (2005) and the May 2001
World Economic Outlook for analysis of the
relationship
between fiscal deficits and inflation. Alesina and
Summers (1993) document the broad correlation
between measures of central bank independence and
average inflation. Boschen and Weise (2003) find that
U.S. inflation is a useful predictor of inflation
spurts
in the OECD countries. Ghosh and others (1997) provide
evidence that the fixed exchange rate regime can
help reduce inflation, although in the long term, the
currency peg may incur large output and inflation
costs if it is not supported by appropriate policies
and
breaks down (Mishkin, 1999).
7This figure roughly corresponds to 1 standard
deviation
of trade openness across countries in the sample.
8These calculations are based on specifications (3)
and (4) in the table.
of the cyclical response of inflation to output
fluctuations for a number of reasons. For
example, prices of many items that are produced
or consumed at home are increasingly
determined by foreign demand and supply
factors rather than local factors. This is reinforced
by the effects of financial integration,
which allows for larger trade balance deficits
or surpluses and, thereby, weakens the relationship
between domestic output and
demand. While it is widely thought that globalization
has reduced the sensitivity to fluctuations
in domestic production, some aspects of
globalization may actually have increased it, as
elaborated below.
An important question that naturally arises is
that of whether the effects of globalization on
aggregate inflation are likely to be lasting or only
temporary. There is broad agreement among
macroeconomists that in the long run inflation is
determined by the nominal anchor, the nominal
target variable for monetary policy. If credibly
and effectively pursued, this anchor will determine
expected and actual inflation in the
medium term. Accordingly, to the extent that
globalization has contributed to changing
nominal anchors through its impact on policy
incentives, it may have had permanent effects—
most recently primarily in emerging market
economies, as noted above.7 In contrast, to the
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
104
the inflation performance in advanced economies.
The disinflation that took place there in
the early 1980s is estimated to have increased
the likelihood of low inflation in emerging
markets by 30 percentage points or more. Fiscal
policy—a traditional source of inflation pressure—
is also identified as an important determinant
of inflation. In general, a 10 percent
budget deficit relative to GDP increases the
likelihood
of high inflation by up to 25 percentage
points. Moreover, countries that had a high
turnover of central bank governors—which
tends to be associated with low central bank
independence—were less likely to achieve low
inflation. Finally, a fixed exchange rate regime
on average improved chances of attaining low
inflation, although sustaining currency pegs in
emerging markets have proven difficult in the
long term.9
Will low inflation in emerging markets prove
to be durable? With price stability abroad and
domestic budget positions strengthened, the
risk of a sustained increase in inflation rates at
present appears small. Should fiscal deficits rise
significantly in the future, they could again put
pressure on the monetary authorities to inflate,
especially in the countries with shallow financial
markets. However, the ability of governments to
obtain inflationary financing from the central
bank and reduce the real value of their debts
has increasingly been constrained by greater
central bank independence. More generally, the
stronger institutional and policy frameworks for
monetary policy,10 deepening financial systems,
and policy incentives provided by globalization
are all important factors that may help to prevent
inflation in emerging markets from returning
to high levels.
Box 3.1 (concluded)
9See the September 2004 issue of the World Economic
Outlook for a discussion of recent developments in
exchange rate regimes in emerging markets.
10The September 2005 issue of the World Economic
Outlook analyzes the benefits and costs of adopting
inflation targeting in emerging markets.
7On empirical grounds, it would be difficult to argue
that globalization has had an impact on the
medium-term level of
inflation targeted by central banks in advanced
economies over the past decade or so. During the
1990s, formal inflation
targets were introduced in many advanced economies and
have been held largely unchanged since. That said,
greater
openness may have further strengthened policymakers’
resolve to keep inflation close to the targets over
the cycle or over
their forward-looking policy horizon.
extent that it may have primarily affected relative
prices or the cyclical behavior of inflation, the
effects may have been substantial over short- to
medium-term horizons, but are unlikely to be
lasting in the sense of affecting long-run average
inflation.
Globalization and Inflation:
An Aggregate Perspective
This section analyzes the relationship between
inflation and globalization at the aggregate level,
focusing on two of the broad channels discussed
earlier. The first issue of interest is whether
globalization
and the associated increase in trade flows
have reduced the sensitivity of prices to domestic
economic conditions. The second issue is the
impact of large declines in the relative import
prices of some goods on aggregate inflation.
Inflation over the Business Cycle
How might globalization influence the sensitivity
of prices to domestic economic conditions?
With the growing share of international trade,
prices of many items that are produced or consumed
at home are increasingly determined by
foreign demand and supply factors. Similarly,
stronger foreign competition may reduce the
pricing power of domestic corporations, limiting
their ability to raise prices during booms.8
Consequently, prices become less sensitive to the
domestic cycle, and the business-cycle volatility
of inflation decreases.
Of course, openness is not the only factor that
could have weakened the co-movement of output
and inflation. The strengthened conduct of
monetary policy over the past two decades is
likely to have contributed as well for at least two
reasons. First, in a low-inflation environment,
firms re-price their production less often (Ball,
Mankiw, and Romer, 1988). Second, increasing
policy credibility increases the weight that price
setters put on expected inflation or inflation targets
when they set their prices (Bayoumi and
Sgherri, 2004).
However, certain factors related to globalization
and the associated push for structural
reforms may have acted in the opposite direction,
effectively raising the sensitivity of inflation to
output.
In highly competitive markets with very low
margins, producers respond faster to changes in
their cost structure and may become more sensitive
to demand fluctuations if production costs
vary with volumes over the cycle. Co-movements
between output and inflation could therefore
increase when economies become less regulated,
more competitive, and more flexible.9 Which of
the competing factors have so far been most
important for the output-inflation relationship
needs to be determined empirically.
Figure 3.5 illustrates the behavior of headline
and core inflation in selected countries over
past business cycles. While the figure can be no
substitute for a model that takes into account
various determinants of inflation, it seems that
over the past two decades, inflation has become
less responsive to output gap fluctuations. This
has occurred against the background of rising
trade openness, greater monetary policy credibility,
and more flexible wage-setting mechanisms
in some countries (see Figure 3.6).
To examine the issue in more detail, IMF staff
constructed a model of inflation for selected
advanced economies (see Appendix 3.1 for
details).10 The model is an extension of the tra-
GLOBALIZATION AND INFLATION: AN AGGREGATE PERSPECTIVE
105
8See, for example, Kohn (2005). Razin and Loungani
(2005) point out that financial integration weakens
the link
between output and domestic demand by allowing for
greater variation in net exports. This can also reduce
the consumer
price response to domestic output fluctuations.
9Cournède, Janovskaia, and van den Noord (2005) find
that inflation responds more weakly to economic
downturns in
economies with greater labor and product market
rigidities. Nunziata and Bowdler (2005) present
evidence that a high
degree of labor market coordination dampens the effect
of unemployment movements and other shocks on
inflation. By
contrast, high unionization rates amplify the
inflation response to shocks.
10The sample consists of Australia, Canada, France,
Germany, Italy, Japan, the United Kingdom, and the
United States,
and spans 1960–2004.
ditional Phillips curve framework, which relates
wage inflation to the rate of unemployment or,
alternatively, the inflation rate to the degree of
spare capacity in the economy. For each country
in the panel data set, annual inflation is related
to its own lag (to capture the persistence in
inflation outcomes, which can reflect policies,
structural rigidities, and the importance of past
inflation in the formation of expectations) and a
measure of spare capacity in the economy. The
inflation response to output is allowed to vary
across countries and over time, as it is interacted
with the various factors discussed above. The
basic version of the model also contains oil price
changes to account for one particularly important
source of large relative price changes with a
potentially broad price impact. To control for
shifts in policymakers’ inflation objectives and
expectations about monetary policy behavior,
the regressions include either time dummies or
a measure of monetary policy credibility.11 The
econometric analysis suggests that the sensitivity
of prices to domestic economic conditions has
indeed been falling over the past couple of
decades (Table 3.1). Currently, the estimated
average inflation-output elasticity implies that if
a country’s output rises above its long-term trend
by 2 percentage points for a year,12 inflation
would be higher by 0.4 percentage points in the
first year, instead of 0.6 percentage points a couple
of decades ago.
Trade openness appears to be the key factor
behind the reduced sensitivity of prices to output.
The coefficient on openness remains negative
(therefore reducing the inflation sensitivity)
and statistically significant in most modifications
of the basic model. Reduction in labor market
rigidities (as measured by an index of centraliza-
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
106
1960 70 80 90 2000
-4
-2
0
2
4
0
4
8
12
16
20
Sources: Eurostat; Haver Analytics; national
authorities; and IMF staff calculations.
Output gap is defined as the percent deviation of real
GDP from its long-term trend.
Core inflation refers to headline CPI excluding food
and energy. All variables are expressed
as three-year centered moving averages. See Appendix
3.1 for details.
1960 70 80 90 2000
-3
-2
-1
0
1
2
3
0
4
8
12
16
20
1960 70 80 90 2000
-3
-2
-1
0
1
2
3
0
2
4
6
8
10
12
14
In many countries, the sensitivity of headline and
core inflation to the business cycle
seems to have diminished.
Figure 3.5. Inflation over the Business Cycle,
1961–2003
(Annual percent change for inflation; percentage
points for output gap)
1
1960 70 80 90 2000
-3
-2
-1
0
1
2
3
0
1
2
3
4
5
6
Germany 7
1960 70 80 90 2000
-4
-2
0
2
4
0
2
4
6
8
10
12
1960 70 80 90 2000
-4
-2
0
2
4
0
4
8
12
Australia 16 Canada
France
1960 70 80 90 2000
-6
-3
0
3
6
-16
-8
0
8
Italy Japan 16
1960 70 80 90 2000
-4
-2
0
2
4
0
2
4
6
8
10
12
United Kingdom United States 14
1
Core inflation
(right scale)
Headline inflation
(right scale)
Output gap
(left scale)
11One additional point is worth mentioning here. Since
the model residuals include, in addition to the
modeling
error, also the impact of external environment on
domestic
prices—which is to some extent shared across
countries—
the panel model is estimated using the Seemingly
Unrelated Regression method. This method exploits
correlation
in the residuals across countries to obtain more
precise estimates of the model parameters (Zellner,
1962).
12This figure roughly corresponds to 1 standard
deviation
of output gaps in the sample over 1983–2004.
tion and coordination in wage bargaining) in
some countries has partly offset the effects of
openness by raising the price sensitivity, but this
effect tends to be small.13
The estimation results also confirm that the
strengthened conduct of monetary policy over
the past two decades has reduced inflation
persistence,
as measured by the effective coefficient
on the inflation lag, which partly depends on a
measure of monetary policy credibility.14 As policy
credibility has improved, the estimated coefficient
on the first lag of inflation has declined
from over 0.7 in the early 1980s to less than 0.6
GLOBALIZATION AND INFLATION: AN AGGREGATE PERSPECTIVE
107
1960 65 70 75 80 85 90 95 2000
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1960 65 70 75 80 85 90 95 2000
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Sources: Elmeskov, Martin, and Scarpetta (1998);
Laxton and N'Diaye (2002); Nicoletti
and others (2001); and IMF staff calculations.
Share of non-oil trade in GDP.
The group of advanced economies includes Australia,
Canada, France, Germany, Italy,
Japan, the United Kingdom, and the United States.
Measure of Laxton and N'Diaye (2002). The minimum
score for the indicator is zero, the
maximum is one. See Appendix 3.1 for details.
Summary index of wage-setting centralization and
coordination by Elmeskov, Martin,
and Scarpetta (1998), as updated by Nicoletti and
others (2001). The wage bargaining index
ranges from one (low) to three (high). See Appendix
3.1 for details.
Wage Bargaining Index
1
Germany
United States
Japan
United Kingdom
2
1960 65 70 75 80 85 90 95 2000
0
20
40
60
80
Credibility
Openness
Advanced economies
Trade openness has been rising in most advanced
economies. Credibility of monetary
policy strengthened substantially during the past two
decades, and recovered from
the earlier period of monetary instability.
Wage-setting mechanisms vary widely
across countries but tend to be highly persistent over
time.
Figure 3.6. Selected Structural Indicators
1
Germany
United Kingdom
Japan
United States
Germany
United States
United Kingdom
Japan
3
4
3
4
Australia
2
Table 3.1. Estimates of Output-Inflation Sensitivity
and Inflation Persistence in Advanced Economies1
Inflation-output elasticity
1960 0.3
1983 0.3
2004 0.2
Inflation persistence
1960 0.6
1983 0.7
2004 0.6
Source: IMF staff calculations.
1The underlying inflation model relates current
inflation to past
inflation, a measure of cyclical slack in the economy
and other variables.
The model coefficients vary across countries and time,
and
depend on the various factors discussed in the main
text. Inflation
persistence refers to the effective coefficient on
past inflation, and
inflation-output elasticity refers to the effective
coefficient on the
measure of business cycle. The reported coefficients
are PPPweighted
average of estimates for Australia, Canada, Germany,
France,
Italy, Japan, the United Kingdom, and the United
States. See Appendix
3.1 for a detailed specification of the inflation
model and its variants.
13For example, the fall in the extent of economy-wide
wage bargaining centralization and coordination is
estimated
to have raised the sensitivity of inflation to output
by about 0.025 in Australia and 0.05 in the United
Kingdom. It needs to be noted, however, that due to
their
qualitative nature, the available measures of wage
bargaining
may be imprecise.
14It should be noted that the credibility measure,
which
was developed by Laxton and N’Diaye (2002), is based
on
government bonds yields (see Appendix 3.1). It
encompasses
many of the factors underlying the credibility of
monetary policy. While one would expect the measure to
reflect primarily expectations about future inflation,
such
expectations partly depend on the record of previous
macroeconomic policies, including past fiscal
policies,
and institutional arrangements governing these
policies,
including central bank independence, transparency, and
any specific commitment mechanisms to low budget
deficits or public debt.
for the last observation.15 This lowers the extent
to which disturbances propagate over time.
Continuing with the earlier example, the
second-year impact of a temporary 2 percentage
point output increase would now almost be to
raise inflation in that year by 0.22 percentage
points, instead of 0.45 percentage points some
20 years ago. By the third year, that same output
disturbance would now almost cease to affect
inflation, while earlier, half of its cumulative
effect would still be forthcoming. Overall, the
analysis suggests that openness contributed over
half of the decline in the sensitivity of prices to
domestic output, while improved monetary policy
credibility and the low inflation environment
account for the remainder.16
The Impact of Import Price Changes
Trade integration, notably with developing
countries and emerging markets, has been
accompanied by a rapid decline in the prices of
certain goods and services. From the aggregate
perspective, this has been reflected in falling
real import prices (that is, import prices relative
to broad price indices that include prices of
domestically produced goods and services) in
the advanced economies over the past two
decades (Figure 3.7) and was supportive of the
declines in the real prices of goods noted
earlier.17 The question of interest is whether the
various relative price changes associated with
globalization have had a significant impact on
inflation in advanced economies and how persistent
these effects have been. Clearly, if recent
inflation developments in the advanced econo-
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
108
Real prices of internationally traded commodities have
been on a trend decline.
However, import prices are highly volatile, reflecting
various factors such as oil price
fluctuations and exchange rate movements. In the
United States, relative prices of
imported consumer and capital goods continue to fall,
though on the whole, import
prices are now contributing to inflation.
Figure 3.7. Import Prices
United States
Advanced
economies1
Japan
United Kingdom
Germany
1980 84 88 92 96 2000 04
-10
0
10
>20
<-20
Japan
United
United Kingdom
States
Germany
Advanced
economies1
Sources: Haver Analytics; and IMF staff calculations.
The group of advanced economies includes Australia,
Canada, France, Germany, Italy,
Japan, the United Kingdom, and the United States.
1
Petroleum products
(left scale)
Total
(right scale)
Capital goods
(right scale)
Consumer goods
(right scale)
Real Price of Imports in Advanced Economies
(1995 = 100)
Real Import Price Changes
(percent)
United States
1980 84 88 92 96 2000 04
-80
-40
0
40
80
-14
-7
0
7
14
Advanced Economies
1958 64 70 76 82 88 94 2000
50
100
150
200
250
300
15The estimation results indicate that together with
persistence,
the implied average annual inflation declined as
well—from a peak of about 10 percent in 1981 to
roughly
2 percent in 2004.
16Loungani, Razin, and Yuen (2001) examined the
impact of financial integration on the
output–inflation
sensitivity and made a similar finding. In their
empirical
specification, countries with stricter capital
controls had a
steeper Phillips curve.
17Real goods prices would generally be falling on
average
even in a closed economy because productivity in the
goods-producing sectors tends to grow faster than in
the
services sectors.
mies had reflected tailwinds from globalization,
import prices would need to have played a significant
role in the process.
A brief look at Figure 3.7 suggests that, in general,
the role of import prices in keeping inflation
low has likely been limited. The downward
trend in relative import prices started before the
acceleration in globalization, and the recent
fluctuations
in these prices do not appear unusual in
either magnitude or persistence. On the contrary,
they appear to broadly reflect fluctuations
in global economic activity, as before. Specifically,
during the past decade, relative import prices in
advanced economies declined during 1997–98
(in parallel with the Asian crisis when currencies
of advanced economies appreciated and prices of
many manufactures and commodities fell),
increased during the ensuing recovery in Asia
and with strong global growth, and then declined
again during the 2001–02 downturn. To give a
sense of the magnitudes, in the sample of eight
advanced economies analyzed in this section, real
import prices fell on average by 3.8 percent a
year during 1997–98, compared to an average
decline of 1 percent a year during 1960–2004.18
With import shares in the sample ranging from
10 to 35 percent, the immediate direct impact on
inflation of import price movements of a few
percentage
points is likely small.
To examine the impact of relative import
prices on inflation more formally, one of the
model specifications from the previous subsection
explicitly includes import prices (Appendix
3.1 provides details).19 The estimation results
corroborate the intuition—on average, only
about one-tenth of an import price decline relative
to the long-term trend passes through into
inflation during the first year (Table 3.2).
Moreover, the effects of an import price decline
almost disappear from headline inflation after
two years in all countries in the sample.
What do the estimates above mean in practice?
Figure 3.8 presents simulations of the path
of inflation under the assumption that real
import prices during 1997–2005 were evolving in
line with their historical trend. In the first
simulation,
real import prices during 1997–2005 fall
on average at the rate of one percent a year
(Scenario A in the figure). The results suggest
that the large fall in real import prices in recent
years has contributed importantly to inflation
developments in the short term. On average,
import prices contributed about !/2 percentage
point to the reduction in inflation in both 1998
and 1999, and over !/4 percentage point in 2002.
For some countries, the calculations point to a
stronger impact—especially in those cases where
the broad decline in prices of internationally
traded commodities were accompanied by real
appreciation. In the United States, for example,
the contribution of import prices to disinflation
was 1!/4 percentage point in 1998 and over
#/4 percentage point in 2002. Excluding the
direct impact of oil prices (Scenario B), these
magnitudes are reduced by up to !/4–!/2 percent-
GLOBALIZATION AND INFLATION: AN AGGREGATE PERSPECTIVE
109
Table 3.2. The Cumulative Impact of a 1 Percent
Decrease in Real Import Prices on Inflation
(Percentage points)
____Im__p_a_c_t _o_n_ _In_f_la_t_io_n____
First Second Third Import
year year year Share1
Australia –0.10 –0.07 –0.03 0.21
Canada 0.08 –0.07 –0.03 0.34
France –0.07 –0.01 0.01 0.26
Germany –0.07 –0.01 — 0.33
Italy –0.01 –0.05 –0.02 0.26
Japan –0.08 — — 0.11
United Kingdom 0.19 –0.07 –0.03 0.28
United States –0.15 –0.12 –0.06 0.15
Advanced economies2 –0.08 –0.07 –0.03 0.20
Source: IMF staff calculations.
1Share of imports in GDP.
2PPP-weighted average of the sample countries.
18The cross-country differences in the broad trend of
real import prices are not large and can often be
related to the real
exchange rate movements. See Clark (2004) for a
detailed analysis of country-specific fluctuations in
the real goods prices.
19The specification includes real import price changes
weighted by the import share. The model therefore
allows for a
time-varying response of inflation to import price
changes. The persistence of the effects of import
price changes also
varies over time because of their dependence on the
coefficient on lagged inflation, which evolves in line
with monetary
policy credibility, as described earlier.
age point, which suggests that the disinflation
pressures that can be directly associated with
globalization in the production of goods may
have been somewhat less.
The simulations also show that during 2003–05,
there was almost no globalization-related impact
on inflation. The differences between actual and
simulated inflation were almost entirely due to
oil price increases. Overall, the results suggest
that while the initial effects of substantial import
price changes can be sizable in times of low
inflation—up to the order of 40–60 percent of
average inflation—the cumulative effects tend to
be small. In both episodes with above-average
import price declines, inflation tended to return
to its average level within a period of two years
in all countries.
When interpreting this finding, it is useful to
realize that the effects of price declines generated
by foreign competition—such as the falling
prices of textiles and other consumer goods—
are very similar in their nature to the effects of
other, perhaps more “traditional,” kinds of socalled
price shocks, such as swings in the prices
of food or energy. These reflect fluctuations in
the equilibrium price of specific products or
commodities (relative to prices of other products)
because of changes in demand or supply
conditions. If policymakers do not change their
monetary policy objectives (such as the inflation
or monetary target) in the aftermath of the
shock and keep policy rates at levels consistent
with those objectives, the impact of the disturbances
will only be temporary and inflation will
return to the range desired by policymakers.20 In
such an environment, the falling prices in the
sectors most affected by globalization will simply
be offset by rising prices elsewhere, partly
because consumers will use the related increase
in purchasing power to boost their spending on
other goods, including on other imports. Hence,
large changes in the import price of some goods
need not result in large increases or decreases in
broad price indices.
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
110
1983 85 87 89 91 93 95 97 99 2001 03 05
-2
-1
0
1
2
3
4
5
6
1983 85 87 89 91 93 95 97 99 2001 03 05
-2
-1
0
1
2
3
4
5
6
Had import prices evolved during 1997–2005 in line
with historical trends, inflation
in the advanced economies would—until recently—have
been higher. Import prices
contributed to disinflation, especially in the late
1990s after the Asian currency crisis
(!/2 percentage point on average in advanced economies
and more than 1 percentage
point in the United States). Import prices also helped
temporarily reduce inflation
during the global slowdown in 2001–02.
Figure 3.8. The Impact of Import Prices on CPI
Inflation
(Annual percent change)
Headline inflation
Headline inflation assuming trend import prices
(scenario A)1
Headline inflation assuming trend non-oil import
prices (scenario B)2
Sources: Eurostat; Haver Analytics; national
authorities; and IMF staff calculations.
Scenario A assumes that during 1997–2005, real import
prices fell at the historical
average rate of about 1 percent a year.
To capture the impact of globalization on inflation
more precisely, scenario B removes
the impact of oil prices from scenario A. Real import
price changes are first decomposed
into the contribution of oil prices and non-oil
commodities. The scenario then assumes that
the contribution of oil prices to import price changes
was the same as the actual values
during 1997–2005 but the contribution of non-oil
commodities was at the historical
average rate of about 1.6 percent a year.
The group of advanced economies includes Australia,
Canada, France, Germany, Italy,
Japan, the United Kingdom, and the United States.
1
2
3
Advanced Economies3
Contribution to inflation of:
import prices
non-oil import prices
United States
Contribution to inflation of:
import prices
non-oil import prices
20See Hooker (2002) for a recent study on the
inflation
impact of oil price shocks.
A number of conclusions emerge from this
analysis.
• Concerns about the risks of ongoing deflation
due to globalization clearly need to be reconsidered.
The main reason for the secular
deflation in the last era of accelerated
globalization—
the period 1880–96 under the
classical gold standard—was that a roughly
constant gold stock did not allow the accommodation
of the increased demand for money
due to high, productivity-driven growth (Box
3.2, “Globalization and Low Inflation in a
Historical Perspective”). In today’s environment,
with a determined monetary policy
response to downward deviations of inflation
from the medium-term target at times of
large declines in import prices, such risks
generally seem small, especially at the current
juncture.
• While the results do not suggest a strong persistent
effect of falling import prices on aggregate
inflation in the advanced economies,21
the sizable effects found for one- to two-year
periods may offer opportunities for disinflation.
Under such circumstances, policymakers
may permanently lower their target for average
inflation while avoiding the output losses
that would have been incurred in the absence
of such favorable external conditions.22
• At the current juncture, with the global economy
expanding strongly, there is no noticeable
impact of globalization on inflation in the
advanced economies. This highlights that in
the short term, there are both upside and
downside risks to the inflation impact of
globalization.
The possible upside risks are reinforced
by the recent increases in commodity
prices, which have been associated with the
very same force that has put pressure on
prices of manufactures, namely the rising integration
of major emerging market economies
into the world trade system.23
• Since import prices are partly determined by
exchange rate fluctuations, the evidence of
low persistence in imported inflation is also
consistent with the literature on diminishing
pass-through of exchange rate changes to
inflation (see Box 3.3, “Exchange Rate Pass-
Through to Import Prices”).
A Sectoral Perspective on Globalization
and Prices
This section examines differences in producer
price changes across sectors and investigates how
they might be related to globalization. The sectoral
perspective complements the aggregate
perspective and can deepen the understanding
of the relationship between globalization and
changes in relative prices. In particular, since the
extent of globalization differs across sectors, a
sectoral approach might help in better identifying
the indirect effects of globalization on
domestic relative prices—through the competitive
effects associated with the increased availability
of close substitutes produced abroad—in
addition to the direct effect through relative
import prices.
Globalization in the sense of more market
access for foreign producers fosters competition
by increasing the price elasticity of
demand, which may force producers to lower
margins while rents in factors of production
may decrease (Chen, Imbs, and Scott, 2004).
In addition, the exit of inefficient firms may
lower the average costs of production. The
predicted negative relationship between globalization
and sectoral inflation, which will be
A SECTORAL PERSPECTIVE ON GLOBALIZATION AND PRICES
111
21This is consistent with other studies. Kamin,
Marazzi, and Schindler (2004) find that China’s
exports to the United
States have only had a marginal impact on import and
producer prices in the United States. Similarly,
Feyzioglu and
Willard (2006) suggest that prices in China have a
fairly small and temporary impact on inflation in the
U.S. and Japan,
although they find evidence of stronger price linkages
in some sectors.
22See Orphanides and Wilcox (2002) for a discussion of
such an “opportunistic approach to disinflation.” It
should be
noted that the role of globalization in disinflation
in this case differs from that discussed earlier, as
it affects decisions
through its impact on the policy environment rather
than policy incentives.
23See, for example, Chapter IV of the April 2005 World
Economic Outlook on the long-run oil market outlook.
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
112
The present era of globalization and low inflation
has an important precedent: 1880–1914,
the era of the classical gold standard. In the
context of this chapter, the most noteworthy
feature of this precedent is the coincidence of
globalization with secular deflation from
1880–96. Given current views that lower cost
producers are “exporting deflation,” a reexamination
of the deflation experience under the
classical gold standard clearly is of interest. This
box documents the extent of deflation, examines
the underlying forces, assesses the impact
of deflation on economic activity, and discusses
implications for today.
Today, it is widely believed that the deflation
of 1880–96 reflected the interaction of favorable
supply disturbances—productivity growth shifted
the aggregate supply curve to the right—and
the nominal anchor, the classical gold standard.
The latter prevailed from 1880 to 1914, when
the majority of countries adhered to the rule of
fixing the prices of their currencies in terms of
gold (Bordo, 1999). The world price level was
determined by the demand and supply of monetary
gold, which depended on gold production
on the one hand and the relative demands on
gold for monetary and nonmonetary (e.g., jewelry,
industrial use) purposes on the other
(Barro, 1979). In the long run, global prices
were anchored by the (roughly constant) marginal
cost of producing gold.
In this setup, disturbances to the demand and
supply of gold could lead to persistent, but not
necessarily permanent, changes in the price
level because the stock of monetary gold was
exogenous in the short to medium term. In the
case of global disturbances, the global price
level would change. For example, the increased
global income associated with a global productivity
boom would boost the demand for monetary
gold, which, with an unchanged stock of
monetary gold, would lead to deflation initially.
Over time, however, the stock of monetary gold
would adjust because of the implied changes in
the real price of gold (the nominal price of gold
divided by the price level). Under deflation, the
rise in the real price would encourage gold production
and the search for new sources, as well
as the conversion of nonmonetary gold into
monetary gold (see, among others, Rockoff,
1984). The resulting increase in the world monetary
gold stock would generate inflation and
thereby offset the price level effects of the earlier
deflation.
Reflecting this mechanism, the gold standard
era was characterized by alternating episodes of
inflation and deflation. The top panel of the figure
shows the movements in the world gold
stock and the world monetary gold stock. Gold
production remained fairly stable until the
1890s. Then the combination of the development
of the cyanide process for extracting gold
from low-grade ore and the discovery of lowgrade
deposits in South Africa led to a dramatic
expansion in world gold production.
The middle panel of the figure documents
the price level behavior during 1880–1914 era in
the four core countries of the era—the United
Kingdom, France, Germany, and the United
States. The broad picture is one of deflation followed
by inflation. Prices fell in all countries
between 1880 and 1896 but rose subsequently.
The lower panel shows growth in the four countries.
While somewhat slower during the deflation
phase, the sustained growth during the era
does not seem consistent with the proposition
that this was the period of the “great depression”
in the United Kingdom or the “longue
stagnation” in France, as economic historians
used to classify the years 1880–96 (e.g., Craig
and Fisher, 2000).
What were the effects of the secular deflation
on economic activity during the first era of
globalization?
Bordo, Landon Lane, and Redish
(2004 and 2005) addressed this issue for the
1880–1914 experience of the four core countries
using a structural vector-autoregressive model.
Specifically, they decompose fluctuations in
prices, output, and the money stock in each
country into the effects of a gold stock shock, a
domestic aggregate supply shock, and a domestic
Box. 3.2. Globalization and Low Inflation in a
Historical Perspective
Note: The main author of this box is Michael Bordo.
A SECTORAL PERSPECTIVE ON GLOBALIZATION AND PRICES
113
aggregate demand shock. The key presumption
underlying the analysis is that the impact of
deflation depends on the underlying disturbance.
Deflation owing to shocks to aggregate
supply is likely to be different in its interaction
with economic activity than deflation due to, say,
stagnant gold production or a banking panic.
The results show that in European economies,
output movements were mainly driven by supply
shocks, while price level fluctuations were dominated
by gold stock shocks. In the United States,
deflation was driven by positive supply shocks,
but also by adverse gold stock shocks (which
helped induce serious banking panics) in the
mid-1890s, which had real effects. Overall, the
evidence suggests that the deflation experience
in the nineteenth century was benign, reflecting
the prevalence of favorable supply shocks—for
example, the second industrial revolution—that
were rapidly reflected in real income gains, as
there were virtually no nominal rigidities. The
latter may not be the case today. Moreover, while
pre-1914 deflation seemed benign in its impact,
contemporaries did not feel good about it. The
common perception was that deflation was
depressing. This may have reflected the fact that
deflation was largely unanticipated by certain
groups affected by its redistribution effects or
money illusion.
Overall, the experience with the classical gold
standard suggests that the risks of deflation are
clearly different today, given that positive inflation
targets allow for the more immediate
accommodation of increased money demand
with strong growth. However, with regard to the
credibility of the nominal anchor, the experience
of the gold standard still seems relevant. If the
nominal anchor is credible, and if agents expect
inflation to be anchored at a low level, then
temporary
disturbances (business cycles)—including,
as discussed in the chapter, a large fall in
import prices—will lead to temporary departures
of inflation from the long-run average. Indeed,
under the gold standard, the expected inflation
rate hovered around zero and long-run price
level uncertainty was low, which is consistent with
the observed mean-reversion in price levels
(Klein, 1975; Borio and Filardo, 2004; and Bordo
and Filardo, 2005). Moreover, the persistence of
price level changes was low and symmetric.
These features are akin to key characteristics of
today’s inflation behavior.
1880 84 88 92 96 1900 04 08 12
50
100
150
200
250
300
350
400
450
1880 84 88 92 96 1900 04 08 12
60
70
80
90
100
110
120
130
140
Sources: Bordo and others (2005); and IMF staff
calculations.
Implicit GDP deflator.
1880 84 88 92 96 1900 04 08 12
100
200
300
400
500
600
700
Gold, Prices, and Growth Under the Classical
Gold Standard
World Stock of Gold
(millions of fine ounces)
Price Levels
(1880 = 100)
Real GDP
(1880 = 100)
1
1
United
States
United
Kingdom
France
Germany
United States
Germany
United
France Kingdom
Total gold
Monetary gold
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
114
Exchange rate pass-through measures the
extent to which movements in the nominal
exchange rate affect either domestic import
prices (first stage) or the consumer price level
(second stage). Empirical evidence suggests that
the rate of exchange rate pass-through (first and
second) varies widely across countries, reflecting
their ability to influence import prices in an
increasingly global setting, but in general tends
to be less than complete.1 Moreover, the degree
of exchange rate pass-through in advanced
economies appears to have declined significantly
since the 1980s (see the figure). Lower
exchange rate pass-through implies that larger
movements in the exchange rate are necessary
to reduce current account imbalances or influence
growth via the import/exchange rate channel.
On the other hand, lower exchange rate
pass-through may also enhance the performance
of monetary policy by limiting the impact of
exogenous exchange rate fluctuations on the
domestic price level and output.
A number of competing arguments have been
offered for the decline in exchange rate passthrough,
a subset of which includes:
• Lower headline inflation. Exchange rate passthrough
is linked explicitly to the level of
inflation and, indirectly, to domestic monetary
conditions (positive association). In contrast
to the standard literature on the determinants
of exchange rate pass-through, which emphasizes
market structure and the elasticity of
demand, Taylor (2000) argues that in a stable,
low inflation environment supported by a
credible inflation-targeting regime, firms
reduce the extent to which they pass on
exchange-related cost increases because the
latter are likely to be perceived as temporary
in such an environment. Others link
exchange rate pass-through to inflation by
arguing that the costs of maintaining fixed
prices (namely, forgone profits) are much
greater than the costs of changing prices.
Numerous empirical papers have obtained
support for Taylor’s (2000) hypothesis by
including the level and variability of inflation
in standard empirical models of exchange
rate pass-through (e.g., Choudhri and
Hakura, 2001).
• Changes in import composition. Campa and
Goldberg (2002) question the macroeconomic/
monetary explanation for the decline
in exchange rate pass-through exposited in
Taylor (2000). In particular, they argue that
the decline in exchange rate pass-through is
better explained in terms of a shift in the
import bundle away from energy and raw
Box 3.3. Exchange Rate Pass-Through to Import Prices
Canada
France
Germany
Italy
Japan
United Kingdom
United States
-70
-60
-50
-40
-30
-20
-10
0
Source: IMF staff calculations.
Response of Import Prices to Nominal Effective
Exchange Rate Movements
(Percentage decline: 1990–2002 over 1975–89)
Note: The authors of this box are Kornélia Krajnyák
and Sam Ouliaris.
1See Goldberg and Knetter (1997) for an extensive
review of the empirical literature on exchange rate
pass-through. In the case of the United States, they
conclude that the median estimate of exchange rate
pass-through is approximately 0.5. More recent studies
(e.g., Marazzi, Sheets, and Vigfusson, 2005) suggest
that the first stage exchange rate pass-through
coefficient
has declined to 0.2.
referred to as the “global competition hypothesis,”
has several implications at the sectoral level.
For example, if increased exposure to foreign
competition has helped to contain inflation,
one would expect smaller price increases in
manufacturing than in services, as the former
sector has long been, and continues to be, more
open than the latter.
Patterns in overall producer price inflation
are very similar to those for consumer price
inflation discussed earlier.24 After declining in
the late 1980s and early 1990s, producer price
A SECTORAL PERSPECTIVE ON GLOBALIZATION AND PRICES
115
materials toward manufactured goods, which
have lower estimated pass-through rates.
While Campa and Goldberg (2002) confirm
that countries with lower inflation have lower
exchange rate pass-through coefficients, they
conclude that the decline in exchange rate
pass-through is due more to a change in the
composition of imports rather than lower
inflation. This view is largely endorsed by
Marazzi, Sheets, and Vigfusson (2005) for the
United States, but the authors also emphasize
the role of China’s increasing presence in the
U.S. market.
• Structural reforms. Since the early 1980s, a number
of industrial countries have implemented
structural reforms that have resulted in substantial
gains in multifactor productivity, lower
unit costs, and greater choice to consumers
(see Rogoff, 2003; and Chen, Imbs, and Scott,
2004). As a result, firms now operate in a
more competitive environment relative to the
1980s, thereby reducing their ability to pass
on cost increases. Moreover, by lowering unit
costs of production, multifactor productivity
gains increase the capacity of firms to absorb
exchange rate losses, possibly lowering
exchange rate pass-through. Of course, the
validity of the structural reform argument
relies on the presence of imperfect competition
and excessive “quasi-rents” (or “abnormal”
markups) to monopolistic firms prior to
the introduction of the reforms. Exchange
rate pass-through could rise once these
markups decline to more normal levels––
for instance, as the level of competition
approaches what is prevalent in energy and
commodity markets. Evidence in favor of the
“structural reform” hypothesis is reported in
Ouliaris (2006), who finds that the decline in
exchange rate pass-through can be better
explained using structural reform indicators
rather than the average rate of inflation or
other proxies for monetary conditions. Moreover,
the decline in pass-through is evident
only in the short-run/business cycle components
of the data, and is therefore likely to be
temporary in nature.
Has exchange rate pass-through declined permanently?
If structural reforms or the changing
composition of international trade are the main
driving factors, then the decline is likely to be
temporary. Rationalizing lower pass-through by
appealing to “lower cost producers” or “decreasing
importer’s willingness to increase domestic
prices” relies on the existence of significant
markups over costs or “quasi-rents” that are
likely to be eventually eroded in a heightened
competitive environment. The tighter margins
will naturally limit the ability of competitive
firms to absorb nominal exchange rate movements,
placing upward pressure on the degree
of exchange rate pass-through to import prices.
However, the eventual impact on final goods
prices will be influenced by the conduct and
credibility of monetary policy, particularly in an
inflation-targeting setting.
24The analysis is based on sectoral producer prices
and their components from the OECD’s Structural
Analysis (STAN)
Database. For consistency, much of the analysis is
performed for the advanced economies, with the most
complete data
coverage for the period 1987–2003 (Austria, Denmark,
Finland, France, Germany, Italy, Japan, Korea,
Luxembourg,
Norway, and the United States). Unless mentioned
otherwise, sectoral averages are simple averages of
the country data. See
Appendix 3.2 for a description of the data.
inflation has been about stable from the mid-
1990s. Comparing manufacturing and business
services—the two largest sectors that have been
most exposed to globalization-related changes
over the past decade or so—shows that in the
former, producer price increases have consistently
been below those registered in overall
prices (Figure 3.9).25
In contrast, while changes in producer prices
in business services used to exceed overall producer
price inflation, they have fallen at a faster
rate than overall inflation since the mid-1990s,
thereby contributing at least as much as manufacturing
to the decline in overall producer
price inflation.26 A possible explanation for this
finding could be the substantial extent of
deregulation
in important business services sectors,
including, for example, telecommunications,
although improvements in the measurement of
prices of services may also have played a role.27
Within manufacturing, relative prices have, on
average, declined less in low-tech sectors than in
high-tech sectors (the distinction is based on a
measure of spending on research and development).
Since the mid-1990s, however, both lowand
high-tech sectors have experienced a similar
trend of disinflation (Figure 3.10).28 Likewise,
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
116
Producer Prices
1987 90 93 96 99 2002
-3
-2
-1
0
1
2
3
Trend
2
1987 90 93 96 99 2002
-1
0
1
2
3
4
5
6
1987 90 93 96 99 2002
-1
0
1
2
3
4
5
6 Manufacturing Business Services
Median Lower and upper quartiles
Relative Producer Prices
4
1987 90 93 96 99 2002
-3
-2
-1
0
1
2
3
Sources: OECD, STAN database; and IMF staff
calculations.
Sample includes Austria, Denmark, Finland, France,
Germany, Italy, Japan, Korea,
Luxembourg, Norway, and the United States.
Three-year moving average.
Difference between sectoral producer price inflation
and producer price inflation in all
sectors.
Trend derived using Hodrick-Prescott filter.
Manufacturing Business Services
1
2
Figure 3.9. Inflation in Manufacturing and Business
Services in Selected Industrial Countries
(Annual percent change)
1
3
Trend4
While inflation in manufacturing has been consistently
below overall inflation,
business services have also significantly contributed
to the decline in inflation.
3
4
25Together, manufacturing and business services
sectors
account for some 70 percent of a typical industrial
country
economy in the sample. The other sectors are
agriculture,
mining, construction, utilities, and community,
social and personal services (including government).
Details on the sectors and the subsectors therein are
provided
in Appendix 3.2.
26Other sectors’ contributions are smaller in part
because their weights in the overall economy are
smaller.
27Output volumes (and hence prices) are notoriously
difficult to measure in services due to the complexity
of
the products. As a result, part of the productivity
increases or quality enhancements are recorded as
price
increases instead of volume increases. To the extent
that
measurement may have improved over the last 15 years,
this could partly explain a decrease in measured
business
services inflation.
28It should be noted that sectoral price changes are
often expressed relative to the aggregate rate of
producer
price inflation in order to eliminate fluctuations in
inflation
that are common to all sectors. An example would be
fluctuations due to monetary policy, which in itself
tends
to affect all sectoral prices equally in the longer
run.
price increases in high-skill sectors (based on
average education levels of the labor force)
have, on average, been lower than in low-skill
sectors, both in manufacturing and in the overall
economy.29
Overall, the most important recent changes in
broad patterns of sectoral producer price developments
appear to have occurred in some services
and high-skill, high-tech manufacturing
sectors. At first glance, these results are difficult
to reconcile with a narrow version of the global
competition hypothesis that views most of the
competitive pressure arising from the integration
of developing and emerging market countries
into the world trade system as being in
low-tech and low-skill sectors. The results are,
however, consistent with a broader notion of the
hypothesis that views trade integration more
generally, including in high-end manufacturing,
as the driving force behind increasing global
competition. China, for example, exports a large
and increasing set of products that may be classified
as high-tech or high-skill.30 The findings
may also reflect the impact of the information
technology revolution, which has led to sharp
declines in the relative prices of high-tech and
high-skill electronics goods. Finally, it is worth
noting that the data also suggest that increased
competition may have begun to affect price
developments in the business services sectors.
How Has Globalization Affected Prices in
Different Sectors of the Economy?
How do these sectoral patterns in inflation
relate to globalization? To analyze this, changes
in relative producer prices in a sector were
related to changes in the sector’s exposure to
globalization, as measured by its import-toproduction
ratio (Chen, Imbs, and Scott, 2004).
A SECTORAL PERSPECTIVE ON GLOBALIZATION AND PRICES
117
1988 90 92 94 96 98 2000 02
-2.0
-1.5
-1.0
-0.5
0.0
Manufacturing Sectors: Technological Intensity 0.5
High-Tech
Low-Tech
Medium-Tech2
Figure 3.10. Relative Producer Price Inflation by
Technological and Skill Intensity
(Annual percent change)
1
1988 90 92 94 96 98 2000 02
-2.0
-1.5
-1.0
-0.5
0.0
Overall Economy: Skill Intensity 0.5
High-skill
Low-skill
2
3
Sources: OECD, STAN database; and IMF staff
calculations.
Growth in the ratio of sectoral producer price indices
and the producer price index in all
sectors. See Appendix 3.2 for the list of sectors
included within each grouping.
Excludes refined petroleum products.
Excludes agriculture, mining, and community, social,
and personal services sectors.
1
2
3
Interestingly, inflation has been higher in low-tech
sectors than in high-tech sectors.
In the overall economy, low-skill sectors also have
had higher inflation than sectors
classified as high-skill.
29Agriculture, mining, refined petroleum, and
community,
social, and personal services are excluded from both
the low-skill and high-skill aggregates.
30According to Rodrik (2006), the implied income level
in China’s export basket is much higher than its
actual
(PPP-adjusted) income.
The expectation is that the relationship is negative;
faster increases in trade openness in a sector
would be associated with smaller producer
price increases. Simple correlations confirm this
expectation, as the relationship between changes
in the relative producer price and changes in
the import ratio is indeed negative (Figure
3.11). In particular, in textiles, telecoms, and
electrical and optical equipment, the strong
increases in openness are clearly associated with
negative changes in relative prices.31
Econometric analysis supports this broad finding
(details of the econometric analysis can be
found in Appendix 3.2). The analysis is performed
both for the manufacturing sectors, for
which trade data are more readily available and
are of better quality, and for the manufacturing
and business services sectors together.
The results show that changes in the import
ratio and changes in relative producer prices are
negatively and significantly related (Table 3.3).
According to the central estimates for the
manufacturing
sector, a 1 percent increase in the
import ratio reduces the relative producer price
by about 0.1 percent. The results also suggest
that the effect tends to be the same for manufacturing
and business services sectors, as simple
tests for a differential impact yield insignificant
results. Changes in labor productivity also have a
significant impact on changes in relative producer
prices, with a 1 percent increase in labor
productivity also reducing relative producer
prices by about 0.l percent.32 As shown in
Appendix 3.2, the impact of globalization on
producer prices is robust and does not depend
on a specific model or a specific variable to
measure globalization, even when allowing for
reverse causality (including for productivity
growth).
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
118
-3 -2 -1 0 1 2 3 4 5 6 7 8 9
-4
-3
-2
-1
0
1
2
Figure 3.11. Producer Price Inflation and Openness
(1987–2003; annual percent change)
Chemicals
Paper
Average growth in openness
Leather
Real estate and
other business activities
Publishing
Hotels and
restaurants
Other transport equipment
Minerals
Other manufacturing
Textiles
Food
Fabricated metals
Basic metals
Vehicles
Trade Machinery
Services
Refined
petroleum
Transport
Finance
Plastics
Electrical and optical
equipment
Telecommunications
Sources: OECD, STAN database; and IMF staff
calculations.
Growth in the ratio of sectoral producer price indices
and the producer price index in all
sectors.
Growth in a sector's import-to-production ratio.
Wood
Average relative producer price inflation1 2
1
2
Changes in trade openness and relative producer prices
are negatively correlated.
31A similar picture emerges for the simple correlation
between the relative unit labor cost growth and the
import ratio growth.
32Increased productivity growth does, to some extent,
result from increased competitive pressures due to
globalization,
but this indirect effect of globalization on inflation
is very small, as detailed in the next subsection.
Put another way, the increase in openness
explains about 30 percent of the 1 percent inflation
differential between manufacturing and the
overall economy during 1987–2003 while labor
productivity growth accounts for about 40 percent
of this differential (Figure 3.12). Increased
openness has played a particularly important
role in Japan and the United States, where the
manufacturing sectors appear to have opened
relatively more during the past 15 years than in
other countries.
Within manufacturing, increased openness
contributed about twice as much to lower inflation
in low-tech sectors than in high-tech sectors,
in line with what conventional wisdom would
have predicted.33 Interestingly, changes in openness
were roughly similar between high-skill and
low-skill manufacturing sectors, and the differ-
A SECTORAL PERSPECTIVE ON GLOBALIZATION AND PRICES
119
Table 3.3. Impact of Trade Openness on Relative
Producer Price Inflation1
Dependent Variable: Changes in
________R_e_la_t_iv_e_ _P_r_o_d_u_c_e_r_
P_r_ic_e_s________
Manufacturing
and business
Manufacturing2 services2
______(_1_6_ _s_e_c_to_r_s_)______ _(_2_2_
_s_e_c_to_r_s_)_
1977–2003 1988–2003 1977–2003
(all countries (core (all countries
Explanatory Variables available) countries)3
available)
Change in import share –0.11** –0.12*** –0.12**
Difference for services 4 . . . . . . –0.01
Change in labor productivity –0.10*** –0.09***
–0.10***
Difference for services4 . . . . . . –0.08
Source: IMF staff calculations.
1All variables are in natural logarithms. The
equations are estimated by
two-step feasible generalized method of moments
treating changes in
import shares as an endogenous variable. Control
variables include the dollar
exchange rate interacted with sectoral dummies (effect
through cost of
intermediates), and sectoral and country dummies. ***
denotes statistical
significance at the 1 percent level; ** at the 5
percent level.
2The refined petroleum sector is excluded from the
regressions because
its behavior is strongly affected by oil price
developments.
3Restricted to countries used in the descriptive
analysis of sectoral inflation
patterns.
4Variables interacted with a dummy variable indicating
a business services
sector.
Figure 3.12. Contributions to Declines in Relative
Producer Prices
(Percent; annual average)
1
Openness Productivity Others
Total change
Austria
Denmark
Finland
France
Germany
Italy
Japan
Korea
Norway
United States
Average
-0.5
0.0
0.5
1.0
1.5
By Countries2 2.0
Manufacturing Sectors
High Medium Low
-0.5
0.0
0.5
1.0
1.5
2.0 By Level of Technological
Intensity
High Low
-0.5
0.0
0.5
1.0
1.5
By Level of Skill Intensity 2.0
Trade Transport Post Finance
-2
-1
0
1
2
3
4
Real estate and
other business
activities
Business Services Sectors
and telecom.
Hotels and
restaurants
Sources: OECD, STAN database; and IMF staff
calculations.
Based on estimates of the global competition
hypothesis reported in column two of
Table 3.3. Positive values reflect contributions to
decreases in relative producer prices
while negative values reflect contributions to
increases in relative producer prices.
Averages are for the period 1987–2003 except for
France (1987–2002), Germany
(1991–2003), and Korea (1995–2003).
Averages are for the period 1992–2002.
1
2
3
3
Increased openness contributed approximately 0.3
percentage point to the average
decline in relative producer prices in manufacturing.
33Part of the difference in relative price changes
between high-tech and low-tech sectors remains
unexplained:
the model underpredicts the fall in relative
prices of high-tech sectors while it overpredicts the
fall in
low-tech sector prices.
ences in relative inflation rates between these
two types of sectors appear to be primarily due
to higher labor productivity growth in high-skill
sectors. Looking at business services, the
contribution
of globalization to lower inflation was as
strong as in manufacturing in a number of
sub-sectors, especially telecoms, other business
activities, and hotels and restaurants (the latter
category includes some tourism services). In
finance and telecoms, sizable productivity
increases also had a moderating effect on sectoral
producer prices.
The impact of globalization in the manufacturing
sectors in most countries has increased in
recent years. While openness explained only
one-quarter of the decline in relative prices of
manufacturing over the period 1987–94, it
accounted for about 40 percent of the decline
over the more recent period. This acceleration
of globalization was visible at all levels of
technological
intensity, but more so in low-skill than
high-skill activities.
Finally, if trade integration in business services
sectors were to reach the levels currently
seen in manufacturing—which would mean that
the average import ratio in business services
would quadruple34—the relative producer
prices for these services would, on average,
decline by slightly less than 20 percent. This
clearly illustrates the substantial impact that
further trade integration in services could have.
Clearly, such an increase in openness would
occur gradually, and the year-on-year declines
in relative prices of business services would thus
be smaller.
Overall, therefore, the analysis provides robust
support for the global competition hypothesis,
with differences in the openness explaining
about one-third of the differences in relative
producer prices. That said, in terms of the actual
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
120
1988 91 94 97 2000 03
-2
0
2
4
6
Figure 3.13. Producer Price Inflation by
Cost Components
(Annual percent change)
Sources: OECD, STAN database; and IMF staff
calculations.
Unit labor cost
Unit gross operating
surplus
PPI
The decline in unit labor cost increases appears to be
greater than the decline in
producer price inflation (PPI). On the other hand,
changes in other cost components,
such as unit gross operating surplus, have been moving
relatively closely with PPI.
34This illustrates how despite strong opening in some
services sectors in recent years, levels of openness
in business
services remain low on average compared to
manufacturing,
even when the provision of services through
foreign affiliates is taken into account (considered
to be
imports).
moderation of domestic producer prices, the
estimated magnitudes of the globalization effects
are relatively small. On average, the increased
trade openness has reduced relative producer
prices in manufacturing by about 0.3 percentage
point a year over the past 15 years.
A Cost Perspective on the Moderation in
Sectoral Producer Prices
How has the moderation in sectoral producer
prices been mirrored in producer’s cost components,
especially unit labor costs? By definition,
changes in producer prices must be reflected in
changes in at least one of the following components:
unit labor cost, unit intermediate cost,
unit gross operating surplus (or loss), and unit
net taxes. As discussed in Appendix 3.2, the
change in producer prices is just the weighted
average of changes in its components, with
weights given by the cost shares.
At the economy-wide level, the most noticeable
feature of cost developments is the greater
decline in unit labor cost increases compared to
producer price inflation during the mid- to late
1990s (Figure 3.13). In contrast, changes in
other cost components appear to have closely
followed changes in overall producer prices. As a
result, the labor share declined during the
1990s.35
Differences in unit labor costs also appear to
explain most of the differences in cost developments
between manufacturing and business services
and within manufacturing (Table 3.4).
Labor compensation in manufacturing increased
in nominal terms at a faster rate and in business
services at a slower rate than in the overall economy.
However, in manufacturing, the faster rise
in nominal compensation was more than offset
by strong labor productivity growth, so that unit
labor costs increased at a rate below that in the
overall economy. Similarly, within manufactur-
A COST PERSPECTIVE ON THE MODERATION IN SECTORAL
PRODUCER PRICES
121
Table 3.4. Producer Price Inflation by Cost
Components1
(Average deviations from changes in the overall
economy in percent)
Manufacturing and
____B_u_s_i_n_e_s_s _S_e_r_v_ic_e_s____
Business
_____________________M__a_n_u_fa_c_t_u_ri_n_g_____________________
Manufacturing services High-tech Medium-tech2 Low-tech
High-skill2 Low-skill
Changes in producer prices and costs3
Producer prices –1.0*** 0.4 –0.9** –0.6 –0.4 –0.9**
–0.6
Unit labor costs –1.2*** –0.1 –1.5** –0.7 –0.6 –1.4**
–0.7
Nominal labor compensation 0.6*** –0.2 0.7** 0.2 0.3
0.7** 0.3
Real productivity 1.8*** –0.1 2.7*** 1.1 1.0 2.6***
1.2
Unit intermediate costs –1.0*** 1.1 –0.8 –0.6 –0.5
–0.9 –0.6
Unit gross operating surplus4 –0.8 –0.2 2.7 –0.7 1.2
4.0 0.2
Contribution to producer price
inflation by cost components5
Unit labor costs –0.4*** — –0.5** –0.2 –0.3 –0.4* –0.3
Unit intermediate costs –0.2*** 0.2 –0.2 –0.1 0.1
–0.3+ 0.0
Unit gross operating surplus4 –0.4*** 0.2 –0.3 –0.3
–0.2 –0.2 –0.3
Source: IMF staff calculations.
1A bold entry indicates that the deviation from the
country average is significant at the 5 percent level.
Significant differences between sectors
(e.g., high-tech versus medium-tech and low-tech) are
marked by *** (1 percent confidence level); ** (5
percent confidence level); * (10 percent
confidence level); or + (15 percent confidence level).
2The refined petroleum sector is excluded from
medium-tech and high-skill because its behavior is
strongly impacted by oil price changes.
3The entry “–1.0” for changes in producer prices in
manufacturing means that annual inflation in
manufacturing was on average (across countries
and years) 1 percentage point lower than inflation in
the overall economy.
4The sample size is somewhat smaller for the unit
gross operating surplus.
5A contribution of unit labor costs to producer price
inflation in manufacturing of –0.4 means that changes
in unit labor costs imply that
annual producer price inflation should be on average
–0.4 percentage points below overall producer price
inflation.
35The labor share is the ratio of the unit labor cost
over the unit producer price.
ing, much stronger productivity growth, not fully
compensated by stronger increases in nominal
labor compensation, accounted for the smaller
increase in unit labor costs in high-tech sectors
compared to the medium- or low-tech sectors,
and in high-skill sectors compared to low-skill
sectors.
Regarding other costs, relative declines in unit
intermediate costs appear to have contributed to
lower relative producer price inflation in
manufacturing,
but not in business services, where
these costs actually rose faster than in the overall
economy. Finally, the rate of change in the gross
operating surplus—which includes both the cost
of capital and profits—has declined broadly in
line with overall producer price inflation. While
there is some evidence that the surplus has
increased relatively less in manufacturing than
in business services, the difference appears not
to be significant.
Econometric analysis confirms that sectoral
differences in openness partly explain these patterns
in unit labor costs and labor compensation.
An increase in openness is found to reduce
the response of nominal labor compensation to
productivity changes, both directly, as a 1 percent
increase in the import ratio of a sector
reduces its relative compensation by about 0.1
percent for a given level of productivity growth,
and indirectly through a reduction in the
response of compensation to productivity growth
(Table 3.5). The effects of openness on labor
compensation remain negative even if the significant,
small positive relationship between openness
and productivity (and, therefore, labor
compensation) is considered; a 1 percent
increase in sectoral openness raises sectoral
productivity
by 0.1 percent, after controlling for the
overall level of productivity in the economy.36
Unit labor costs are affected in a similar way by
openness.37
Overall, therefore, the empirical evidence
appears to support the proposition that the
moderating effects of globalization on domestic
producer prices are restraining unit labor costs
and labor compensation. In addition, a fall in
relative unit intermediate costs appears to have
played some role in explaining the faster decline
in relative prices in manufacturing. This could
reflect outsourcing, which, in turn, could in part
explain the behavior of unit labor costs.
Evidence for the gross operating surplus is less
conclusive. Finally, the analysis also highlights
the important role that productivity differentials
play in explaining differences in unit labor cost
and wage behavior across sectors.
Summary and Policy Conclusions
This chapter has examined the proposition
that globalization has been an important factor
behind low and steady inflation in recent years.
The main points arising from the chapter are as
follows.
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
122
Table 3.5. Impact of Trade Openness on Productivity,
Labor Compensation, and Unit Labor Costs1
(Manufacturing subsectors relative to the overall
economy)2
_________D_e_p_e_n_d_e_n_t_ V__a_ri_a_b_le_________
Change in Change in
Change in relative relative
relative labor unit
Explanatory Variables productivity compensation labor
cost
Change in import share 0.12** –0.10*** –0.09***
Change in relative labor
productivity . . . 0.63*** –0.71***
Interacted with import share . . . –0.18* . . .
Source: IMF staff calculations.
1All variables are in natural logarithms. The
equations are estimated by
two-step feasible generalized method of moments
treating changes in
import shares and changes in relative labor
productivity as endogenous variables.
Other control variables include sectoral and country
dummy variables.
*** denotes statistical significance at the 1 percent
level; ** at the 5 percent
level; and * at the 10 percent level.
2The sample covers the period 1977–2003, the maximum
number of
countries, and 16 manufacturing subsectors. The
refined petroleum sector
is excluded from the regressions because its behavior
is strongly affected by
oil price developments.
36The relationship between openness and productivity
might actually be stronger but data limitations
prevent obtaining better
estimates by controlling for more determinants of
sectoral productivity (such as spending on research
and development).
37The effect of labor productivity on unit labor costs
is negative but smaller than minus one (about –0.7)
because productivity
increases are partly absorbed by compensation gains.
• Over the medium term, the prevailing nominal
anchor—such as the central bank’s inflation
target—determines inflation. Therefore,
the impact of globalization on inflation will be
temporary unless it changes the overarching
objectives of monetary policy. This is unlikely
in industrial countries given the already low
single-digit inflation targets (explicit or
implicit). In emerging market and developing
countries, however, greater openness appears
to have been—and is likely to remain—an
important factor behind the sustained
improvement in inflation.
• The direct effect of globalization on inflation
through import prices has in general been
small in the industrial economies. That said,
when global spare capacity increases—such as
during the 1997–98 Asian financial crises and
the 2001–02 global slowdown—import price
declines have had sizable effects on inflation
over one- to two-year periods, shaving more
than 1 percentage point off actual inflation in
some advanced economies. With low average
inflation, such effects are economically significant.
This lends support to the view that inflation
targets should not be set too close to
zero—otherwise shocks of this size could
result in periods of deflation.
• Globalization has contributed to reducing
the sensitivity of inflation to domestic capacity
constraints in advanced economies over
the past couple of decades—for example,
through the impact on the labor markets
and wages. As global economic developments
have become increasingly important for
domestic inflation, they will require closer
monitoring by monetary policymakers in the
years ahead.
• Globalization has had a significant effect on
relative prices in industrial economies. Sectors
that have become more exposed to foreign
competition have seen the largest relative
price declines in recent years. Nevertheless,
globalization is not the only factor driving relative
price changes. While openness has been
important, particularly in low-tech and lowskill
sectors, productivity growth has also contributed
significantly to relative price changes,
particularly in the high-tech manufacturing
and services sectors. Indeed, while price
increases in the manufacturing sector have
consistently been below those in services, the
decline in inflation in some services sectors
since the mid-1990s has been more pronounced,
contributing as much to the decline
in overall producer price inflation as the
manufacturing
sector.
Against this background, the immediate policy
concern is judging how globalization may impact
inflation in the future. Globalization has
undoubtedly provided some break on inflation
in the industrial economies in recent years and
has allowed for a more measured monetary policy
tightening to date. Ongoing trade integration
will continue to put downward pressure on
prices in many industries in the foreseeable
future, although the extent of these pressures
will vary with the economic cycle. The experience
with earlier episodes of rapid integration,
such as those of Japan from the mid-1950s, suggests
that China’s share in world trade may double
over the next 10 years or so.38 Moreover,
international trade in services is also likely to
accelerate, leading to declining relative prices in
the concerned sectors.
Notwithstanding these developments, however,
globalization cannot be relied upon to keep a lid
on inflationary pressures in present circumstances.
Strong global growth and diminishing
economic slack have reduced the restraining
impact of declining import prices on inflation,
and with strong global growth expected to continue,
the primary risk is that a further upturn in
import prices could result in stronger inflationary
pressures going forward, particularly in
countries that are well advanced in the economic
cycle. The possibility of further, partly
globalization-related, commodity price increases
SUMMARY AND POLICY CONCLUSIONS
123
38See Chapter II in the April 2004 World Economic
Outlook.
adds to these upside risks from the external sector.
Monetary policymakers must therefore
remain vigilant for any signs of a pickup in inflation
in the period ahead.
Appendix 3.1. Sample Composition, Data
Sources, and Methods
The main author of this appendix is Martin Sommer.
This appendix provides further details on the
sample composition, the data and their sources,
and the empirical strategies used in the analysis
of inflation in the chapter.
Inflation Model
The inflation model presented in Table 3.6
consists of eight equations, one for each country
in the sample: Australia, Canada, France,
Germany, Italy, Japan, the United Kingdom, and
the United States. Most parameters of the model
are allowed to vary across countries (constant,
average persistence, and average slope of the
output-inflation relationship). However, it is
assumed that changes in openness, credibility,
average inflation, and wage-bargaining index
influence these country-specific parameters similarly,
through multiplicative terms.39 To capture
changes in inflation persistence over time, the
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
124
Table 3.6. Inflation in Advanced Economies: SUR
Estimates
Estimated Equation: &#960;it = ci (1 + &#966;Credibit)
+ &#945;i (1 + &#952;Credibit)&#960;it–1 + &#946;i (1
+ &#947;OpenDV
it + &#955;CredibDV
it + &#948;&#960;DV
it
––––
+ &#967;BargainDV
it )yit + &#949;it
Model (1) (2) (3) (4) (5)
ci (average) 0.010*** 0.013*** 0.011*** 0.010***
0.012***
&#966; –0.091 . . . –0.309* –0.105 –0.098
&#945;i (average) 0.768*** 0.641*** 0.774*** 0.763***
0.748***
&#952; –0.243*** . . . –0.232*** –0.241*** –0.275***
&#946;i (average) 0.223*** 0.312*** 0.217*** 0.237***
0.201***
&#947; –2.711*** –1.719* –1.915* –2.517*** –1.737+
&#955; –0.309 –0.154 . . . –0.225 . . .
&#948; . . . . . . 0.481 . . . . . .
&#967; . . . . . . . . . –0.233 . . .
Oil price
Current (average) 0.032*** . . . 0.026*** 0.032*** . .
.
Lagged (average) 0.020*** . . . 0.021*** 0.020*** . .
.
Import prices × import share
Current (average) . . . . . . . . . . . . 0.224***
Lagged (average) . . . . . . . . . . . . 0.122*
Time dummies No Yes No No No
Memorandum:
Inflation-output elasticity1
1960 0.26 0.31 0.35 0.27 . . .
1983 0.27 0.31 0.24 0.27 0.19
2004 0.17 0.24 0.19 0.17 0.16
Adjusted R2 (average) 0.823 . . . 0.812 0.817 0.726
Sample 1960–2004 1960–2004 1960–2004 1960–2004
1970–2004
Number of observations 333 333 284 333 278
Source: IMF staff calculations.
Notes: The inflation model was estimated for
Australia, Canada, Germany, France, Italy, Japan, the
United Kingdom, and the United States
using the Seemingly Unrelated Regressions estimator.
Credib stands for the monetary policy credibility
measure of Laxton and N’Diaye (2002);
Open denotes a country’s openness to trade; &#960; –
is the average inflation level; and Bargain is the
wage bargaining index of Elmeskov, Martin, and
Scarpetta (1998) and Nicoletti and others (2001). The
variables labeled DV are expressed as deviations from
the sample mean. Average refers to
the simple average of country-specific coefficients or
regression statistics. *** denotes statistical
significance at the 1 percent level; ** at the 5
percent level; * at the 10 percent level; and + at the
15 percent level.
1PPP-weighted average of the sample countries.
39Variables labeled DV denote deviations from the
sample mean. The equation also contains
contemporaneous and
lagged oil price changes to control for large
inflation shocks or, alternatively, import prices.
constant term and the coefficient on past inflation
depends on a measure of monetary policy
credibility detailed below.
&#960;it = ci (1 + &#966;Credibit) + &#945;i(1 +
&#952;Credibit)&#960;it–1
+ &#946;i(1 + &#947;OpenDV
it + &#955;CredibDV
it + &#948;&#960;DV
––––
it
+ &#967;BargainDV
it )yit + &#949;it.
The model is estimated over 1960–2004 using
an iterative Seemingly Unrelated Regressions
estimator. The starting values for the iterative
estimation are Least-Squares estimates of the system.
40 The inflation-output elasticity and inflation
persistence in Table 3.1 were calculated for
each country separately from specification (4) in
Table 3.6, using the country-specific coefficient
estimates and actual values of openness, credibility,
and other relevant variables. The advanced
country average is computed on the basis of
purchasing-
power-parity (PPP) weights.
The counterfactual simulations in Figure 3.8
indicate what inflation might have been in the
advanced economies if import prices evolved
over 1997–2005 in line with their historical
trend. The counterfactual simulations have two
versions. In Scenario A, real import prices are
assumed to be falling during 1997–2005 at the
sample average rate for each country—the
advanced economy average rate would be about
1 percent a year. The simulated inflation paths
are averaged into an advanced economy aggregate
using PPP weights. In an attempt to capture
the impact of globalization on inflation more
precisely, Scenario B removes the impact of oil
prices from Scenario A. Real import prices are
first decomposed into the contribution of oil
prices and non-oil commodities. The scenario
then assumes that the contribution of oil prices
to import price changes was the same as actual
values over 1997–2005 but the contribution of
non-oil commodities was at its historical average
rate for each country—or about 1.6 percent a
year for the advanced economy group average.
Variable Definitions and Data Sources
The variables of the inflation model are
defined below. The data sources are listed in
parentheses.
• Inflation, &#960;, is defined as the change in the
natural logarithm of annual consumer price
index (Eurostat; Haver Analytics; national
authorities, and World Economic Outlook).
• Output gap, y, is defined as the difference
between the natural logarithm of annual GDP
and the natural logarithm of its trend, calculated
by the Hodrick-Prescott filter with the
smoothing parameter of 100 (Haver Analytics;
World Economic Outlook; and IMF staff calculations).
These estimates of the output gap are
similar to the data published by, for example,
the OECD.
• Openness, Open, is defined as the share of
nominal non-oil exports and non-oil imports
in GDP (World Bank’s World Development
Indicators). The data on crude oil imports and
exports are from the database of International
Energy Agency.
• Monetary policy credibility, Credib, is calculated
using the formula of Laxton and
N’Diaye (2002):
(Rit – RHigh
i )2
Credibit = ––––––––––––––––––––––––,
(Rit – RHigh
i )2 + (Rit – RLow
i )2
where Rit denotes yield of long-term government
bonds in country i at time t (Haver
Analytics; IMF’s International Financial
Statistics; and IMF staff calculations); RHigh
i
denotes the maximum yield in country i over
the sample period; and RLow
i is calibrated at
5 percent in line with Laxton and N’Diaye
(2002). Since the credibility measure is calculated
from bond yields, it captures a variety
of factors. First, the bond yields reflect
expectations
about future inflation, and therefore
also the record of previous stabilization
policies and various institutional arrange-
APPENDIX 3.1. SAMPLE COMPOSITION, DATA SOURCES, AND
METHODS
125
40The estimation results are qualitatively similar
when lagged output gap instead of its contemporaneous
value is used as
a regressor or when the measures of openness and
credibility enter the model with a lag, or as a moving
average of their
historical values.
ments, including central bank independence,
transparency, and accountability. Second,
the risk premiums in the bond yields are
related to the fiscal performance and any
institutional commitment to low deficits or
debt. In the sample of advanced economies
analyzed here, it is likely that the credibility
measure mostly reflects behavior of inflation
expectations.
• Average inflation, &#960;–
, is calculated as the simple
average of actual inflation rates over t – 2, . . .,
t – 12.
• Oil price is expressed as the change in the
natural logarithm of the simple average of the
spot prices of the Brent, Dubai, and West
Texas Intermediate crude oil varieties (Source:
IMF’s Commodity Price System database).
• Import prices are measured using the import
price deflator (World Economic Outlook). The
inflation model incorporates this variable as
the change in the natural logarithm of the
real import price.41 The change in the real
import price is weighted by the import share
(including oil) to allow for time-varying
contemporaneous
impact of import prices on
inflation. Effectively, the persistence of import
price shocks is also allowed to vary over time—
to the extent that the coefficient on the inflation
lag depends on the credibility of
policymakers.
• Index of wage bargaining, Bargain, is a summary
measure of wage-setting centralization
and coordination by Elmeskov, Martin, and
Scarpetta (1998). The index reflects the proportion
of workers who are members of a
trade union, the level at which wages are
negotiated (aggregate, sectoral, or firm level),
and the degree of coordination between
employers and trade unions. The index ranges
from one (low) to three (high). The original
data set of Elmeskov, Martin, and Scarpetta
was updated by Nicoletti and others (2001).
Values of the index are assumed unchanged
during 2001–04.
Appendix 3.2. A Sectoral Perspective on
Globalization and Inflation
The main author of this appendix is Florence Jaumotte.
This appendix provides further details on the
data and their sources and the empirical strategy
used in the analysis of the relationship between
globalization and sectoral prices.
Variables and Their Sources
Most data used in the section are from the
OECD’s Structural Analysis (STAN) database.
The following are the main variables (from
STAN unless otherwise noted).
• Relative producer prices. The relative producer
price of a sector is the producer price of the
sector scaled by the overall producer price.
Producer prices are defined by the ratio of the
value of production at current prices and the
volume of production in a sector. The value of
production includes the cost of intermediate
inputs.
• Import ratio. This variable is the ratio of the
import value to the value of production in a
sector. The imports referred to are those produced
by foreign producers in the same sector
and not the imports of intermediates by
domestic producers in the sector. For services,
import data are from the OECD’s Statistics of
International Trade in Services and include, in
addition to traditional measures of imports,
the services performed by foreign affiliates
established and temporary workers posted in
the country when available.
• Labor productivity. This variable is defined as a
ratio of the volume of production in a sector
to the number of employees. When data on
the number of employees were incomplete,
they were spliced using growth rates from total
employment (including self-employed and
unpaid family workers).
• Components of unit costs. The nominal value of
production by definition equals the sum of the
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
126
41Using real rather than nominal changes is consistent
with the theoretical literature (e.g., Ball and
Mankiw, 1995).
However, estimation results are similar when the
nominal changes are used.
costs of intermediates, costs of labor, gross
operating surplus and net taxes.42
PY = PIMIM + PLL + GOS + TAXN,
where P denotes the producer price and Y the
production volume; PIM is the price of intermediates
and IM is the volume of intermediates;
PL is the nominal compensation per
employee and L is the number of employees;
and GOS is the gross operating surplus and
TAXN represents the net taxes. Accordingly,
the producer price equals the sum of the unit
intermediate cost, the unit labor cost, the unit
gross operating surplus, and the unit net tax.
P = PIM(IM/Y) + PL(L/Y) + GOS/Y + TAXN/Y
= UIC + ULC + UGOS + UTAXN.
• Changes in unit costs. The change in producer
prices is by definition a weighted average of
the changes in the various cost components,
where the weights are the shares of the respective
unit cost components in the producer
price.
dP/P = (dUIC/UIC)(UIC/P)
+ (dULC/ULC)(ULC/P)
+ (dUGOS/UGOS)(UGOS/P)
+ (dUTAXN/UTAXN)(UTAXN/P).
In Table 3.4, the contribution of unit cost
components to producer price inflation is
defined as the product of the change in the unit
cost component and its share in total unit costs.
The sectoral classification is based on the
International Standard Industrial Classification
(ISIC), Revision 3. Most of the econometric
analysis uses a disaggregation of the sectors at
the two-digit level for manufacturing (depending
on data availability) and at the single-digit
level for business services. The descriptive analysis,
on the other hand, distinguishes various
broad aggregate sectors (Table 3.7).
• Manufacturing versus business services.
• High-tech, medium-tech, and low-tech. This
distinction
is based on the intensity of R&D in
the sector and follows the OECD classification.
For technical reasons, the definition of the
APPENDIX 3.2. A SECTORAL PERSPECTIVE ON GLOBALIZATION
AND INFLATION
127
Table 3.7. Classification of Sectors by Technological
and Skill Intensity
High-Skill Low-Skill Not Classified
Manufacturing
High-tech Chemicals Machinery
Electrical and optical equipment Motor vehicles
Other transport equipment
Medium-tech Refined petroleum Plastics
Minerals
Basic metals
Fabricated metals
Low-tech Publishing Food Other manufacturing
Textile
Leather
Wood
Paper
Business services Trade Hotels and restaurants
Telecoms Transport
Finance
Other business activities
Other sectors Utilities Construction
Sources: OECD; and IMF staff estimates.
42The net tax is a partial measure calculated as the
difference between the value of production and the sum
of the cost
of intermediates, the cost of labor, and the gross
operating surplus (which includes the consumption of
fixed capital).
When data for the gross operating surplus were not
available, the variable was calculated using tax
adjustment factors prepared
by the OECD.
high-tech category used in this chapter
includes both high-tech and medium hightech
sectors while medium-tech refers to
medium low-tech sectors.
• High-skill and low-skill. This distinction is based
on the fraction of skilled labor in the employment
of a sector, where a person is considered
skilled if he or she has at least upper secondary
education. Data on the average fraction of
skilled labor in each sector (across 16 OECD
countries from 1994 to 1998) are taken from
Jean and Nicoletti (2002). The threshold
between high-skill and low-skill sectors was put
at 20 percent of skilled employment in order
to achieve a rough balance between the number
of observations in high-skill and low-skill
sectors in the overall economy (40 percent
versus 60 percent).
Advanced economies with coverage from 1987
to 2003 include Austria, Denmark, Finland,
France, Germany, Italy, Japan, Korea, Luxembourg,
Norway, and the United States. Data are
also available for shorter periods of time for
Belgium and Greece. The descriptive analysis is
based on the 11 countries for which coverage
over time is similar.
Econometric Analysis
This part of the appendix provides details on
the specification of the various equations
reported in the main text and the econometric
methodology. It also presents additional results
on the relationship between sectoral inflation
and sectoral import prices, as well as on the
effect of trade openness on cost components
other than unit labor costs.
Sectoral Inflation and Globalization
The econometric analysis of the relationship
between inflation and globalization at the sectoral
level is based on the following variant of
Chen, Imbs, and Scott (2004),
pijt – pit = &#945;(my)ijt + &#946;(yl)ijt +
&#947;j($xr)it
+ &#951;i + &#956;j +&#950;it + &#958;jt + &#949;ijt ,
(1)
where the subscript j denotes the sector; the
subscript
i the country; and the subscript t the time
period. The variables are defined as follows: p is
the logarithm of the producer price; my represents
the logarithm of the import-to-production
ratio; yl is the logarithm of average real
productivity
per employee; $xr represents the nominal
local currency to U.S. dollar exchange rate; &#951;
are the country fixed effects and &#956; are sector
fixed effects. Sectoral price levels are scaled by
the overall producer price to account for the
influence of monetary policy and the fact that in
the long-run price levels are determined by
monetary policy. The relative price of a sector is
allowed to depend on the sectoral import ratio,
sectoral labor productivity, and an interaction
term between a sectoral dummy and the local
currency to U.S. dollar exchange rate. The latter
captures the impact that exchange rate fluctuations
exert on sectoral producer prices through
the price of imported intermediates in the sector.
This effect is allowed to vary across sectors
because the share of imported intermediates differs
across sectors. Finally, the specification controls
for country and sector fixed effects and
time trends. Among other things, sector fixed
effects control for important sectoral differences
in technological intensity, skill intensity, and
degree of differentiation of products.
The equation is estimated in first differences
using a two-step feasible generalized method of
moments estimator instrumenting for the
changes in the import ratio given concerns
about their endogeneity.43 The list of instruments
used is as follows:
• A measure of how close (geographically) the
country is from the large producers in a sector
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
128
43There are two sources of possible bias in the
estimates. On the one hand, high producer price
inflation in a sector lowers
competitiveness and increases the import ratio,
inducing an upward bias in the estimates. On the other
hand, high producer
price inflation in a sector could trigger stronger
protectionism, thereby reducing the import ratio and
imparting a
downward bias on the estimates.
at a point in time: for each country, this variable
is constructed as a weighted sum of the
shares of the other countries in the “world”
production of a sector (excluding the country’s
production), where the weights are the
inverse distances between the country and the
other producers.
• The nominal effective exchange rate, which
captures the countrywide evolution in import
prices and competitiveness and affects directly
each sector’s import-to-production ratio.
A relevant and valid set of instruments comprising
various lags of the difference and level of
these two variables was identified based on the
Anderson likelihood-ratio test of relevance of
the instruments and the Hansen-Sargan test of
validity of the instruments (as implemented in
Stata, a data processing software).
Equation (1) is estimated first for 16 manufacturing
subsectors and then for all 16 manufacturing
sectors jointly with six business services
sectors.44 Two different samples of countries and
years are used: one with the maximum number
of countries and years available, and another
one restricted to the countries and years
included in the descriptive analysis of sectoral
inflation patterns. The maximum sample covers
the period 1977–2003 and the following 11
OECD countries: Austria, Belgium, Denmark,
Finland, France, Greece, Italy, Japan, Norway,
the United Kingdom, and the United States
(Germany does not report production volumes
and Korea does not provide labor productivity
data for most of the two-digit level subsectors of
manufacturing).45 The results are robust when
the sample excludes Belgium and Greece and is
restricted to the period 1988–2003 to match the
sample used in the descriptive analysis. Results
are reported in Table 3.3. Variables have the
expected sign and are significant, generally at
the 5 percent level.46 The magnitude of the
coefficients
is also broadly similar to that found by
comparable studies.47
IMF staff also explored the relationship
between changes in relative producer prices and
changes in the price of imported goods in that
sector. This relationship is the price dual of the
relationship between sectoral relative prices and
quantities of imported goods in the sector
(Gamber and Hung, 2001). Sectoral import
prices, which are only available for manufacturing
sectors, are based on unit values of imports
of products classified under the sector.48 The
specification is the same as equation (1) except
that changes in the sectoral import ratio are
replaced by changes in sectoral import prices.
An equation including both changes in the sectoral
import ratio and changes in sectoral
import prices is also estimated. The estimation
method and the samples are the same as before
and the instrumental variables are again chosen
based on validity and relevance. Results reported
in Table 3.8 show that changes in relative producer
prices are positively and significantly
related to import price inflation, confirming that
import price developments constrain the ability
of domestic producers to raise prices. Specifically,
a 1 percent change in import prices is associated
with a 0.15 percent change in producer
prices. These estimates are close to those found
by Gamber and Hung (2001) for the United
States. Finally, the model that includes both
changes in the import ratio and import price
inflation lead to coefficients that are similar in
APPENDIX 3.2. A SECTORAL PERSPECTIVE ON GLOBALIZATION
AND INFLATION
129
44As in the descriptive analysis, the refined
petroleum sector is excluded because its behavior is
strongly influenced by oil
price developments.
45The period covered varies across sectors and
countries depending on data availability, and the
panel data set is thus
not balanced.
46Although not reported, the results are also robust
when IT sectors such as electrical and optical
equipment and telecommunication
services are excluded. Allowing for endogenous labor
productivity growth in the estimation yields similar
results,
although the negative effect of productivity growth on
sectoral price changes becomes somewhat larger in
magnitude.
47See, for example, Chen, Imbs, and Scott (2004) for
the effect of the import ratio and labor productivity
on sectoral
inflation in a sample of European countries.
48This measure does not control for composition
changes within lines of products and quality
improvements, but it is a
widely used proxy measure. The main source is the
United Nations’ Comtrade database.
magnitudes and significance. Overall, therefore,
the impact of globalization on producer price
does not depend on a specific model or a specific
variable to measure globalization.
Sectoral Unit Labor Cost Changes
and Globalization
The econometric analysis of the relationship
between globalization and unit labor cost
(denoted as ulc below) changes at the sectoral
level is based on a similar specification as equation
(1), except for the exchange rate term,
which is not needed:
dulcijt – dulcit = &#945;(dmy)ijt + &#946;(dylijt –
dylit)
+ &#950;i + &#958;j + &#949;ijt – &#949;ijt–1. (2)
In order to gain a better understanding of
the effects at work, similar equations are estimated
for the two components of unit labor
cost changes, namely changes in labor compensation
per employee (plab) and changes in productivity
per employee (labor productivity,
denoted as yl),
dplabijt – dplabit = &#945;(dmy)ijt
+(&#946; + &#947;Mijt)(dylijt – dylit)
+ &#950;i + &#958;j + &#949;ijt – &#949;ijt–1 (3)
dylijt – dylit = &#945;(dmy)ijt + &#950;i + &#958;j +
&#949;ijt – &#949;ijt–1. (4)
These equations allow one to estimate separately
the direct effect of the import ratio on
labor compensation (or unit labor costs)—
controlling for labor productivity—and its
indirect effect through labor productivity.
Equation (3) also allows the elasticity of the
relative price of labor to the relative productivity
to depend on the level of the import ratio
(denoted as Mijt) in order to test whether
globalization
affects the extent to which productivity
changes are translated into labor compensation
changes.
Equations (2), (3), and (4) are estimated
using a two-step feasible generalized method of
moments estimator instrumenting for the
changes in the import ratio and, in equations
(2) and (3), for the changes in relative productivity.
The instrumental variables used are the
same as before and the specific lags included
were selected using tests of the relevance and
validity of the instruments.49 Results of the
estimation
are reported in Table 3.5 and are robust
to restricting the sample to countries covered in
the descriptive analysis and reducing the period
covered to 1987 onwards.
Finally, it is also of interest to examine the
effect of globalization, as measured by increases
in the import ratio, on changes in unit intermediate
costs (uic) and changes in the unit gross
operating surplus (ugos). The following two
CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
130
Table 3.8. Impact of Changes in Import Prices on
Relative Producer Price Inflation1
_____D__e_p_e_n_d_e_n_t _V_a_r_ia_b_l_e_:
_C_h_a_n_g_e_s_ i_n_ _R_e_la_t_iv_e_ _P_r_o_d_u_c_e_r
_P_r_ic_e_s_ _in_ _M_a_n_u_f_a_c_t_u_ri_n_g_
S__e_c_to_r_s_ (_1_6_)_2_____
_______________P_ri_c_e_ v_e_r_s_io_n_______________
_________P_r_i_ce_ _a_n_d_ _q_u_a_n_ti_ty_
_v_e_rs_i_o_n_________
1981–2003 1988–2003 1981–2003 1988–2003
(all countries available) (core countries)3 (all
countries available) (core countries)3
Change in import prices 0.16*** 0.15*** 0.12***
0.25***
Change in import share . . . . . . –0.12** –0.19**
Change in labor productivity –0.08*** –0.09***
–0.11*** –0.13***
Source: IMF staff calculations.
1All variables are in natural logarithms. The
equations are estimated by two-step feasible
generalized method of moments instrumenting for
changes in import prices and changes in the import
share. Other control variables include the dollar
exchange rate interacted with sectoral dummies
(effect through cost of intermediates), and sectoral
and country dummies. *** denotes statistical
significance at the 1 percent level; ** at
the 5 percent level.
2The refined petroleum sector is excluded from the
regressions because its behavior is strongly affected
by oil price developments.
3Restricted to countries used in the descriptive
analysis of sectoral inflation patterns.
49For equation (3), the lagged relative productivity
growth was used as an additional instrument.
equations are estimated using the same estimation
and instrumentation methods as above:
duicijt – duicit = &#945;(dmy)ijt + &#947;j(d$xr)it
+ &#950;i + &#958;j + &#949;ijt – &#949;ijt–1
dugosijt – dugosit = &#945;(dmy)ijt + &#950;i +
&#958;j + &#949;ijt – &#949;ijt–1.
The results reported in Table 3.9 suggest that
increases in trade openness also contributed to
reduce increases in unit intermediate costs,
while the effect on changes in the unit gross
operating surplus is not significantly estimated.
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CHAPTER III HOW HAS GLOBALIZATION AFFECTED INFLATION?
134
Two striking changes have taken place in
the global financial landscape in recent
years. First, reflecting a combination of
low investment and—more recently—
strong revenues from oil exports, emerging
market and oil-exporting countries have
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to industrial countries (notably the United
States), the opposite of what would be predicted
by economic theory (see Chapter II of the
September 2005 World Economic Outlook).
Second, since the bursting of the equity market
bubble in the early 2000s, companies in many
industrial countries have moved from their traditional
position of borrowing funds to finance
their capital expenditures to running financial
surpluses that they are now lending to other sectors
of the economy.
The large current account surplus in emerging
market (and, more recently, oil-producing)
countries has been labeled a global “savings
glut,” and advanced as a reason why the United
States has been able to finance a record high
current account deficit at low interest rates
(Bernanke, 2005). Yet, the $1.3 trillion of corporate
excess saving (undistributed profits less capital
spending) in the Group of Seven (G-7)
countries in 2003–04 was more than twice the
size of the accumulated current account surpluses
of emerging market and developing countries
during those two years. The recent behavior
of the corporate sector—which until recently has
received much less attention—could therefore
be an equally important contributor to the relatively
low level of global long-term interest rates
at a time of a ballooning U.S. current account
deficit (J.P. Morgan, 2005).
Against this background, this chapter assesses
the recent behavior of the corporate sector in
the G-7 countries. It asks why the strong increase
in profits has been used by nonfinancial corporates
to acquire financial assets—including a substantial
amount of liquid assets (“cash” for short)
during 2003–04—or to repay debt, rather than
to finance new capital investments or to increase
distributions to shareholders through
dividends.1 Specifically, three questions are
considered:
• What has been driving the recent increase in
excess saving of companies in industrial
countries?
• Are there significant cross-country differences
in corporate behavior?
• Is the increase in excess saving a temporary or
more permanent phenomenon?
In addressing these questions, the chapter
explicitly looks at the interaction between real
135
CHAPTER IV
AWASH WITH CASH: WHY ARE CORPORATE
SAVINGS SO HIGH?
Companies, which normally borrow other folks’ savings
in order to invest, have turned thrifty.
Even companies enjoying strong profits and cash flow
are building cash hoards, reducing debt
and buying back their own shares—instead of making
investment bets.
—David Wessel, Wall Street Journal, July 21, 2005
The main authors of this chapter are Roberto
Cardarelli and Kenichi Ueda, with support from
Vojislav Maksimovic. Ben
Sutton provided research assistance.
1In the chapter, “cash” refers to currency and
deposits plus short-term securities (including
treasury bills, commercial
paper, and certificates of deposits). Data
availability does not allow for the inclusion of bank
lines of credit, which can be a
viable liquidity alternative to cash, especially for
profitable firms (Sufi, 2006).
and financial decisions of the corporate sector.
For example, are recent financial surpluses simply
a residual decision, left after firms have made
their capital spending plans, or have they been
shaped by balance sheet considerations (e.g., the
need to reduce high debt levels) or other factors
(including a firm’s desire to insure against the
increased volatility it may face in an increasingly
globalized corporate environment)?
What Has Been Driving the Increase in
Corporate Excess Saving?
Since the 1980s, the corporate sector of the
G-7 economies has swung from being a large net
borrower of funds from other sectors of the
economy to a net lender of funds. Indeed, on
average over 2002–04, the excess saving (or “net
lending”) of the corporate sector—defined as
the difference between undistributed profits
(gross saving) and capital spending—was at a
historic high of 2!/2 percent of GDP in the G-7
countries (Figure 4.1). This behavior has been
widespread, taking place in economies that have
experienced strong economic growth (Canada,
the United Kingdom, and the United States)
and in those where growth has been relatively
weak (Europe and, until recently, Japan). Most
of these economies, however, were affected by
the boom-and-bust cycle in equity valuations in
the late 1990s–early 2000s, which left corporations
with high debt levels.
In all of the G-7 countries, higher corporate
excess saving (or lower net borrowing in France
and Italy) in recent years has partly offset—and
in some cases more than balanced—the increase
in net borrowing by other sectors of the economy.
In the United States—where the current
account deficit has widened further in recent
years—higher corporate excess saving has offset
one-half of the increase in government and
household net borrowing, thereby helping to
mitigate the impact on the external deficit (see
Box 4.1 for a discussion of the link between corporate
and household saving).
A number of factors have driven this change
from net borrower to net lender status:
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
136
Figure 4.1. Group of Seven (G-7), Excluding
Germany: Gross Saving, Capital Spending, and
Net Lending/Borrowing
(Percent of total GDP)
Sources: Eurostat; national authorities; and IMF staff
calculations.
GDP-weighted averages using GDP in U.S. dollars at
market exchange rates.
1980 82 84 86 88 90 92 94 96 98 2000 02 04
6
7
8
9
10
11
12
13
-5
-4
-3
-2
-1
0
1
Nonfinancial Corporate Sector 2
1980 82 84 86 88 90 92 94 96 98 2000 02 04
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1980 82 84 86 88 90 92 94 96 98 2000 02 04
6
7
8
9
10
11
12
13
14
15
-5
-4
-3
-2
-1
0
1
2
3
4
Financial Corporate Sector
Total Corporate Sector
Net lending (right scale)
Gross saving (left scale)
Capital spending (left scale)
Total corporate net lending was at a historical high
on average during 2002–04,
driven by the turnaround in the position of
nonfinancial corporates.
1
1
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
137
In stark contrast to the secular decline in
household saving, corporate saving in the G-7
countries has increased strongly over the last
decade, and now accounts for about 70 percent
of total private (household plus corporate) saving,
compared to 50 percent in the early 1990s
(first figure). The strong increase in corporate
saving at a time of historically low household
saving is a reminder that household and corporate
saving decisions are inherently linked. This
box discusses this link from two perspectives:
• From economic theory, since households own
corporations and should adjust their saving
plans—or “pierce the corporate veil”—to offset
the saving done by corporates on their
behalf (Poterba, 1987; and Auerbach and
Hassett, 1991).
• From a definitional standpoint, because there
are several questions about the demarcation
between household and corporate saving in
the national accounts, and several alternatives
are available that could be more relevant and
appropriate for economic analysis (Gale and
Sabelhaus, 1999).
Do Households Pierce the Corporate Veil?
The argument that households may offset
changes in corporate saving can be illustrated
with a simple example. Suppose a corporation
decides to increase its saving—that is, to retain
earnings rather than distribute them as dividends—
sophisticated shareholders should
understand that their net worth has increased
(through the increase in the market value of
equity) and reduce their savings to re-establish
their optimal life-cycle consumption.
However, a variety of factors related to constraints
on consumer and corporate financial
behavior may in practice lead to the imperfect
substitutability between personal and corporate
saving (Bernheim, 2002). In particular:
• Consumers may have a lower marginal
propensity to save out of an increase in wealth
rather than out of disposable income (which
would increase if retained earnings were distributed
as dividends). For example, they may
be liquidity constrained, or they may tend to
perceive capital gains as transitory.
• Even in the absence of liquidity constraints
and myopic behavior, and with individuals
successfully piercing the corporate veil, exogenous
shocks that redistribute wealth from
individuals to corporations may increase
aggregate savings if shareholders have a
higher propensity to save than do other consumers.
• The value of the firm may not change dollarto-
dollar with retained earnings, reflecting
problems in corporate governance and imperfect
observability of new investment projects.
For example, if managers invest retained earnings
in projects yielding below-market returns,
then share values will grow by less than the
increase in retained earnings (Jensen, 1986).
Box 4.1. Drawing the Line Between Personal and
Corporate Savings
1970 75 80 85 90 95 2000
0
4
8
12
16
20
24
Private, Corporate, and Household Gross
Saving Ratios in the G-7
(Percent of GDP)
Sources: OECD; Eurostat; and national authorities.
GDP-weighted averages using GDP in U.S. dollars at
market
exchange rates.
Private
Household
Corporate
1
1
04
Note: The main author of this box is Roberto
Cardarelli.
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
138
The opposite would happen if retained earnings
were to be invested in high-yielding projects
that would have been more difficult or
costly to finance through financial markets,
due to asymmetry of information.
Ultimately, the degree of substitutability
between corporate and household saving is an
empirical question. The few empirical analyses
available tend to show that the “piercing of the
corporate veil” is incomplete, which is consistent
with the declining trend in private savings
shown in the first figure (i.e., corporate saving
has not risen sufficiently to completely offset the
decline in household saving in recent years). As
an example, Poterba (1987) finds that for the
United States a $1 increase in corporate saving
is likely to increase total private saving by about
$0.25–0.50, as households reduce their saving by
$0.50–0.75.1
The Definition of Corporate Savings in the
National Accounts
Turning to the definition of corporate saving
in the national accounts, two adjustments need
to be considered to make the data more economically
meaningful. First, retained earnings
do not include inflationary gains on nominal
debt, which were large during the high inflation
decades of the 1970s and 1980s. In particular, as
part of nominal interest payments is effectively a
repayment of principal (reflecting the inflationdriven
erosion of the real value of interest bearing
assets), it could be argued that this should be
included in corporate saving (Auerbach, 1982;
and Poterba, 1987). Making such an adjustment
eliminates the upward trend in the G-7 gross corporate
saving ratio and cuts the average net borrowing
by the G-5 (excluding Germany and
Italy) nonfinancial corporations in the 1980s by
about one-half (second figure). As discussed in
the main text, however, even with this adjustment,
nonfinancial corporate sector (NFCS)
excess saving in these countries has still been at a
historical high during the last two years.
A second adjustment concerns the treatment
of pension plans. In the national accounts, all
employer-sponsored pension funds are classified
as the property of households, so that employer
contributions and the interest and dividend
earnings are counted as part of household
income and thus savings in the year in which
they occur. While this treatment seems reasonable
for defined contribution plans, it may not
be appropriate for defined benefit plans, as
Box 4.1 (concluded)
Group of Seven (G-7), Excluding Germany
and Italy: Nonfinancial Corporate Sector
(Percent of GDP)
03
1980 84 88 92 96 2000 03
6
7
8
9
10
11
-5
-4
-3
-2
-1
0
1
2
1980 84 88 92 96 2000
6
7
8
9
10
11
-5
-4
-3
-2
-1
0
1
2
Sources: Eurostat; national authorities; and IMF staff
calculations.
GDP-weighted averages using GDP in U.S. dollars at
market
exchange rates.
1
Gross saving
(left scale)
Net lending
(right scale)
Net lending
(right scale)
Gross saving
(left scale)
Adjusted
Unadjusted
1
1Auerbach and Hassett (1991) show that predictable
changes in dividends and other forms of capital
income do not affect consumption, suggesting that no
corporate veil exists. However, they also find that
wealth-neutral transfers from corporations to
individuals
would increase aggregate consumption via
distributional
effects, owing to the heterogeneity in
consumption behavior and a lower marginal propensity
to consume out of changes in wealth.
• First, financial corporations have been registering
positive and increasing excess-saving
positions since the early 1990s. The developments
in the financial sector are related to
structural factors that are specific to financial
institutions and are thus likely to be part of a
longer-term trend (see Box 4.2).
• Second, the nonfinancial corporate sector
(NFCS) has turned around more recently to
become a net lender (and has largely driven
the recent behavior of the overall corporate
sector). Part of this turnaround reflects the
decline in interest payments that has taken
place as nominal interest rates have fallen with
inflation. Even after adjusting for inflation,
however, the excess-saving position of the
NFCS in the G-7 countries in recent years
stands out as an unusual phenomenon from a
historic perspective.
Given the importance of the NFCS in driving
the behavior of the overall corporate sector, and
because the behavior of the financial sector
appears to be driven by factors specific to that
sector, the rest of the chapter focuses on the
NFCS.
The aggregate trends in the NFCS in the
G-7 countries do mask differences across countries
(Figure 4.2). While NFCS excess saving
has recently reached a historic high in Canada,
the United Kingdom, and the United States
(and Germany and Japan, when large one-off
capital transfers from the government to the
nonfinancial corporate sector in 1995 and
1998 are excluded), the nonfinancial corporate
sectors in France and Italy have remained net
borrowers.2
A range of complex and interrelated factors
have likely driven recent NFCS behavior, and
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
139
employees do not have the right to all funds
that accrue to these plans, but only to the
stream of pension benefits deriving from a formula
that typically depends on salaries and years
of service.
This treatment of pension plans appears to
have been particularly important in the 1990s
when a strong stock market and high interest
rates reduced the contributions companies
needed to make in order to meet their defined
benefit pension obligations. This contributed
negatively to household savings and positively to
corporate savings, with Lusardi, Skinner, and
Venti (2003) estimating that around 40 percent
of the 5 percentage points of GDP fall in the
U.S. household saving rate between 1988 and
2000 is explained by the accounting of pension
inflows and outflows. More recently, though, the
acceleration of employer pension contributions
after the decline in the stock market in the early
2000s suggests that defined benefit pension
schemes may have been adding to personal saving
and subtracting from corporate saving.
Finally, there is one last definitional issue to
be considered. While both dividend payments
and share repurchases involve channeling funds
from the corporate to the household sector,
only the former is considered as a form of corporate
“dissaving” in the national accounts. The
reason is that, consistent with economic theory,
transactions that involve exchanging one asset
for another (cash against equity) do not alter
the amount of income that is available to fund
capital accumulation—that is, saving. Still, in the
presence of liquidity constraints and/or agency
issues discussed above, which prevent households
from completely “piercing the corporate
veil,” any channeling of resources to the household
sector may increase personal consumption
and reduce private sector saving.
2For Germany, the massive capital transfer reflected
the assumption by the federal government of the debt
of the
Treuhandanstalt, the trust fund created to privatize
some 8,500 state-owned enterprises in the former
German Democratic
Republic (East Germany). For Japan, the capital
transfer derived from the assumption by the central
government of the
debt of the Japan Railway Settlement Corporation
before its privatization.
these have not only differed in importance over
time and between countries, but have also varied
between companies and sectors in the same
country. The remainder of this section discusses
some of the broad factors that appear to explain
the recent increase in NFCS net lending, including
whether it has largely been driven by real
sector developments—profitability and investment
decisions—or by financial considerations,
such as the desire to repay debt.
A Sustainable Increase in Profits?
One factor behind the increase in NFCS
excess saving since 2000 has been the strong
rise in profitability (earnings after interest and
tax, as a percent of GDP) that has underpinned
higher corporate saving despite an increase in
dividends paid (Table 4.1). This increase has
been particularly striking in Germany and
Japan. In Italy, however, profits have declined
sharply—indeed, corporate saving has declined
in both France and Italy, in the former due to
a rise in dividend payments. A closer examination
reveals that the increase in profits is
mainly due to lower tax and interest payments
and, in some countries, to higher profits
received from foreign operations, rather than
to a rise in gross operating surplus.3 Indeed,
gross operating surplus has fallen in France,
Italy, and the United Kingdom, while in Japan
and the United States—where the NFCS gross
operating surplus as a share of GDP has risen
sharply over the recent past—the increase
does not appear to be out of line with previous
cyclical episodes (Figure 4.3). Only in Germany
has operating profitability reached a high over
the sample period (which starts from the
1990s), reflecting the restructuring that has
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
140
1970 75 80 85 90 95 2000
5
6
7
8
9
10
11
-5
-4
-3
-2
-1
0
1
2
3
1980 84 88 92 96 2000 04
4
8
12
16
20
24
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
1970 75 80 85 90 95 2000
4
6
8
10
12
14
-5
-4
-3
-2
-1
0
1
2
3
4
1991 94 97 2000 03
2
4
6
8
10
12
14
-8
-6
-4
-2
0
2
4
6
1980 84 88 92 96 2000 04
0
4
8
12
16
20
24
-20
-16
-12
-8
-4
0
4
1978 82 86 90 94 98 2002
4
6
8
10
12
14
-8
-6
-4
-2
0
2
1970 75 80 85 90 95 2000
4
6
8
10
12
14
16
-8
-6
-4
-2
0
2
4
6
Germany Italy
France
Figure 4.2. Nonfinancial Corporate Sector: Gross
Saving,
Capital Spending, and Net Lending/ Borrowing
(Percent of GDP)
Japan United Kingdom
Sources: Eurostat; national authorities; and IMF staff
calculations.
Net lending/borrowing
(right scale)
Gross saving
(left scale)
Capital spending
(left scale)
Canada
United States
Over the recent past, net lending has been especially
high in the United States, the
United Kingdom, Canada, and in Japan and Germany
(excluding the official capital
transfers in 1998 and 1995, respectively).
Nonfinancial corporates in France and Italy
were still in a net borrowing position.
04
04
04
04
04
3The decline of corporate tax payments since 2000 may
be partly the consequence of the economic cycle (tax
receipts may have also been reduced by corporates
carrying
forward the losses from the economic downturn in
2001) but it is also the effect of the general decline
in
statutory corporate income tax rates in the G-7
economies
over the last decade (KPMG, various issues; and
European
Commission, 2005).
occurred in the corporate sector mainly
through a sharp reduction in wage costs
(Schumacher, 2005).4
Declining Capital Spending: A “Real” Story?
While higher profits explain part of the rise in
NFCS excess saving in recent years, the decline
in nominal capital spending explains around
three-quarters of the increase in NFCS net lending
since 2000 in the G-7 countries. Simply put,
firms have been investing a smaller share of
their profits in upgrading and expanding their
capital stock. A key question in trying to understand
corporate behavior is whether this decline
in investment spending is simply a short-term
reaction to the high corporate debt levels of the
early 2000s.
Empirical evidence certainly suggests that
high-leverage positions may have a substantial
negative impact on investment activity, with a
financial accelerator mechanism crimping
investment through the decline in firms’ net
worth and collateral.5 Nevertheless, there has
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
141
Table 4.1. Nonfinancial Corporate Sector: Change in
Selected Variables
(Percent of GDP)
Gross
Operating Net Profits After
Surplus Property Interest Net Interest Dividends Gross
Capital Net
(adjusted)1 Income2 Paid Taxes and Taxes Paid Savings
Spending3 Lending
(1) (2) (3) (4) (5 = 1 + 2 – 3 – 4) (6) (7 = 5 – 6)
(8) (9 = 7 – 8)
2004 less 2000
Canada . . . . . . . . . . . . . . . . . . 1.8 –1.5
3.3
France –0.2 0.9 –0.1 –0.3 1.1 1.6 –0.5 –1.1 0.6
Germany 1.6 –0.5 –0.4 –0.7 2.2 –0.2 2.5 –4.6 7.1
Italy –1.5 –0.5 –0.2 0.4 –2.1 –0.9 –1.1 –1.7 0.5
Japan 1.7 0.4 –1.3 — 3.4 0.9 2.5 –1.6 4.1
United Kingdom –1.2 1.1 — –0.5 0.4 –0.7 1.1 –1.8 2.9
United States 0.3 –0.1 –0.5 –0.3 1.1 0.4 0.7 –2.1 2.8
G-74 0.4 0.3 –0.6 –0.3 1.6 0.9 0.8 –2.2 3.0
2004 less mid-1990s5
Canada . . . . . . . . . . . . . . . . . . 3.6 0.6 2.9
France –0.3 2.6 –1.5 0.3 3.5 3.1 0.4 1.2 –0.8
Germany 3.3 0.3 –0.6 0.1 4.0 3.3 0.8 –1.4 2.2
Italy –1.6 — –1.5 –0.4 0.3 0.3 –0.1 1.2 –1.3
Japan 1.8 0.4 –3.8 –0.5 6.5 1.0 5.6 –0.7 6.3
United Kingdom –2.1 1.3 0.4 –0.4 –0.8 –1.3 0.5 –0.2
0.7
United States –0.4 0.3 –0.1 –0.5 0.5 0.6 –0.1 –0.8 0.7
G-74 –0.3 0.7 –1.3 –0.4 2.1 1.3 1.0 –0.9 1.9
Sources: Eurostat; national statistical sources; and
IMF staff calculations.
1Gross operating surplus is defined as gross value
added less compensation of employees and taxes on
production and imports, net of subsidies.
Adjusted gross operating surplus adds net rents and
current transfers to gross value added, and includes
social benefits other than social
transfers in kind less social contributions received
in compensation of employees.
2Property income includes net reinvested earnings on
direct foreign investment, dividends received, and
property income attributed to insurance
policyholders, and subtracts the adjustment for the
change in net equity of households in pension fund
reserves.
3Includes gross fixed capital formation, change in
inventories, capital transfers, and acquisition of
nonfinancial nonproduced assets.
4GDP-weighted average.
5Mid-1990s is average of 1994, 1995, and 1996 values.
Germany data on capital spending were corrected for
the 1995 capital transfer
referred to in footnote 2.
4This does not preclude the possibility that
structural factors could boost NFCS operating
surpluses going forward in
other countries, particularly if strong productivity
growth (especially in the United States) and subdued
wage developments
(especially in European countries) continue to
compress unit labor costs (which were flat on average
in 2002–04 in
the G-7 economies, compared to an average 1!/2 percent
growth rate over the previous seven years).
5See “When Bubbles Burst,” Chapter II in the April
2003 World Economic Outlook; and Jaeger (2003). At
least in some
countries, increased caution on capital spending and
heavier reliance on internal resources may also
reflect the fallout for
the cost of capital and market confidence from the
corporate accounting and governance scandals of the
early 2000s.
also been a longer-term downward trend in the
relative price of capital goods. Firms now have
to invest less in nominal terms to achieve a
given real investment rate. Indeed, while capital
spending measured in current prices has
declined in all the G-7 countries since 2000, in
real terms the trends have been more variable.
The real capital spending of the NFCS has
increased in Canada, remained broadly constant
in the United Kingdom, and picked up strongly
over the last two years in France, Japan, and
Italy, where it is almost back to the levels in
2000. Germany and the United States are exceptions,
as the fall in the NFCS real investment
ratio in these two countries has been more pronounced.
6 For the G-7 as a whole, about onehalf
of the decline in the nominal investment
ratio is due to the decline in relative prices of
capital goods.
Overall, therefore, the subdued level of NFCS
nominal capital spending may not simply be a
reaction to the “excesses” of the late 1990s.7
Indeed, IMF staff estimates suggest that the
behavior of real investment ratios in the industrial
countries in recent years is relatively well
explained by a set of basic economic fundamentals,
although real investment ratios are still currently
below what an econometric model would
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
142
1970 75 80 85 90 95 2000
7
8
9
10
11
12
13
14
15
1980 84 88 92 96 2000 04
0
5
10
15
20
25
30
35
40
45
1980 84 88 92 96 2000 04
8
10
12
14
16
18
20
22
24
26
1991 93 95 97 99 2001 03
10
12
14
16
18
20
22
24
1978 82 86 90 94 98 2002
6
8
10
12
14
16
18
1987 90 93 96 99 2002
10
12
14
16
18
20
22
24
Italy Japan
France Germany
Figure 4.3. Nonfinancial Corporate Sector: Gross
Operating Surplus and Profits
(Percent of GDP)
While profits (after taxes and interest) were on an
upward trend in almost all G-7
countries, gross operating surplus as a share of GDP
has increased only in
Germany over the last decade.
United Kingdom United States
Sources: Eurostat; national authorities; and IMF staff
calculations.
Profits after taxes and interest Gross operating
surplus
6This could be due to the relatively higher
indebtedness
of German and U.S. nonfinancial corporates at the
time of the equity market decline in the early 2000s—
between 1995 and 2001 leverage ratios (net debt over
internal funds) increased more sharply in Germany and
the United States than in the other G-7 economies
(with
the exception of the United Kingdom). However, the
fall
in NFCS real investment in these two countries also
reflects structural factors: in Germany, the weak
profitability
of small and medium enterprises that account
for most of the domestic investment (IMF, 2006a); in
the
United States, the 30-year secular decline of
investment
in structures (in 2004, real investment in equipment
and software of the total private sector was back at
its
2000 level).
7Desai and Goolsbee (2004) show that U.S. firms and
sectors that were holding back investment plans in
2004
were not the same as those that invested the most in
the
late 1990s, suggesting that the cyclical weakness of
U.S.
business investment does not reflect a capital
overhang
from the late 1990s.
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
143
The financial corporate sector (FCS) in the
G-7 countries has been in a financial surplus
(i.e., undistributed profits have exceeded capital
expenditure) since the early 1990s and, driven
by a strong acceleration in undistributed profits,
this surplus reached a two-decade high in 2004.
Although financial corporations accounted for
only one-fourth of the increase in the excess savings
of the total (nonfinancial plus financial)
G-7 corporate sector between 2000 and 2004, it
is important to understand what has been driving
the behavior of this sector, given the differences
with the nonfinancial corporate sector
(see the main text).
As FCS investment levels have been relatively
stable in most G-7 countries during the last
decade (first figure)—with the exceptions of
Canada and Germany where capital spending
has declined markedly since the late 1990s—
excess saving has primarily been driven by
changes in undistributed profits. In turn, with
dividends paid by financial corporations relatively
flat, or increasing modestly, in most G-7
economies, the main source of the increase in
FCS undistributed profits is found in after-tax
profits (which accounted for around threefourths
of the increase between 2000 and
2004).1
This box examines the main factors that
underlie the evolution of financial sector
profitability in the G-7 countries from the
perspective of national accounts data.2 At the
outset, it should be kept in mind that the
financial corporate sector comprises several
different types of institutions (primarily banks,
pension funds, and insurance companies)
whose behavior is driven by different factors
which need to be disentangled to explain
sector-wide trends.
Box 4.2. Trends in the Financial Sector’s Profits and
Savings
1978 84 90 96 2002
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Financial Corporate Sector: Gross
Saving, Capital Spending, and Net
Lending/Borrowing
(Percent of GDP; from national accounts)
Sources: Eurostat; national authorities; and IMF staff
calculations.
Canada
Net lending
Gross saving
Capital spending
France
1980 85 90 95 2000
0
1
2
3
4
1991 95 99 2003
-0.4
0.0
0.4
0.8
1.2
1.6 Germany Italy
1987 92 97 2002
-3
-2
-1
0
1
2
3
1980 85 90 95 2000
-1
0
1
2
3
4
5 Japan United Kingdom
1970 80 90 2000
-1
0
1
2
3 United States
1970 80 90 2000
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Note: The main authors of this box are Roberto
Cardarelli, Daniel Hardy, and Miguel Segoviano.
1The only exception is France, where undistributed
profits have trended downward since the mid-1990s
because of the strong increase in dividends paid by
financial corporations.
2The national account concepts differ from those
used in commercial accounting and in particular they
do not take into account valuation changes, such as
gains and losses on securities held on investment
accounts and credit write-offs.
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
144
A Longer-Term Perspective
Even though some general patterns are evident
in the financial industry at a global level—
including the shift to consumer-driven financial
products, within industry consolidation, and a
growing demand for asset management and private
banking services—there have been considerable
differences across G-7 countries in the
behavior of financial sector profits over the past
two decades. In particular, in France, Japan, and
the United States, profits have been on a rising
trend, while in Italy they have been falling; while
exhibiting some cyclicality, neither Germany nor
the United Kingdom shows any clear trend. This
cross-country variation may reflect differences in
regulatory frameworks and in macroeconomic
conditions that have affected both the intensity
and the timing with which global patterns have
impacted national financial systems.
Among the most important factors explaining
FCS developments at the national level are the
following:
• The upward trend in Japan FCS profits has
been driven mainly by public financial institutions—
which have intermediated an increasing
volume of funds over the 1990s (Bank of
Japan, 2005)—and, to a lesser extent, domestic
banks. The high profitability of the public
financial institutions is partly explained by the
competitive advantage they have enjoyed—
including an implicit government guarantee
on borrowing and exemptions from paying
corporate tax and deposit insurance premiums
(Callen and Ostry, 2003). For the domestic
banks, the observed upward trend in financial
corporate profits in the national accounts
appears at odds with the past weakness of the
Japanese banking sector, which has been
severely affected by credit costs and losses on
large equity holdings following the asset prices
boom-bust cycle of the late 1980s (IMF, 2005).
However, excluding losses from financial operations
and provisions against bad loans—as the
national accounts statistics do—Japanese
banks’ profits have been on a modest upward
trend since the early 1990s, mainly reflecting
falling operating expenses as banks have intensified
their administrative cost-cutting efforts,
particularly in the personnel area.
• The upward trend in the U.S. FCS profits is
attributable to banks and especially finance
companies, the major suppliers of credit to
consumers and businesses (second figure).3
This trend may in part be explained by
advances in financial technology, such as
Box 4.2 (concluded)
1979 82 85 88 91 94 97 2000 03
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Net Income Before Provisions of Banks in
Selected G-7 Countries
(Percent of GDP; from financial statements of banks)
Sources: OECD, Bank Profitability Database; and IMF
staff
calculations.
Canada
United Kingdom
Japan
United States
1979 82 85 88 91 94 97 2000 03
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
Italy
Germany
France
3Finance companies are nonbank financial institutions
that provide credit to households—including
loans and leases to finance the purchase of consumer
goods, such as automobiles, furniture, and household
appliances—and businesses—including short- and
intermediate-term credit for the purpose of purchasing
equipment and motor vehicles and the financing
of inventories.
predict.8 This result seems inconsistent with the
view that there has been a regime change in the
underlying capital accumulation process of industrial
countries in recent years, and it also suggests
that at least some of the reduction in nominal
capital spending is unlikely to be reversed.9
Paying Down Debt
Faced with unexpectedly high debt ratios after
the fall of equity valuations in the early 2000s,
some firms have clearly made an explicit decision
to use profits to repay debt (bank loans and corporate
bonds) rather than reinvest them in their
businesses or distribute them to shareholders as
dividends. In addition, concerns about the
vulnerability
to changes in financial market conditions
and about the access to credit in an adverse
economic environment have induced firms to
reduce their dependence on external financing
and to rely more on internally generated funds.
Net borrowing by the NFCS has declined in all
the G-7 countries since the late 1990s although
only in Japan and, more recently, in France and
Germany have companies, in aggregate, actually
been repaying debt (Figure 4.4). Indeed, only in
Canada and Japan is corporate leverage substantially
below its late 1990s levels, although firms
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
145
credit scoring systems, and increased borrowing
by households in recent years.
• Profits of financial corporations in European
countries were generally flat or falling over the
1990s. This, however, seems primarily attributable
to developments among nonbank financial
institutions (such as the pension and insurance
sector) where increased competition
compressed margins. On the other hand, bank
profitability has been rising relative to GDP
since the early 1990s, especially in the United
Kingdom. The negative long-term trends may
also be related to declining inflation.
More Recent Developments
In all countries, profits of the financial corporate
sector have accelerated strongly since the
early 2000s. Part of the reason is cyclical as net
income tends to rise during upswings, reflecting
a pickup in lending—which increases both interest
and noninterest income, mainly from fees
associated with the origination, sales, and servicing
of financial products—and the steep yield
curve in the initial stages of recovery that allows
banks to increase their net interest income.4 In
addition, there has been a tendency to distribute
a smaller share of these profits through dividends
(particularly in European countries), partly
reflecting greater pressure from markets for
financial institutions to improve their ratings by
strengthening their capital bases (see IMF, 2006b).
4This effect has been less important for Japan, where
the yield curve has remained relatively flat since
2000.
Moreover, in several of the G-7 countries the yield
curve has been flattening since early 2004, suggesting
that this effect is not going to play a role going
forward.
It should also be noted that changes in the yield
curve may have now a more muted impact on banks’
profitability compared to the past, as financial
innovation
has reduced banks’ reliance on interest margins.
8Estimated on annual data. The set of explanatory
variables includes the first lag of the gross fixed
investment ratio; real
per capita output growth; the cost of capital,
measured as the ratio of the real interest rate to the
relative price of capital;
and the elderly and youth dependency ratios. The
dynamic panel model was estimated using the
Generalized Method of
Moments estimator with robust errors. See “Global
Imbalances: A Saving and Investment Perspective,”
Chapter II in the
September 2005 World Economic Outlook, for a more
detailed description.
9Technological progress will likely continue to lower
the prices of capital goods, especially in information
technology
(IT) capital, and this in turn will help to boost the
volume of capital spending. However, as the IT
industry has matured—
and most companies now need to upgrade their existing
stock of IT technology rather than building it from
scratch—the
response of corporate spending on IT capital for a
given change in prices is likely to be more muted
compared to the
1990s (Doms, 2005). This suggests that nominal
spending on IT capital may not increase as quickly as
it did in the late
1990s, and that real spending in IT goods may also
grow at more modest rates.
in a number of G-7 countries have taken advantage
of low interest rates to lengthen the maturity
profile of their debt, and the share of the
short-term to total NFCS debt has declined
noticeably in almost all of the G-7 countries.10
Debt repayment, however, has not been the primary
reason for companies’ excess savings.
Rather, for the G-7 as a group, nonfinancial
corporations
have tended to invest their excess cash
flow primarily into equities and cash, rather than
repaying debt (Figure 4.5).
Accumulating Equities
In Italy (until 2004), the United Kingdom, and
the United States, the nonfinancial corporate sector
has been accumulating substantial amounts
of equity in recent years. This equity accumulation
reflects higher (net) direct investment
abroad and/or the repurchase of equities from
the household and government sectors. While
the lack of sufficiently detailed flow of funds data
for all the G-7 countries prevents drawing broad
conclusions, some insights on the relative importance
on these two types of financial transactions
can be drawn for the United Kingdom and the
United States where data is available.
• Share repurchasing has been very important
in the United States, in particular, where
nonfinancial
corporates have retired an extraordinary
amount of equity since the late 1990s,
both in cash-financed mergers and through
share repurchase programs.11
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
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146
1970 75 80 85 90 95 2000
-60
-30
0
30
60
90
120
150
1980 84 88 92 96 2000 04
-60
-30
0
30
60
90
120
150
1980 84 88 92 96 2000 04
-60
-30
0
30
60
90
120
150
1987 90 93 96 99 2002
-60
-30
0
30
60
90
120
150
1995 97 99 01 2003
-60
-30
0
30
60
90
120
150
1991 93 95 97 99 2001 03
-60
-30
0
30
60
90
120
150 Germany Italy
France
Figure 4.4. Nonfinancial Corporate Sector:
Financial Accounts, Selected Variables
(Percent of gross saving)
Net borrowing has fallen sharply in almost all G-7
countries since the early 2000s.
The accumulation of equities has been on an upward
trend in several G-7
economies since the early 1990s, while cash holdings
have accelerated more
recently, especially in the United States, the United
Kingdom, and Canada.
Japan United Kingdom
Sources: Eurostat; national authorities; and IMF staff
calculations.
Net shares and other equity (change in assets minus
change in liabilities).
Net currency and deposits plus short-term securities
other than shares (change in
assets minus change in liabilities).
Net loans and long-term securities other than shares
(change in liabilities minus
change in assets).
GDP-weighted averages using GDP in U.S. dollars at
market exchange rates.
1970 75 80 85 90 95 2000
-60
-30
0
30
60
90
120
150
United States
Net increase in equity Cash Net borrowing
Canada
1995 97 99 2001 03
-30
-20
-10
0
10
20
30
G-7 40
1 3
1
2
2
3
4
4
10At the same time, firm-level data discussed in the
next
section show that, over the recent past, at least some
firms
have financed “cash hoarding” with external financing,
as
they took advantage of favorable financial market
conditions
(low interest rates, tight credit spreads, and rising
equity prices) to accumulate cash buffers.
11Share repurchasing can be interpreted as a more
taxeffective
way of transferring resources to the household
sector, as it subjects individual investors to capital
gains
taxes that are usually lower than dividend taxes.
Surveys
of U.S. financial executives, however, suggest that
managers
believe investors have a strong preference for
dividends
and tend to repurchase shares when facing
temporary earning increases or lack of good investment
opportunities, rather than as an alternative to
dividend
payments (Brav and others, 2003). The increased
reliance
• The (net) purchase of equities from the rest
of the world shows that nonfinancial corporations
in the United Kingdom and the United
States have been pursuing a strategy of expansion
through acquiring assets abroad, including
in emerging markets. Rather than
financing new investment at home, part of the
internal funds available to nonfinancial corporations
in these two countries has been used
to purchase existing capital equipment
abroad. For the United States, if net direct
investment abroad by nonfinancial corporations
is added to their domestic capital spending,
nominal total NFCS capital spending in
2004 is broadly at the same level as in the late
1990s. This suggests that one factor behind
the relative weakness of domestic capital
spending by nonfinancial corporations in the
United States in recent years is their increased
financial investment overseas.
Why Are Firms Accumulating So Much Cash?
Companies in Canada, Japan, the United
States, and, particularly, the United Kingdom
have increased their cash holdings in recent
years. This cash accumulation is more difficult to
rationalize than either debt repayment or equity
accumulation: why would firms want to hold so
much cash on their balance sheets? Firm-level
data for listed, nonfinancial companies in the
G-7 countries provide the following insights into
this cash accumulation.12
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
147
Cash
Loans
Figure 4.5. Financial Transactions: Nonfinancial
Corporate Sector of the G-7 Countries
(Average, percent of GDP)
Nonfinancial corporates primarily invested in equities
and cash on average during the
2001–04 period.
Sources: Eurostat; national authorities; and IMF staff
calculations.
GDP-weighted averages using GDP in U.S. dollars at
market exchange rates.
-1.5 -1.0 -0.5 0.0 0.5 1.0
Bonds
Equities
Other
assets
1995–2000 2001–04
Financing Investment
1
1
on share repurchasing in the United States may also
reflect the record number of stock options issued in
the
1990s, which provided managers with a strong incentive
to repurchase their firm’s shares in order to maintain
high stock prices (Weisbenner, 2000).
12The sample of firms is from the Worldscope database
and covers about 10,000 nonfinancial listed companies
in
the G-7 countries in 2004. Differences in accounting
principles
and in sample coverage prevent an exact mapping
between the trends in the national accounts and
firmlevel
data. However, aggregating cash and saving at the
firm level obtains broadly the same patterns shown by
national accounts—specifically, a sharp increase in
undistributed
profits as a share of revenues from sales, and of
cash accumulation as a share of undistributed profits
over
the recent past, particularly in Canada, the United
Kingdom, and the United States.
• Cash accumulation (as a share of total assets)
was more than twice as high during 2001–04
than 1996–2000, with all sectors increasing
their cash accumulation (Figure 4.6).
However, aggregate corporate cash accumulation
declined modestly in 2004 as continued
increases in the information technology (IT)
and resources sectors were more than offset by
declines in other sectors, particularly utilities
and cyclical goods. This suggests that while
there were common factors behind the
increase in corporate cash holdings in the
early 2000s, recent behavior has been driven
by industry-specific factors, particularly
stronger profits in resource companies following
the upsurge in commodity prices (which
likely continued in 2005).
• As well as differences across industries, the
distribution
of cash accumulation across firms is
very unequal in dollar terms, with the median
increase in cash among the largest firms being
eight times larger than among the mid-size
firms in the sample (Table 4.2). Further, the
accumulation of cash is far from universal—
about 40 percent of the firms in the sample
actually reduced their cash balances during
2001–04. Nevertheless, while the biggest
100 firms in the sample accounted for about
40 percent of total cash accumulation on
average between 2001 and 2004, they also
accounted for 40 percent of total sales, indicating
that cash accumulation has been relatively
evenly distributed once firm size is
accounted for. This stands in contrast to the
1996–2000 period when cash accumulation
was driven primarily by the smallest firms, suggesting
that some of the factors underlying
cash accumulation may have changed over
these two periods.
The economics literature, summarized in
Opler and others (1999), presents two views on
corporate cash holdings. The first is that cash
holdings are simply a sideshow—they change
mechanically with a firm’s excess cash flow
(retained earnings less capital expenditure). The
alternative view is that, in an attempt to maximize
shareholder wealth, cash holdings are set at
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
148
Cash accumulation has been particularly strong in the
information technology (IT)
sector in recent years. In 2004, only the IT and
resource sectors have significantly
accelerated the accumulation of cash holdings.
Figure 4.6. Cash Accumulation in the G-7 Countries
by Industry
(Percent of total assets)
1
Sources: Thomson Worldscope database; and IMF staff
calculations.
Industry averages calculated as the sum of cash
accumulation for the stated period
divided by the sum of total assets for the same
period.
1
Information technology
Resources
Basic
General
Cyclical goods
Noncyclical goods
Cyclical services
Noncyclical services
Utilities
Total
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5
Change from 2003–04
Average for the period 1996–2000
Average for the period 2001–04
a level that equates the marginal cost and benefit.
While the cost of holding liquidity is the
lower expected return, the benefits derive from
the reduced probability of being short of financing
if profits fail to meet expectations, and,
therefore, being forced to cut investment plans
and/or dividend payments or having to raise
costly external finance.
The accumulation of cash in recent years may
therefore be related to strong profit growth, but
also reflects factors that have changed the
expected benefits or costs of cash holdings,
including lower interest rates; higher sales (and
profit) volatility as firms are now operating in a
more uncertain environment (Figure 4.7);13 and
the larger share of intangible assets in corporate
balance sheets (firms with more intangible assets
are likely to hold more cash given the higher
cost of external finance for these type of
uncollaterized
and more volatile assets; see Passov,
2003).
Indeed, firms that have accumulated more
cash relative to their total assets (those in the
top quartile of the increase in cash over total
assets distribution) tend to have more volatile
sales, a higher share of intangible assets, and
higher Tobin’s q (which proxies for higher
expected profitable investment opportunities;
see Appendix 4.1). At the same time, however,
cash-rich firms are also the ones with larger
excess cash flow (the difference between gross
savings and capital spending), suggesting that
strong profitability has also played a role.14 If
cash accumulation has been driven by changes
in the marginal cost and benefits of holding liquid
assets rather than simply excess cash flows,
the variables described earlier should be able to
explain a significant share of the increase in
WHAT HAS BEEN DRIVING THE INCREASE IN CORPORATE EXCESS
SAVING?
149
Table 4.2. Group of Seven (G-7) Countries: Cash
Accumulation, by Size of Firm’s Sales
Share of Total Change 90th Percentile Change
Range of Sales in Cash Median Change in Cash in Cash
(Billions of U.S. dollars)1 Number of Firms (Percent)
(Millions of U.S. dollars) (Mllions of U.S. dollars)
Average 1996–2000
0.0–3.1 3,075 75.8 0 29
3.2–9.3 302 11.9 3 224
9.4–19.6 119 20.7 10 517
20.4–48.0 52 14.8 44 1,016
49.6–172.0 19 –23.0 123 2,708
Average 2001–2004
0.0–3.1 5,044 23.5 1 36
3.1–10.0 508 19.4 14 303
10.0–24.8 184 14.0 34 713
24.8–57.3 76 19.7 208 1,895
59.3–252.5 27 23.3 371 5,766
Source: IMF staff calculations based on Worldscope
data.
1Groups are obtained by ranking each firm in the G-7
by their sales every year, and then dividing total
yearly sales by 5. The top (fifth) group
is thus formed by the biggest N firms that together
account for one-fifth of total sales, the fourth group
by those immediately smallest N firms
that accounted for another fifth of total sales, and
so on.
13Comin and Philippon (2006) show an increase in firm
volatility in the United States since the mid 1950s,
and attribute
it to increased competition spurred by globalization.
14Firms with the highest increase in cash relative to
their total assets also had relatively higher access
to external financing,
lending some support to the view that at least some
firms may have been taking advantage of temporarily
advantageous
conditions for external financing to accumulate cash
holdings that will be used as a buffer when external
capital is
more expensive (Greenwood, 2005). Also, on average
over 2001–04, cash-rich firms tend to have smaller net
assets from
acquisitions, contrary to the view that associates the
recent increase in cash accumulation with the
resurgence of mergers
and acquisition ventures. A possible explanation is
that if the threat of takeovers increases with a
firm’s liquidity position,
companies that operate in sectors with relatively
strong mergers and acquisition activity have an
incentive to hold less, not
more, cash.
cash holdings over the recent period. The
econometric analysis—shown in Appendix 4.1—
indicates that:15
• On average for the 2001–04 period, the coefficients
of industry sales volatility, the industry
share of intangibles assets, and industry
Tobin’s q all have the expected signs and are
statistically significant determinants of changes
in cash relative to total assets among G-7
firms.
• A 1 percent increase in the intangible asset
share of a company or a 1 standard deviation
increase in sales volatility would induce a 5 percent
increase in the share of savings invested in
cash.16 Together, these two variables explain
around one-third of the increase in cash over
total assets on average in 2001–04.
• The regression covering the whole period,
1996–2004, also shows that the accumulation
of cash balances accelerated especially in
those sectors with higher volatility of sales.
All in all, the econometric results provide
some important insights into why corporates
have increased their cash holdings in recent
years, yet a good deal of the buildup remains
unexplained, suggesting that country- and firmspecific
factors have played an important role.
One commonly cited factor, for example, is
that some companies have large unfunded pension
liabilities. The plunge in equity valuations
in the early 2000s and declining interest rates
have caused the funded status of corporate-sponsored
defined benefit pension plans to deteriorate
significantly. In the United States, defined
benefit pension plans sponsored by the S&P 500
firms moved from a $200 billion surplus in 2000
to a $200 billion deficit at end-2004 (see Zion
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
150
1997 98 99 2000 01 02 03 04
18
20
22
24
26
28
30
32
1997 98 99 2000 01 02 03 04
15
20
25
30
35
40
Intangible Asset Share of Long-Term Assets
Sales Volatility
Over the last decade, sales volatility and the share
of intangible assets have increased
in the sample of firms considered.
Figure 4.7. Sales Volatility and Intangible Assets
in the G-7 Countries
Sources: Thomson Analytics Worldscope database; and
IMF staff calculations.
Market capitalization-weighted average of five-year
rolling standard deviation of growth
rate of firms' sales.
Market capitalization-weighted average of the stock of
intangible assets in percent of
long-term assets (defined as total assets minus assets
with maturity of one year or less).
1
1
2
2
15The econometric analysis is based on a cross-section
regression, which explains the average relationship
between the increase in cash over total assets and the
explanatory variables in the most recent period,
2001–04;
and a panel regression, which captures the possible
changes in this relationship over the whole sample
period, 1996–2004.
16The impact on the share of retained earnings
invested in cash is derived from the regression
coefficients
using the average ratio between retained earnings
and total assets in the G-7 countries over 2001–04.
and Carcache, 2005). Recent estimates (Watson
Wyatt, 2006) suggest that corporate defined benefit
pension plans are significantly underfunded
in all the G-7 countries, but particularly in
Europe (Table 4.3).17 Firms in these countries
may therefore be building up cash holdings as a
precaution against the need to contribute largerthan-
anticipated amounts into their pension
plans—for example, by purchasing long-term
assets.18 Unfortunately, company-specific data is
not available to test this within the econometric
framework.
Are Current Trends in Corporate Excess
Saving Sustainable?
As discussed in the previous section, excess
saving in corporate sectors of G-7 countries has
been at a historic high in recent years. This has
helped offset some of the decline in household
and government saving, and has contributed to
the relatively low level of long-term interest
rates. A key question going forward is whether
this increase in excess saving is largely a temporary
phenomenon, and therefore likely to be
reversed over the next few years, or whether it
represents a more fundamental change in corporate
behavior. Some of the factors that will determine
this are discussed below.
• The profit outlook. It is difficult to argue that
there has been a significant and permanent
increase in the profitability of the nonfinancial
corporate sector in all the G-7 countries in
recent years. Rather, NFCS profits have greatly
benefited from current low interest rates and
reductions in corporate tax payments. Both of
these are likely to reverse to some degree.
Monetary policy will likely tighten going forward,
raising interest payments, although the
decreased reliance on short-term debt and the
decline in debt ratios should help limit the
increase. Further, earlier corporate tax cuts, at
least in some countries, may need to be withdrawn
under increasing pressures on government
budget positions (although cross-country
tax competition may limit this).
• Will domestic investment pick up? With capacity
utilization increasing in some countries, it
seems reasonable to expect that investment
will strengthen going forward. Nevertheless,
the ongoing decline in the relative price of
capital goods means that nominal investment
ratios are likely to remain below those seen in
previous cycles.19
ARE CURRENT TRENDS IN CORPORATE EXCESS SAVING
SUSTAINABLE?
151
Table 4.3. Defined Benefits Corporate Pension
Plans: Assets Over Liabilities1
1999 2002 2003 2004
Canada . . . . . . 0.86 0.83
France . . . . . . . . . 0.47
Germany . . . . . . 0.36 0.51
Japan . . . . . . 0.58 0.59
United Kingdom . . . . . . 0.77 0.80
United States 1.31 0.82 0.89 0.90
Sources: Watson Wyatt, 2006; and Watson Wyatt Insider,
various
issues.
1Pension liabilities are defined as the actuarial
present value of
benefit obligations. A ratio higher than 1 means that
the pension
schemes are overfunded. Positions are as of December
31 of each
year.
17This does not mean that European countries have a
more serious problem of underfunding, however, as
companysponsored
defined benefit pension plans play a more limited role
in the overall pension systems of these countries
compared
to the other G-7 countries (see IMF, 2004).
18In the United Kingdom—where NFCS cash holdings have
increased the most over the recent past—changes in the
minimum funding requirement for occupational defined
benefit pension plans were introduced in 2005 that aim
at eliminating
the underfunding over a 10-year time span. Based on
estimates from the U.K. Pension Regulator, this will
require
£130 billion additional contributions into company
pension schemes, imposing a substantial burden on the
pension contribution
paid by employers, which has already increased sharply
over the last four years—in 2004 they stood at
approximately
£38 billion, almost doubling the £21 billion paid in
2000.
19Legislative and regulatory measures recently
implemented in several industrial countries to improve
corporate governance
may have a positive effect on corporate and investor
confidence and, therefore, capital spending. These
measures,
however, may also reduce the valuation discount that
shareholders apply to firms with high cash balances
and lower dividend
payouts, as stronger corporate governance reduces the
risk of overinvestment in negative yield projects or
outright
stealing from entrenched managers (see Kalcheva and
Lins, 2005).
• Has the process of deleveraging been completed? It
is clearly difficult to know whether the
deleveraging process has ended. Substantial
progress has been made in reducing corporate
debt in some countries, and an international
survey by Merrill Lynch Global Fund
Managers shows that investors have become
much less worried about companies leverage
ratios. Indeed, only 18 percent of the
investors questioned in the most recent survey
wanted companies to improve their balance
sheets, compared to 31 percent at the end of
2003 and 55 percent at the end of 2002.
Nevertheless, even if low interest rates have
helped nonfinancial corporations to extend
their average debt maturity, only in Canada
and Japan is the ratio of debt to undistributed
profits (internal funds) below the levels seen
in the late 1990s (Figure 4.8). At the same
time, the lack of comprehensive data on offbalance-
sheet liabilities makes it impossible to
assess the complete corporate credit picture.
In particular, unfunded pension liabilities are
excluded from reported balance sheet leverage,
and consequently debt ratios could be
severely understated.
• Investment in equities is here to stay. There is no
reason to expect the accumulation of equities
by corporates—through either share repurchasing
or investing abroad—to come to a
halt. Indeed, given ongoing globalization and
the opportunities that companies in industrial
countries enjoy in emerging markets, the pace
of overseas asset acquisition may actually
increase.
• Will firms want to continue to hold cash? While
the upward trend in both sales volatility and
the share of intangible assets at the firm level
may have increased the desired amount of
cash balances, these two trends can only partially
explain the increase in cash holdings
over the last four years. Other factors suggest
this is a relatively temporary phenomenon. In
particular, the fact that cash accumulation
during 2004 increased solely in the IT and
resources sectors—where profits were strong—
suggests this process may now be tailing off.
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
152
1991 93 95 97 99 2001 03
460
480
500
520
540
560
580
G-7 Average 600
1970 75 80 85 90 95 2000
300
350
400
450
500
550
600 United States
1995 97 99 2001 03
550
600
650
700
750
800
850
900
1991 93 95 97 99 2001 03
450
500
550
600
650
700
750 Germany Italy
1980 84 88 92 96 2000 04
300
400
500
600
700
800
900
1000
1970 75 80 85 90 95 2000
100
200
300
400
500
600
700 Canada France
1980 84 88 92 96 2000 04
400
600
800
1000
1200
1400 Japan
1987 90 93 96 99 2002
200
300
400
500
600
700
United Kingdom 800
Figure 4.8. Nonfinancial Corporate Sector Debt
(Percent of gross saving)
Sources: Eurostat; national authorities; and IMF staff
calculations.
Net loans and long-term securities other than shares
(liabilities minus assets).
GDP-weighted averages using GDP in U.S. dollars at
market exchange rates.
Only in Japan and Canada is corporate debt (as a ratio
to internal funds)
significantly below its mid-1990s level.
1
2
1
2
04
04 04
04
04 04
In sum, while it is clearly very difficult to predict
the behavior of the corporate sector going
forward, the most likely scenario is that excess
savings will decline from current levels over the
next few years if investment picks up, some of
the factors that have driven recent profits wane,
or investors put less pressure on corporations to
reduce their debt levels. Nevertheless, a number
of structural changes—including increased
volatility in the operating environment, a desire
to increase investment overseas, and the need to
finance off-balance-sheet liabilities—means that
corporate excess saving may remain more elevated
than during the 1990s.
Conclusions
The corporate sector in the G-7 countries has
moved from being a net borrower to a substantial
net saver in recent years. This has followed
the earlier move by emerging market countries
to a net saver status following the financial crises
of the late 1990s. Taken together, these developments
have substantially altered the financial
landscape of the global economy—two sectors
that have traditionally been sources of demand
for financing are now lending to other countries/
sectors. These changes in behavior are one
factor behind the relatively low level of global
long-term interest rates at present.
With regard to the nonfinancial corporate sector,
one commonly held view is that the recent
increase in net lending is mainly a reaction to
the excess debt and physical capital that was
accumulated in the 1990s, and it is therefore
temporary. Once these excesses have been
worked out, the corporate sector will again
become a net borrower, and as this occurs, it will
put upward pressure on long-term interest rates.
This chapter, however, has suggested that the
story is not as simple as this—indeed, only in
Canada and Japan has the reduction in corporate
debt been substantial enough to be consistent
with this story. Other factors, some cyclical
and some structural, have also played a role,
although their importance has differed across
countries. In particular:
• Profits have been strong, primarily because of
low interest rates and a generalized reduction
of corporate tax payments, while operating
profits do not appear to be abnormally high,
despite their recent acceleration in a few
countries. If companies view these factors as
unlikely to be sustained going forward, they
may hold back on investment plans and
instead boost their savings;
• Ongoing technological change has reduced
the relative price of capital goods, and reduced
the nominal spending needed to achieve a
given volume of capital;
• Companies have increased their purchases of
assets abroad, shifting resources from domestic
capital accumulation; and
• Companies have increased their desired cash
holdings, partly as a reaction to the more
uncertain operating environment they face,
the increasing role of intangible assets in the
knowledge-based economy, and possibly the
uncertainties associated with how they will be
asked to meet currently unfunded pension
liabilities.
Judging the relative weight of all these factors
in explaining the current high level of corporate
excess saving is clearly a difficult task. It does,
however, seem reasonable to conclude that the
corporate sector in industrial countries will not
return to the large negative financing positions
of the past—paralleling to some degree the
behavior of emerging market economies, where
current account surpluses have proved more
long-lasting than originally projected. Nevertheless,
excess savings are also unlikely to be sustained
at current record levels going forward,
particularly if the degree of slack in the advanced
economies continues to narrow—thereby
encouraging stronger investment spending—or
corporate profitability weakens. Thus, high corporate
saving should not be relied on to keep
longer-term interest rates low in the future.
Indeed, without some increase in household and
government saving in the coming years, changing
corporate behavior will likely start to put
upward pressure on interest rates, and could
exacerbate the current pattern of global imbal-
CONCLUSIONS
153
ances if it lowered total private saving in deficit
countries.
Appendix 4.1. Econometric Methodology
The main authors of this appendix are Roberto
Cardarelli and Kenichi Ueda.
To investigate the accumulation of liquid
assets (or “cash”) of nonfinancial corporations
in the G-7 economies, firm-level data were used
from the Worldscope database.20 After screening
for outliers, the sample covered about 10,000
nonfinancial listed companies in the G-7 countries
in 2004. About 4,000 of these are from the
United States, 3,000 from Japan, 1,000 from the
United Kingdom, 700 from Canada, 500 from
France, 400 from Germany, and 200 from Italy.
Each country’s share of total (G-7) revenues
from sales is approximately equal to its share of
total GDP, suggesting that each country is adequately
represented in the sample. While data
are available since the 1980s, only for the United
States is there a sufficiently large number of
firms before the mid-1990s. Therefore, this chapter
restricts the analysis to the 1996–2004 period
(in 1996, the sample contains about 3,500 firms).
Using firm-level data, the chapter relates cash
accumulation to a series of variables that are
generally believed to affect the marginal costs
and benefits of holding cash (the expected
sign of the causality direction is indicated in
parenthesis):21
• Size/age of firms (–/+); bigger/older firms
should have easier or cheaper access to external
financing, so they should hold less cash.
However, if cash accumulation is simply a
residual, larger and mature firms should have
more cash as they are more likely to generate
cash flow in excess of profitable investment
opportunities.
• Volatility of sales (+); firms with more uncertain
sales revenues (e.g., those in a more competitive
industry) should invest more in liquidity
because (all other things being equal) they are
more likely to suffer from cash shortages.
• Tobin’s q (+); firms with a higher Tobin’s q
(more profitable investment opportunities)
should accumulate more cash, as cash shortages
would mean these firms have to forgo
high-return projects.
• Intangible asset share of total fixed assets (+);
firms characterized by a larger share of intangible
assets (e.g., patents and goodwill) should
hold more cash, given the higher cost of external
finance for these type of uncollaterizable
assets.
• Net assets from acquisition (–/+); firms that
operate in sectors and countries with a relatively
high level of merger and acquisition
activity should hold more cash, as cash-rich
firms are more likely to make acquisitions.
However, if the threat of takeovers increases
with a firm’s liquidity position, this could have
a negative effect on cash holdings.
In investigating these determinants empirically,
both descriptive statistics and regression
analysis are used in the chapter.
First, firms that have invested in cash the most,
on average over 2001–04 (those in the top quartile
of the distribution of the change in cash—
Increase in Cash and Short-Term Investments in
Worldscope (WS), with code 04851—relative to
firm’s total assets, WS 02999) are compared to
those that invested in cash the least (those in the
bottom quartile of the same distribution), in order
to uncover systematic relations between cash
accumulation and key firms’ characteristics. In
particular, the following variables were considered:
• Firm size, captured by the logarithm of revenues
from sales (WS 01001) and logarithm of
total assets.
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
154
20Income and balance sheet information are entered in
Worldscope for each listed stock. As the same firm may
be listed
in several markets and it may have several types of
listed stocks in the same market, information on the
same firm may be
entered several times. To avoid duplications, only
balance sheet information associated with the most
widely traded stock
listed in the major home stock exchange is picked for
each company. Liquid assets or “cash” is here defined
as cash and
short-term investments, including treasury bills,
commercial paper, and certificates of deposits.
21See, for example, Opler and others (1999); and
Almeida, Campello, and Weisbach (2002).
• Excess cash flows, defined as saving (net
income, WS 04001, plus depreciation, WS
04051, less dividends paid, WS 04551) less capital
expenditure (WS 04601), divided by total
assets.
• Volatility of sales, defined as the five-year
rolling standard deviation of sales growth.
• Tobin’s q, defined as (market capitalization,
WS 08001 + book value of total debt, WS
03255) divided by total assets.
• Intangible assets (WS 02649) divided by longterm
assets (total assets less short-term assets—
that is, assets expected to be realized, sold, or
consumed within a year, WS 02201).
• Net assets from acquisition (WS 04355, from
the cash flow statement) divided by total
sources of cash (cash from operating activities,
external financing, and decrease of investments).
• Net cash flow from financing (WS 04890)
divided by total assets.
• Stock of cash (WS 02001) divided by total
assets.
Both the univariate comparison of firms’
characteristics
by quartiles of cash accumulation and
the regression analysis below are restricted to
firms with positive net income, as the relationship
between cash holdings and the explanatory
factors listed above would be irrelevant for firms
that do not have a chance to save.
For all firms with increases in cash over total
assets in the same quartile, Table 4.4 shows the
weighted averages, median, and 90th percentile
of the variables described above. The last column
reports the p-value of a t-test on the difference
of averages of the first and fourth quartiles.
The table shows that firms in the top quartile of
the cash distribution significantly differ from
those in the lowest quartile because they tend to
be relatively smaller, have more volatile sales
(although in median only), a higher share of
intangible assets, and higher Tobin’s q. All these
results accord well with the predictions of the
trade-off model of cash holdings (Opler and
others, 1999; and Almeida, Campello, and
Weisbach, 2002), as it is especially for these types
of firms that the cost of accessing external funds
or having to cut down investment plans—and
thus the benefit of holding additional cash—is
larger. However, the table also shows that cashrich
firms tend to be those with the largest
excess cash flows, consistent with the view that
cash holdings are the side effect of higher earnings
and lower capital spending.22 The table also
shows that cash-rich firms tend to have smaller
net assets from acquisitions (on average, as the
zero median reflects the relatively scarce number
of firms reporting this type of investment), a
relatively higher access to external financing
(net cash flow from financing for the 90th percentile
is monotonically increasing with cash
accumulation), and relatively larger stocks of
liquidity (relative to total assets).
Second, a formal regression analysis was conducted
to examine the determinants of cash
accumulation by G-7 firms. Specifically, changes
in cash relative to firm’s total assets at firm level
were regressed on:
• Firm-level variables, including firm size
(defined as logarithm of sales) and firm age
(the number of years since the firm was
founded, WS 18272, or incorporated, WS
18273).23
• Industry-level variables, including volatility of
sales, the intangible share of long-term assets,
Tobin’s q, net assets from acquisition as a
share of total sources of cash, and industry
dummies.
• Country-level variables, including the yield
spread (difference between long-term and
short-term interest rates; source, IMF, International
Financial Statistics, or IFS); general gov-
APPENDIX 4.1. ECONOMETRIC METHODOLOGY
155
22This is what the pecking-order model of financing
choice would predict. Based on this model, firms try
avoiding issuing
equity since information asymmetries make it too
expensive, and thus accumulate cash—or pay back
debt—when faced
with a surplus of internal funds. When they have a
deficit of internal resources, firms first decrease
their cash balances and
only eventually raise debt.
23If both are available for a company, the larger
number is used.
ernment balance as a ratio to GDP (source:
IFS); and country dummies.
Industry-level variables were obtained as market
capitalization weighted averages of variables
at firm level. Seventy-three nonfinancial industries
were considered, based on the two-digit
U.S. Standard Industrial Classification (SIC)
from Worldscope (WS 07021).
The industry-level variables were constructed
based only on U.S. data, on the assumption that
the underlying feature of an industry can be
measured only in the most competitive environment
(see Rajan and Zingales, 1998, for a similar
methodology). However, the degree to which
an industry is exposed to a competitive environment
differs among countries, and so the list of
CHAPTER IV AWASH WITH CASH: WHY ARE CORPORATE SAVINGS
SO HIGH?
156
Table 4.4. Weighted Average, Median, and 90th
Percentile of Selected Series, by Change in Cash to
Total Assets by Quartile, 2001–041
t-Test of Means
First and Fourth
Variable First Quartile Second Quartile Third Quartile
Fourth Quartile Quartile
Change in cash in percent of total assets2 –3.3 –0.1
1.9 8.0 105.1
[–3.1] [0.0] [1.9] [8.2]
(–1.2) (0.4) (3.4) (22.3)
Saving less capital expenditure 1.9 1.9 2.8 6.3 29.9
in percent of total assets2 [1.7] [2.5] [3.6] [8.0]
(10.1) (9.3) (10.8) (19.7)
Log of sales3 13.0 13.4 13.3 12.4 –19.2
[13.0] [13.4] [13.3] [12.4]
(15.3) (15.9) (15.6) (14.8)
Log of total assets3 13.0 13.4 13.2 12.3 –21.9
[13.0] [13.4] [13.3] [12.3]
(15.3) (16.1) (15.7) (14.8)
Volatility of sales4 37.6 21.7 21.3 21.1 –0.3
[11.7] [11.0] [11.0] [15.1]
(41.4) (40.4) (36.8) (52.2)
Tobin’s q4 2.4 1.7 2.0 3.4 41.8
[1.0] [0.9] [1.0] [1.4]
(2.5) (2.0) (2.3) (3.9)
Intangible assets in percent of 24.8 26.9 26.8 28.4
7.4
long-term assets4 [9.4] [11.2] [13.4] [18.5]
(73.1) (71.9) (71.8) (77.5)
Net assets from acquisition in 6.4 5.9 5.7 3.6 –9.0
percent of total sources of cash5 [0.0] [0.0] [0.0]
[0.0]
(34.3) (28.7) (25.6) (13.7)
Net cash flow from financing in –3.8 –2.9 –1.3 –1.0
14.5
percent of total assets2 [–3.5] [–2.6] [–1.9] [–0.6]
(4.1) (6.4) (6.2) (17.9)
Stock of cash in percent of total assets2 9.6 5.0 9.6
20.4 43.7
[8.6] [2.5] [8.2] [21.8]
(32.8) (16.3) (25.9) (53.3)
Memorandum
Range of change in cash in percent of
total assets –87 to –0.93 –0.93 to 0.61 0.61 to 3.93
3.93 to 100
Observations 4,330 4,330 4,330 4,329
Sources: Worldscope; and IMF staff calculations.
1Median values in brackets, 90th percentile values in
parentheses.
2Firm ratios weighted by total assets of firm.
3Simple average of firm ratios.
4Firm ratios weighted by market capitalization.
5Firm ratios weighted by total sources of cash.
regressors also includes differences (at an aggregate
level) between each country and the
United States for all industry characteristics.24
As an example, the volatility of revenues from
sales of the textile sector in France is proxied by
the volatility of sales of the U.S. textile industry
and the difference between the aggregate
volatility of sales in France and that in the
United States. An important motivation for this
regression strategy is also that the United States
is the only country for which there is a sufficiently
large number of firms in every industry
in the early years of the sample. Hence, the U.S.
industry variables are less likely to be affected by
sample biases.
On the set of macroeconomic variables at the
country level, the yield spread was included to
capture the opportunity cost of holding cash,
considering that cash includes short-term interest-
bearing securities. The general governmentbalance-
to-GDP ratio was introduced, as it may
affect availability of external financing and also
to capture the possible offset between corporate
and government saving.
Two estimation methods were adopted. First, a
cross-section regression was run based on
2001–04 averages. Second, a time series dimension
was added by running a panel regression
with three periods (the three-year averages:
1996–98, 1999–2001, and 2002–04) so as to
assess whether there have been changes in cash
accumulation since the mid-1990s. Time dummies
were also introduced in the panel regression.
The regressions were estimated using
weighted ordinary least squares (OLS), with
each firm weighted by its (own country) relative
market capitalization at the beginning of the
period. This gives large firms more weight in the
regression, consistent with the objective of
explaining the aggregate trends in cash accumulation.
At the same time, the within-country market
capitalization weighting gives each country
the same influence in the regression.
The results of the analysis are presented in
Table 4.5. In particular:
• In the cross-section, the coefficients on firm
size, industry sales volatility, Tobin’s q, and the
industry share of intangible assets all have the
expected signs and are significant. None of
the country variables is statistically different
than zero.
• In the panel regression, only firm size and
industry sales volatility have coefficients statis-
APPENDIX 4.1. ECONOMETRIC METHODOLOGY
157
Table 4.5. Regression Results: Dependent
Variable—Change in Cash and Short-Term
Investments1
(In percent of total assets)
Weighted Weighted
Cross-Section Panel
Size of firm –1.310 –2.425
(0.034)** (0.001)***
Age of firm 0.003 0.001
(0.533) (0.913)
Volatility of sales by SIC2 industry 0.165 0.147
(0.040)** (0.009)***
Intangible asset share of long-term 0.171 –0.117
assets by SIC2 industry (0.037)** (0.285)
Tobin’s q by SIC2 industry 2.581 0.015
(0.012)** (0.969)
Net assets from acquisitions in 0.013 0.073
percent of total sources of (0.794) (0.211)
cash by SIC2 industry
Volatility of sales by country –0.001 –0.019
(0.945) (0.143)
Intangible asset share of long-term 0.075 0.062
assets by country (0.311) (0.318)
Net assets from acquisitions in 0.268 0.292
percent of total sources of (0.17) (0.12)
cash by country
Yield spread of interest rates, –0.466 0.215
in percent (0.435) (0.814)
General government balance, –0.348 –0.432
in percent of GDP (0.589) (0.312)
Observations 6,084 12,436
R-squared 0.568 0.552
Sources: Datastream Worldscope database; and IMF staff
calculations.
1Robust p-values in parentheses; ** significant at 5
percent; ***
significant at 1 percent.
24The exception is Tobin’s q, which is considered only
at the industry level. This is because cross-country
variations of
Tobin’s q are sensitive to differences in market
conditions (e.g., interest rates) and accounting
systems, and are thus
unlikely to reflect cross-country differences in
growth opportunities for firms.
tically different than zero. This implies that,
over the sample period, cash accumulation
has accelerated in industries with higher sales
volatility and that the increases in sales volatility
have boosted cash accumulation over time.
• In both the cross-section and panel regressions
the industry dummies substantially
improve the goodness of fit, and are thus
included in the final specification (however,
they are not reported in Table 4.5). On the
contrary, time and country effects are
excluded as they are not statistically significant
and fail to improve the goodness of fit, implying
that both the cross-country and time variations
of cash holdings are largely captured by
the regressors.
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Sufi, Amir, 2006, “Bank Lines of Credit in Corporate
Finance: An Empirical Analysis,” CFR Working
Paper No. 2006-01 (Washington: Federal Deposit
Insurance Corporation, Center for Financial
Research).
Watson Wyatt, 2006, “2005 Global Survey of Accounting
Assumptions for Defined Benefit Plans,”
———, Insider, various issues.
Weisbenner, Scott, 2000, “Corporate Share Repurchases
in the 1990s: What Role Do Stock Options
Play?” Finance and Economics Discussion Paper
No. 2000-29 (Washington: Board of Governors of
the Federal Reserve System).
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Update: Pension Plans Getting Weaker This Year,”
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REFERENCES
159
160
ANNEX
IMF EXECUTIVE BOARD DISCUSSION OF THE OUTLOOK,
MARCH 2006
Executive Directors welcomed the continued
strong expansion of the global economy,
which has exceeded expectations at
the time of their last discussion of the
World Economic Outlook in August 2005. Despite
higher oil prices and a number of natural disasters,
economic activity in the second half of last
year and early 2006 was strong, and inflationary
pressures remain subdued. The economic expansion
has also become more broadly based. While
the United States is still the main engine of
growth among industrial countries, it is increasingly
supported by the ongoing expansion in
Japan and signs of a sustained recovery in the
euro area. Among emerging markets and developing
countries, growth remains strong, with particularly
buoyant activity in China, India, and
Russia. Directors emphasized that, despite these
broadly favorable developments, key vulnerabilities—
most notably global current account imbalances—
have still not been addressed, raising the
risks to the world economy.
Looking ahead, Directors expected that global
economic conditions would remain favorable,
with a gradual pickup in investment helping to
weather the continued headwinds from high oil
prices. At the same time, Directors identified a
number of uncertainties facing the world economy,
and felt that the balance of risks remains
slanted to the downside. On the upside, Directors
acknowledged that, if growth in some emerging
market countries continues to exceed
expectations, or the corporate sector in the
advanced economies runs down its financial surpluses
more rapidly than expected—either
through higher investment or increased wages
and dividends—the growth outlook could be
more positive. On the downside, with the oil market
remaining vulnerable to shocks given limited
excess production capacity, and with prices
increasingly driven by supply side concerns,
many Directors felt that the adverse impact of
high oil prices on global growth could well be
greater going forward than it has been in the
recent past. Other risks identified by Directors
are an abrupt tightening in financial market
conditions
and a possible avian flu pandemic.
Of most concern to Directors, however, was
the further widening of global imbalances. The
U.S. current account deficit has widened further
to record levels, which is being matched by large
surpluses in oil exporters, a number of small
industrialized countries, Japan, China, and a
number of other emerging Asian countries.
While noting that financing of the U.S. deficit
has not been a problem so far, Directors were of
the view that these imbalances pose increasing
risks over time to the global growth outlook.
Directors generally believed that the probability
of a disorderly unwinding of imbalances remains
low. However, such an outcome, should it occur,
could have sizable negative effects for the global
economy and the international financial system.
Directors considered that this assessment calls
for actions aimed at reducing these vulnerabilities,
whose implementation should be facilitated
by the current favorable environment. Directors
believed that a progressive narrowing of imbalances
will need to be based on both a significant
rebalancing of demand across countries, and
adjustments in exchange rates.
Directors emphasized that, while the private
sector will play a key role in the resolution of
global imbalances, a purely market-driven adjust-
The following remarks by the Acting Chair were made at
the conclusion of the Executive
Board’s discussion of the World Economic Outlook on
March 31, 2006.
ment carries significant risks. This underscores
the importance of more rapid implementation
of the agreed policy strategy to address imbalances,
including raising national saving in the
United States—with measures to reduce the
budget deficit and spur private saving; allowing
currencies in surplus countries—including in
parts of Asia and a number of oil producers—to
appreciate; and implementing structural and
other reforms to boost domestic demand in
countries with large current account surpluses.
In this context, the importance of achieving a
better balance between externally and domestically
led growth and undertaking reforms of
domestic financial systems to help boost domestic
demand was also noted. Given economic
interlinkages, all countries and regions will play
a role in the adjustment of imbalances, and
countries should therefore increase the flexibility
of their domestic economies to adapt better
to changing global patterns of domestic and
external demand.
Elaborating on the required policy actions in
surplus countries, Directors welcomed the staff
analysis on the relationship between oil prices
and global imbalances. They urged oil exporters
to take advantage of the current conjuncture to
undertake structural reforms and boost expenditures
to support long-term growth, which would
also have beneficial effects for reducing global
imbalances. Some Directors pointed out that
the scope for such spending increases in oilexporting
countries would vary, depending on
country-specific circumstances. With regard to
exchange rate adjustment as well, a number of
Directors observed that the need for, and size of,
any exchange rate appreciation would have to
be assessed on a case-by-case basis, taking into
account the economic fundamentals in individual
countries. Some Directors noted that structural
measures aimed at improving market
flexibility and enhancing economic productivity
should complement exchange rate adjustment
in these countries in bringing about an effective
correction of global imbalances.
Directors considered that the Fund continues
to have a central role to play in promoting a
coordinated, multilateral, medium-term solution
for reducing global imbalances. With the broad
strategy espoused by the Fund generally agreed,
the challenge now is to work out the precise
modalities and accelerate implementation.
Directors also underscored the importance of
the Fund’s advice in urging countries to resist
protectionist pressures and in helping them to
exploit comparative advantages through deeper
integration.
Directors reiterated their concerns regarding
two other long-standing policy challenges facing
the global economy.
• First, unsustainable medium-term fiscal positions
remain a key risk. Among the major industrial
countries, underlying fiscal positions—outside
Japan—have improved only modestly since
2003, and Directors noted that in many countries
little further improvement is projected
over the next two years. They underscored the
importance of more ambitious fiscal consolidation
in order to limit upward pressure on
interest rates, reduce risks to macroeconomic
stability, and improve the scope for a fiscal
response to future shocks.
• Second, more ambitious efforts are needed to put in
place the preconditions for taking advantage of the
opportunities from globalization and for supporting
growth. In this context, Directors reiterated the
need to resist protectionist pressures that have
been rising in a number of countries, while
ensuring an ambitious outcome to the Doha
Round. Directors regretted the limited flexibility
in country positions displayed so far
under the trade negotiations and warned of
the risks to the global economy and the multilateral
trading system from a disappointing
outcome of the Doha Round. Directors agreed
that, at the national level, advancing the structural
reform agenda remains key to removing
the impediments to long-run growth.
Another critical question is whether inflation
will remain moderate in the face of rapid global
growth. In this context, Directors welcomed the
staff analysis of the relationship between
globalization
and inflation, which they noted makes a
valuable contribution to the quantification of
IMF EXECUTIVE BOARD DISCUSSION OF THE OUTLOOK, MARCH
2006
161
the effects of globalization. While emphasizing
that the impact of globalization on inflation will
be temporary unless it changes the objectives of
monetary policy, they observed that import price
declines have had sizable effects on inflation in
industrial countries over one- to two-year periods,
particularly when there has been considerable
global spare capacity. Directors also noted
that globalization has had a significant impact
on relative prices, with important implications
for some sectors of the economy. Directors
agreed, however, that globalization cannot be
relied upon to prevent a pickup in inflation and
that central banks must remain vigilant for signs
of inflationary pressures. Some Directors
pointed to the recent rise in producer prices
and in non-oil commodity prices, which could
feed into higher consumer prices.
Conditions in global financial markets remain
very favorable, characterized by unusually low
risk premia and volatility. Directors noted that
high corporate saving is one factor that has
contributed to the low global interest rate
environment
during the current expansion, and
they welcomed the staff’s analysis of corporate
saving behavior in the G-7 countries. Most
Directors agreed with the staff’s assessment that
corporate excess saving will decline from current
high levels over the next few years as investment
increases, and that this will likely put
upward pressure on long-term interest rates
going forward.
Industrial Countries
Directors welcomed the continued strong
expansion in the United States despite the temporary
slowdown in the fourth quarter of 2005.
They viewed risks as being broadly balanced in
the short term, but slanted to the downside further
out. With corporate profits expanding
robustly, business investment and employment
could be stronger than expected. On the downside,
however, the large current account deficit
makes the United States vulnerable to a swing in
investor sentiment, while a sharp weakening of
the housing market and higher energy prices
could slow consumption. With core inflation well
contained, financial markets expect that the current
tightening cycle in the United States is
nearly complete, although Directors emphasized
the need for vigilance for signs of inflationary
pressures as spare capacity diminishes. While
welcoming the marked improvement in the federal
budget deficit in FY2005, most Directors
believed that a much more ambitious fiscal
adjustment is needed in FY2006 and beyond,
with the aim of achieving broad budget balance
(excluding Social Security) by 2010, based on
further spending discipline and consideration of
revenue enhancements. In this context, a few
Directors noted that a rapid decline in the U.S.
fiscal deficit could slow U.S. and global growth
in the absence of increased domestic demand
elsewhere.
Directors were encouraged by the signs of a
stronger recovery in the euro area, while cautioning
that it remains unduly vulnerable to external
factors, particularly oil prices and world
demand. Against the background of limited
underlying inflationary pressures and still fragile
domestic demand, most Directors observed
that monetary policy needs to remain appropriately
supportive of the recovery, with some
Directors suggesting that further increases in
interest rates should await clear signs of a self
sustaining recovery in domestic demand.
Directors noted with concern the lack of
progress in reducing area-wide budget deficits,
and shared the view that most countries should
aim for a broadly balanced fiscal position by the
end of the decade. With rising fiscal pressures
from an aging population, Directors attached
particular importance to the need to reform
Europe’s social systems in line with the objectives
of the Lisbon Agenda, and a few expressed
concern about the rising resistance to reforms
in some countries. Directors noted that examples
of successful social policies within Europe
could be a useful guide in reforming social
models in other countries, but cautioned that
reforms will have to take into account important
country specific differences. More generally,
Directors reiterated the importance of contin-
ANNEX IMF EXECUTIVE BOARD DISCUSSION OF THE OUTLOOK,
MARCH 2006
162
ued structural reforms for enhancing the
region’s low potential growth rate.
Directors welcomed the increasingly well
established economic recovery in Japan. They
noted that the expansion is being driven by
domestic demand, and underpinned by rising
employment, buoyant corporate profits, and a
turnaround in bank credit growth. Directors
expected the positive growth momentum to
continue, with potential risks to the upside
from stronger-than-anticipated private consumption
in response to rising employment and
labor income. Directors welcomed that core
CPI inflation has turned slightly positive, and
that the Bank of Japan has been able to move
away from its quantitative easing framework, but
they emphasized that interest rates should be
kept at zero until deflation is decisively beaten.
Directors acknowledged the reduction in the
general government budget deficit, but called
for more rapid progress in improving the fiscal
position going forward, in order to stabilize
public debt and accommodate the budgetary
pressures from an aging population. Directors
underscored the need to complete the remaining
agenda of structural reforms to boost productivity,
particularly in the nontraded sector,
and to complete financial and corporate
restructuring.
Emerging Market and
Developing Countries
Directors welcomed the continued rapid
growth in emerging Asia. With global economic
conditions—now supported by the ongoing
recovery in domestic demand in Japan—
expected to remain favorable, Directors
expected the expansion to maintain momentum
in 2006, once again led by China and India.
Directors emphasized the need for more balanced
growth in the region, and encouraged
policymakers to strengthen the pace of structural
reforms, emphasizing the key objectives of
increasing household consumption in China
and domestic investment in much of the rest of
the region. Most Directors also considered that
exchange rates would need to be allowed to
appreciate in the surplus countries in the
region.
Directors expected the robust economic
expansion in Latin America to continue in 2006,
with external demand continuing to remain an
important driver of growth. While welcoming
the disciplined fiscal policies in much of the
region, many Directors called for further
progress in debt reduction in a number of these
countries. Directors accordingly called on
policymakers
in these countries to focus on further
reducing these vulnerabilities through continued
tight fiscal policies—which could be challenging
in some countries given the electoral
schedule—and structural reforms that raise the
long-term growth potential, including steps to
improve the business climate in order to attract
greater investment.
In emerging Europe, growth is expected to
remain firm, although Directors cautioned that
the expansion will depend on the strength of
the recovery of demand in the euro area. Directors
saw downside risks to the outlook arising
mainly from the region’s large current account
deficits, and the rapid expansion of credit
growth in a number of countries. Directors
urged increased fiscal consolidation in central
Europe to reduce external deficits, while in the
Baltics and southern Europe, several Directors
saw a role for policies to reduce the rapid pace
of credit expansion.
In the Commonwealth of Independent States,
real GDP growth slowed noticeably, reflecting
primarily the sharp slowdown in Ukraine, but
also more moderate growth elsewhere. Looking
forward, Directors emphasized that monetary
policy will need to play a more active role
in containing inflation, including through
allowing greater nominal exchange rate
appreciation where necessary. While countries
benefiting from higher oil revenues have scope
to raise productive spending, Directors cautioned
that such spending should be consistent
with broader macroeconomic objectives and
cyclical considerations. They stressed the need
for structural reforms to strengthen the role
EMERGING MARKET AND DEVELOPING COUNTRIES
163
ANNEX IMF EXECUTIVE BOARD DISCUSSION OF THE OUTLOOK,
MARCH 2006
164
of the private sector and deepen market
institutions.
Directors welcomed the robust economic
expansion in sub-Saharan Africa, and expected
that growth in the region would strengthen in
2006 to its strongest pace in three decades,
underpinned by high commodity prices,
improved macroeconomic policies, and structural
reforms. They stressed that maintaining
high long-term growth rates will be crucial to
reducing the incidence of poverty in the region
and making progress toward the Millennium
Development Goals. In this regard, Directors
underscored the importance of continued
reforms to improve the institutional environment,
along with structural reforms designed to
encourage greater private investment and make
economies less dependent on global commodity
cycles. Directors also called on the international
community to support Africa’s reform efforts,
including by following through on commitments
for greater resource flows and improved
market access.
In the Middle East, led by substantially higher
export earnings among oil-exporting countries,
growth remains robust. Despite a strengthening
in domestic demand, inflation has remained
subdued as countries have saved a larger proportion
of the increase in oil revenues compared
with previous oil cycles. Some Directors
expressed concern about the rise in property
and stock market prices in the region, underscoring
the need for careful monitoring of
potential risks from any abrupt market corrections.
Directors emphasized that with a significant
proportion of higher oil revenues expected
to be permanent, increased consideration
should be given to carefully planned expenditures
to raise potential growth in both the oil
and non-oil economy and provide increased
employment opportunities for the growing
working-age population.
The statistical appendix presents historical
data, as well as projections. It comprises
five sections: Assumptions,
What’s New, Data and Conventions,
Classification of Countries, and Statistical
Tables.
The assumptions underlying the estimates and
projections for 2006–07 and the medium-term
scenario for 2008–11 are summarized in the first
section. The second section presents a brief
description of changes to the database and statistical
tables. The third section provides a general
description of the data, and of the conventions
used for calculating country group composites.
The classification of countries in the various
groups presented in the World Economic Outlook is
summarized in the fourth section.
The last, and main, section comprises the statistical
tables. Data in these tables have been
compiled on the basis of information available
through early April 2006. The figures for 2006
and beyond are shown with the same degree of
precision as the historical figures solely for
convenience;
since they are projections, the same
degree of accuracy is not to be inferred.
Assumptions
Real effective exchange rates for the advanced
economies are assumed to remain constant at
their average levels during the period February 9
to March 9, 2006. For 2006 and 2007, these
assumptions imply average U.S. dollar/SDR conversion
rates of 1.438 and 1.441, U.S.
dollar/euro conversion rate of 1.19 and 1.20,
and yen/U.S. dollar conversion rates of 116.9
and 115.9, respectively.
It is assumed that the price of oil will average
$61.25 a barrel in 2006 and $63.00 a barrel in
2007.
Established policies of national authorities are
assumed to be maintained. The more specific
policy assumptions underlying the projections
for selected advanced economies are described
in Box A1.
With regard to interest rates, it is assumed that
the London interbank offered rate (LIBOR) on
six-month U.S. dollar deposits will average 5.0
percent in 2006 and 5.1 percent in 2007, that
three-month euro deposits will average 3.0 percent
in 2006 and 3.4 percent in 2007, and that
six-month Japanese yen deposits will average 0.3
percent in 2006 and 0.9 percent in 2007.
With respect to introduction of the euro, on
December 31, 1998, the Council of the
European Union decided that, effective January
1, 1999, the irrevocably fixed conversion rates
between the euro and currencies of the member
states adopting the euro are as follows.
1 euro = 13.7603 Austrian schillings
= 40.3399 Belgian francs
= 1.95583 Deutsche mark
= 5.94573 Finnish markkaa
= 6.55957 French francs
= 340.750 Greek drachma1
= 0.787564 Irish pound
= 1,936.27 Italian lire
= 40.3399 Luxembourg francs
= 2.20371 Netherlands guilders
= 200.482 Portuguese escudos
= 166.386 Spanish pesetas
See Box 5.4 in the October 1998 World
Economic Outlook for details on how the conversion
rates were established.
What’s New
The country composition of the fuel-exporting
group has been revised to reflect the peri-
165
STATISTICAL APPENDIX
1The conversion rate for Greece was established prior
to inclusion in the euro area on January 1, 2001.
STATISTICAL APPENDIX
166
The short-term fiscal policy assumptions used in
the World Economic Outlook are based on officially
announced budgets, adjusted for differences
between the national authorities and the IMF staff
regarding macroeconomic assumptions and projected
fiscal outturns. The medium-term fiscal projections
incorporate policy measures that are
judged likely to be implemented. In cases where
the IMF staff has insufficient information to assess
the authorities’ budget intentions and prospects for
policy implementation, an unchanged structural
primary balance is assumed, unless otherwise
indicated.
Specific assumptions used in some of the
advanced economies follow (see also Tables 12–14
in the Statistical Appendix for data on fiscal and
structural balances).1
United States. The fiscal projections are based on
the Administration’s FY2007 Budget (February 6,
2006), adjusted to take into account differences in
macroeconomic projections as well as staff assumptions
about (1) additional defense spending based
on analysis by the Congressional Budget Office; (2)
slower compression in the growth rate of discretionary
spending; (3) government spending for the
clean-up and reconstruction in areas damaged by
Hurricane Katrina; and (4) alternative minimum
tax (AMT) reform beyond FY2007.
Japan. The medium-term fiscal projections assume
that expenditure and revenue of the general government
(excluding social security) are adjusted in line
with the current government target to achieve a
primary
fiscal balance by the early 2010s.
Germany. Official estimates were used for 2005.
For 2006–2011, the World Economic Outlook projections
reflect measures as announced in the new
government’s coalition agreement. These aim to
reduce the overall fiscal balance to below 3 percent
of GDP in 2007, centered around a 3 percent
increase in the value added tax, or VAT (as of
January 2007).
France. The projections for 2006 are based on the
initial budget adjusted for the IMF staff’s
macroeconomic
assumptions. For 2007–09, the projections
are based on the intentions underlying the
2007–09 Stability Program Update adjusted for the
IMF staff’s macroeconomic assumptions, lower
projections
for nontax revenue, unchanged tax policy
beyond 2007, and a less sharp deceleration in
spending growth than projected by the authorities
beyond 2007. For 2010–11, the IMF staff assumes
unchanged tax policies and real expenditure
growth as in the 2009 projection.
Italy. Fiscal projections from 2007 onward are
based on a technical assumption of a constant primary
structural balance net of one-off measures.
They do not incorporate measures that would be
adopted in the 2007 budget.
United Kingdom. The fiscal projections are based
on information provided in the 2006 Budget
Report. Additionally, the projections incorporate
the most recent statistical releases from the Office
for National Statistics, including provisional
budgetary
outturns through 2005:Q4. The computation
of the structural fiscal balance is based on staff
projections
of the output gap.
Canada. Projections are based on costing of the
new government’s program provided during the
recent election campaign, which were examined
for accuracy by Canada’s Conference Board
(http://www.conservative.ca/media/20060113-
FiscalPlan.pdf).
Australia. The fiscal projections through the
fiscal year 2008/09 are based on the 2005–06
Mid-Year Economic and Fiscal Outlook published
in December 2005. For the remainder of the projection
period, the IMF staff assumes unchanged
policies.
Box A1. Economic Policy Assumptions Underlying the
Projections for Selected Advanced Economies
1The output gap is actual less potential output, as a
percent
of potential output. Structural balances are
expressed as a percent of potential output. The
structural
budget balance is the budgetary position that would be
observed if the level of actual output coincided with
potential output. Changes in the structural budget
balance
consequently include effects of temporary fiscal
measures, the impact of fluctuations in interest rates
and
debt-service costs, and other noncyclical fluctuations
in
the budget balance. The computations of structural
budget balances are based on IMF staff estimates of
potential GDP and revenue and expenditure elasticities
(see the October 1993 World Economic Outlook, Annex
I).
Net debt is defined as gross debt less financial
assets of
the general government, which include assets held by
the
social security insurance system. Estimates of the
output
gap and of the structural balance are subject to
significant
margins of uncertainty.
STATISTICAL APPENDIX
167
Austria. Fiscal figures for 2005 are based on the
authorities’ estimated outturn. Projections for 2006
are based on this year’s budget. Projections for
2007–08 are based on the Austrian Stability
Program. For 2009–11, projections assume
unchanged overall and structural balances from
those in 2008.
Belgium. The projections for 2006 are based on
the 2006 budget adjusted for the IMF staff’s
macroeconomic
assumptions and an assumed lower yield
of some specific items. For 2007–11, the projections
assume unchanged tax policies and real primary
expenditure growth as in the recent past.
Denmark. Estimates for 2005 are aligned with the
latest official projections and budget, adjusted for
the IMF staff macroeconomic projections. For
2006–11, projections are in line with the authorities’
medium-term framework—adjusted for the IMF staff
macroeconomic projections—targeting an average
budget surplus of 1.5–2.5 percent of GDP, supported
by a ceiling on real public consumption growth.
Greece. Projections are based on the 2006 budget,
adjusted for IMF staff projections for economic
growth. For 2007 and beyond, tax revenues as a
percent of GDP are assumed constant, while social
insurance contributions are assumed to continue
their trend increase and EU transfers are assumed
to decline. Total expenditure is assumed to remain
broadly constant as a percent of GDP.
Korea. Estimates for 2005 are based on the initial
budget adjusted for the latest official estimates of
some components. Projections for 2006 are based
on the authorities’ budget. For 2007–09, projections
are in line with the authorities’ National Fiscal
Management Plan. For 2010–11, IMF staff assumes
unchanged revenue and expenditure growth from
the 2007–09 projections.
Netherlands. The fiscal projections for 2006 and
beyond build on the 2006 budget, the latest
Stability Program, and other forecasts provided by
the authorities, adjusted for the IMF staff’s
macroeconomic
assumptions.
New Zealand. The fiscal projections through the
fiscal year 2009/10 are based on the 2005 Half Year
Economic and Fiscal Update published in December
2005. For the remainder of the projection
period, the IMF staff assumes unchanged policies.
Portugal. Fiscal projections for 2006 build on the
authorities’ budget. Projections for 2007 and
beyond are based on the current Stability and
Growth Program by the authorities.
Spain. Fiscal projections through 2008 are based
on the policies outlined in the national authorities’
updated Stability Program of December 2005.
These projections have been adjusted for the IMF
staff’s macroeconomic scenario. In subsequent
years, the fiscal projections assume no significant
changes in these policies.
Sweden. The fiscal projections are based on
information
provided in the budget, presented on
September 20, 2005. Additionally, the projections
incorporate the most recent statistical releases from
Statistics Sweden, including provisional budgetary
outturns through December 2005.
Switzerland. Estimates for 2005 and projections
for 2006–11 are based on IMF staff calculations,
which incorporate measures to restore balance in
the Federal accounts and strengthen the social
security finances.
Monetary policy assumptions are based on the
established policy framework in each country. In
most cases, this implies a nonaccommodative
stance over the business cycle: official interest
rates will therefore increase when economic
indicators suggest that prospective inflation will
rise above its acceptable rate or range, and they
will decrease when indicators suggest that prospective
inflation will not exceed the acceptable
rate or range, that prospective output growth is
below its potential rate, and that the margin of
slack in the economy is significant. On this basis,
the LIBOR on six-month U.S. dollar deposits is
assumed to average 5.0 percent in 2006 and
5.1 percent in 2007. The projected path for U.S.
dollar short-term interest rates reflects the
assumption
implicit in prevailing forward rates. The rate
on three-month euro deposits is assumed to average
3.0 percent in 2006 and 3.4 percent in 2007.
The interest rate on six-month Japanese yen
deposits is assumed to average 0.3 percent in
2006 and 0.9 percent in 2007. Changes in interest
rate assumptions compared with the September
2005 World Economic Outlook are summarized in
Table 1.1.
odic update of the classification criteria; and the
purchasing-power-parity (PPP) weights have
been updated to reflect the most up-to-date PPP
conversion factor provided by the World Bank.
Data and Conventions
Data and projections for 175 countries form
the statistical basis for the World Economic Outlook
(the World Economic Outlook database). The
data are maintained jointly by the IMF’s
Research Department and area departments,
with the latter regularly updating country projections
based on consistent global assumptions.
Although national statistical agencies are the
ultimate providers of historical data and definitions,
international organizations are also
involved in statistical issues, with the objective of
harmonizing methodologies for the national
compilation of statistics, including the analytical
frameworks, concepts, definitions, classifications,
and valuation procedures used in the production
of economic statistics. The World Economic
Outlook database reflects information from both
national source agencies and international
organizations.
The comprehensive revision of the standardized
System of National Accounts 1993 (SNA), the
IMF’s Balance of Payments Manual, Fifth Edition
(BPM5), the Monetary and Financial Statistics
Manual (MFSM), and the Government Finance
Statistics Manual 2001 (GFSM 2001) represented
important improvements in the standards of
economic statistics and analysis.2 The IMF was
actively involved in all these projects, particularly
the new Balance of Payments Manual, which
reflects the IMF’s special interest in countries’
external positions. Key changes introduced
with the new Manual were summarized in
Box 13 of the May 1994 World Economic Outlook.
The process of adapting country balance of
payments data to the definitions of the new
BPM5 began with the May 1995 World Economic
Outlook. However, full concordance with the
BPM5 is ultimately dependent on the provision
by national statistical compilers of revised country
data, and hence the World Economic Outlook
estimates are still only partially adapted to the
BPM5.
In line with recent improvements in standards
of reporting economic statistics, several
countries have phased out their traditional
fixed base-year method of calculating real
macroeconomic
variables levels and growth by switching
to a chain-weighted method of computing
aggregate growth. Recent dramatic changes in
the structure of these economies have obliged
these countries to revise the way in which they
measure real GDP levels and growth. Switching
to the chain-weighted method of computing
aggregate growth, which uses current price
information, allows countries to measure GDP
growth more accurately by eliminating upward
biases in new data.3 Currently, real macroeconomic
data for Australia, Austria, Azerbaijan,
Canada, Czech Republic, euro area, Germany,
Greece, Iceland, Ireland, Italy, Japan, Luxembourg,
the Netherlands, New Zealand, Portugal,
Spain, Sweden, the United Kingdom, and the
United States are based on chain-weighted
methodology. However, data before 1988
(Austria), 2000 (Azerbaijan), 1995 (Czech
Republic), 1995 (euro area), 1991 (Germany),
2000 (Greece), 1990 (Iceland), 1997 (Ireland),
2001 (Italy), 1994 (Japan), 1995 (Luxembourg),
2001 (the Netherlands), 1995 (Portugal), and
1995 (Spain) are based on unrevised national
accounts and subject to revision in the future.
STATISTICAL APPENDIX
168
2Commission of the European Communities, International
Monetary Fund, Organization for Economic Cooperation
and Development, United Nations, and World Bank,
System of National Accounts 1993 (Brussels/Luxembourg,
New York,
Paris, and Washington, 1993); International Monetary
Fund, Balance of Payments Manual, Fifth Edition
(Washington, 1993);
International Monetary Fund, Monetary and Financial
Statistics Manual (Washington, 2000); and
International Monetary
Fund, Government Finance Statistics Manual
(Washington, 2001).
3Charles Steindel, 1995, “Chain-Weighting: The New
Approach to Measuring GDP,” Current Issues in
Economics and
Finance (Federal Reserve Bank of New York), Vol. 1
(December).
The members of the European Union have
adopted a harmonized system for the compilation
of the national accounts, referred to as
ESA 1995. All national accounts data from 1995
onward are presented on the basis of the new
system. Revision by national authorities of data
prior to 1995 to conform to the new system has
progressed, but has in some cases not been
completed. In such cases, historical World
Economic Outlook data have been carefully
adjusted to avoid breaks in the series. Users
of EU national accounts data prior to 1995
should nevertheless exercise caution until
such time as the revision of historical data by
national statistical agencies has been fully
completed.
See Box 1.2, “Revisions in National
Accounts Methodologies,” in the May 2000
World Economic Outlook.
Composite data for country groups in the
World Economic Outlook are either sums or
weighted averages of data for individual countries.
Unless otherwise indicated, multiyear averages
of growth rates are expressed as compound
annual rates of change. Arithmetically weighted
averages are used for all data except inflation
and money growth for the other emerging market
and developing country group, for which
geometric averages are used. The following conventions
apply.
• Country group composites for exchange rates,
interest rates, and the growth rates of monetary
aggregates are weighted by GDP converted
to U.S. dollars at market exchange rates
(averaged over the preceding three years) as a
share of group GDP.
• Composites for other data relating to the
domestic economy, whether growth rates or
ratios, are weighted by GDP valued at purchasing
power parities (PPPs) as a share of total
world or group GDP.4
• Composites for data relating to the domestic
economy for the euro area (12 member countries
throughout the entire period unless otherwise
noted) are aggregates of national
source data using weights based on 1995 ECU
exchange rates.
• Composite unemployment rates and employment
growth are weighted by labor force as a
share of group labor force.
• Composites relating to the external economy
are sums of individual country data after conversion
to U.S. dollars at the average market
exchange rates in the years indicated for balance
of payments data and at end-of-year market
exchange rates for debt denominated in
currencies other than U.S. dollars. Composites
of changes in foreign trade volumes and
prices, however, are arithmetic averages of percentage
changes for individual countries
weighted by the U.S. dollar value of exports or
imports as a share of total world or group
exports or imports (in the preceding year).
For central and eastern European countries,
external transactions in nonconvertible currencies
(through 1990) are converted to U.S. dollars
at the implicit U.S. dollar/ruble conversion
rates obtained from each country’s national currency
exchange rate for the U.S. dollar and for
the ruble.
Classification of Countries
Summary of the Country Classification
The country classification in the World
Economic Outlook divides the world into two
major groups: advanced economies, and other
emerging market and developing countries.5
Rather than being based on strict criteria, economic
or otherwise, this classification has
4See Box A2 of the April 2004 World Economic Outlook
for a summary of the revised PPP-based weights and
Annex IV of
the May 1993 World Economic Outlook. See also
Anne-Marie Gulde and Marianne Schulze-Ghattas,
“Purchasing Power Parity
Based Weights for the World Economic Outlook,” in
Staff Studies for the World Economic Outlook
(International Monetary Fund,
December 1993), pp. 106–23.
5As used here, the term “country” does not in all
cases refer to a territorial entity that is a state as
understood by international
law and practice. It also covers some territorial
entities that are not states, but for which
statistical data are maintained
on a separate and independent basis.
STATISTICAL APPENDIX
169
STATISTICAL APPENDIX
170
Table A. Classification by World Economic Outlook
Groups and Their Shares in Aggregate GDP, Exports
of Goods and Services, and Population, 20051
(Percent of total for group or world)
Number of Exports of Goods
Countries GDP and Services Population
Advanced Advanced Advanced
_e_c_o_n_o_m__ie_s_____W__o_r_ld_
_e_c_o_n_o_m__i_e_s____W__o_r_ld_
e_c_o_n__o_m_i_e_s____W__o_r_l_d
Advanced economies 29 100.0 52.3 100.0 68.9 100.0 15.3
United States 38.4 20.1 14.6 10.1 30.6 4.7
Euro area 12 28.3 14.8 42.9 29.5 32.1 4.9
Germany 7.9 4.1 13.0 9.0 8.5 1.3
France 5.7 3.0 6.4 4.4 6.4 1.0
Italy 5.2 2.7 5.3 3.6 6.0 0.9
Spain 3.4 1.8 3.3 2.2 4.3 0.7
Japan 12.2 6.4 7.8 5.3 13.2 2.0
United Kingdom 5.7 3.0 6.6 4.5 6.2 0.9
Canada 3.5 1.8 4.9 3.4 3.3 0.5
Other advanced economies 13 11.9 6.2 23.3 16.1 14.6
2.2
Memorandum
Major advanced economies 7 78.7 41.2 58.6 40.4 74.3
11.3
Newly industrialized Asian economies 4 6.2 3.2 13.6
9.4 8.5 1.3
Other Other Other
emerging emerging emerging
market and market and market and
developing developing developing
__c_o_u_n_tr_i_e_s_____W__o_r_ld_
__c_o_u_n_t_ri_e_s_____W__o_r_ld_
_c_o_u_n_t_r_ie_s_____W__o_r_ld_
Other emerging market and
developing countries 146 100.0 47.7 100.0 30.8 100.0
84.7
Regional groups
Africa 48 6.9 3.3 7.9 2.4 15.0 12.7
Sub-Sahara 45 5.4 2.6 5.8 1.8 13.7 11.6
Excluding Nigeria and South Africa 43 2.8 1.3 2.8 0.9
10.1 8.5
Central and eastern Europe 15 6.9 3.3 14.1 4.4 3.4 2.9
Commonwealth of Independent States2 13 7.9 3.8 9.8 3.0
5.2 4.4
Russia 5.4 2.6 6.8 2.1 2.7 2.2
Developing Asia 23 56.7 27.1 38.9 12.1 61.5 52.1
China 32.3 15.4 21.5 6.7 24.3 20.6
India 12.5 5.9 4.0 1.3 20.2 17.1
Excluding China and India 21 12.0 5.7 13.4 4.2 17.0
14.4
Middle East 14 5.9 2.8 14.8 4.6 4.8 4.1
Western Hemisphere 33 15.5 7.4 14.5 4.5 10.0 8.5
Brazil 5.4 2.6 3.4 1.1 3.4 2.9
Mexico 3.7 1.8 3.9 1.2 2.0 1.7
Analytical groups
By source of export earnings
Fuel 24 13.2 6.3 26.6 8.3 11.4 9.6
Nonfuel 122 86.8 41.4 73.4 22.8 88.6 75.1
of which, primary products 23 2.1 1.0 2.3 0.7 5.3 4.5
By external financing source
Net debtor countries 126 53.9 25.7 49.9 15.5 67.7 57.4
of which, official financing 50 12.7 6.0 8.8 2.7 22.5
19.0
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 56 12.2 5.8 11.1 3.5
23.9 20.2
Other net debtor countries 70 41.7 19.9 38.8 12.1 43.8
37.1
Other groups
Heavily indebted poor countries 29 1.9 0.9 1.2 0.4 8.0
6.7
Middle East and North Africa 20 7.8 3.7 17.1 5.3 6.9
5.9
1The GDP shares are based on the
purchasing-power-parity (PPP) valuation of country
GDPs. The number of countries comprising each
group reflects those for which data are included in
the group aggregates.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities
in economic structure.
evolved over time with the objective of facilitating
analysis by providing a reasonably meaningful
organization of data. A few countries are
presently not included in these groups, either
because they are not IMF members and their
economies are not monitored by the IMF, or
because databases have not yet been fully developed.
Because of data limitations, group composites
do not reflect the following countries:
The Islamic Republic of Afghanistan, Bosnia and
Herzegovina, Brunei Darussalam, Eritrea,
Liberia, Serbia and Montenegro, Somalia, and
Timor-Leste. Cuba and the Democratic People’s
Republic of Korea are examples of countries
that are not IMF members, whereas San Marino,
among the advanced economies, and Aruba,
among the developing countries, are examples
of economies for which databases have not been
completed.
Each of the two main country groups is further
divided into a number of subgroups.
Among the advanced economies, the seven
largest in terms of GDP, collectively referred to
as the major advanced countries, are distinguished
as a subgroup, and so are the 12 members
of the euro area and the four newly
industrialized Asian economies. The other
emerging market and developing countries are
classified by region, as well as into a number of
analytical groups. Table A provides an overview
of these standard groups in the World Economic
Outlook, showing the number of countries in
each group and the average 2005 shares of
groups in aggregate PPP-valued GDP, total
exports of goods and services, and population.
General Features and Composition of Groups in
the World Economic Outlook Classification
Advanced Economies
The 29 advanced economies are listed in
Table B. The seven largest in terms of GDP—the
United States, Japan, Germany, France, Italy, the
United Kingdom, and Canada—constitute the
subgroup of major advanced economies, often
referred to as the Group of Seven (G-7) countries.
The euro area (12 countries) and the newly
industrialized Asian economies are also distinguished
as subgroups. Composite data shown in
the tables for the euro area cover the current
members for all years, even though the membership
has increased over time.
In 1991 and subsequent years, data for
Germany refer to west Germany and the eastern
Länder (i.e., the former German Democratic
Republic). Before 1991, economic data are not
available on a unified basis or in a consistent
manner. Hence, in tables featuring data
expressed as annual percent change, these apply
to west Germany in years up to and including
1991, but to unified Germany from 1992
onward. In general, data on national accounts
and domestic economic and financial activity
through 1990 cover west Germany only, whereas
data for the central government and balance of
STATISTICAL APPENDIX
171
Table B. Advanced Economies by Subgroup
________________________________________O_t_h_e_r_
S_u_b_g_r_o_u_p_s________________________________________
Newly industrialized Major advanced
Major Currency Areas Euro area Asian economies
economies Other advanced economies
United States Austria Ireland Hong Kong SAR1 Canada
Australia Korea
Euro area Belgium Italy Korea France Cyprus New
Zealand
Japan Finland Luxembourg Singapore Germany Denmark
Norway
France Netherlands Taiwan Province Italy Hong Kong
SAR1 Singapore
Germany Portugal of China Japan Iceland Sweden
Greece Spain United Kingdom Israel Switzerland
United States Taiwan Province
of China
1On July 1, 1997, Hong Kong was returned to the
People’s Republic of China and became a Special
Administrative Region of China.
payments apply to west Germany through June
1990 and to unified Germany thereafter.
Table C lists the member countries of the
European Union, not all of which are classified
as advanced economies in the World Economic
Outlook.
Other Emerging Market and Developing Countries
The group of other emerging market and
developing countries (146 countries) includes
all countries that are not classified as advanced
economies.
The regional breakdowns of other emerging
market and developing countries—Africa, central
and eastern Europe, Commonwealth of Independent
States, developing Asia, Middle East, and Western
Hemisphere—largely conform to the regional
breakdowns in the IMF’s International Financial
Statistics. In both classifications, Egypt and the
Libyan Arab Jamahiriya are included in the
Middle East region rather than in Africa. In addition,
the World Economic Outlook sometimes refers
to the regional group of Middle East and North
Africa countries, also referred to as the MENA
countries, whose composition straddles the
Africa and Middle East regions. This group is
defined as the Arab League countries plus the
Islamic Republic of Iran (see Table D).
Other emerging market and developing countries
are also classified according to analytical criteria.
The analytical criteria reflect countries’
composition of export earnings and other
income from abroad, exchange rate arrangements,
a distinction between net creditor and
net debtor countries, and, for the net debtor
countries, financial criteria based on external
financing source and experience with external
debt servicing. The detailed composition of
other emerging market and developing countries
in the regional and analytical groups is
shown in Tables E and F.
STATISTICAL APPENDIX
172
Table D. Middle East and North Africa Countries
Algeria Iraq Mauritania Sudan
Bahrain Jordan Morocco Syrian Arab Republic
Djibouti Kuwait Oman Tunisia
Egypt Lebanon Qatar United Arab Emirates
Iran, I.R. of Libya Saudi Arabia Yemen
Table E. Other Emerging Market and Developing
Countries by Region and Main Source of Export
Earnings
Nonfuel, of Which
Fuel Primary Products
Africa Algeria Botswana
Angola Burkina Faso
Congo, Rep. of Burundi
Equatorial Guinea Chad
Gabon Congo, Dem. Rep. of
Nigeria Côte d’Ivoire
Sudan Ghana
Guinea
Guinea-Bissau
Malawi
Mauritania
Namibia
Niger
Sierra Leone
Uganda
Zambia
Zimbabwe
Commonwealth Azerbaijan Tajikistan
of Independent Russia Uzbekistan
States Turkmenistan
Developing Asia Papua New Guinea
Solomon Islands
Middle East Bahrain
Iran, I.R. of
Iraq
Kuwait
Libya
Oman
Qatar
Saudi Arabia
Syrian Arab Republic
United Arab Emirates
Yemen
Western Ecuador Chile
Hemisphere Trinidad and Tobago Suriname
Venezuela
Table C. European Union
Austria France Latvia Portugal
Belgium Germany Lithuania Slovak Republic
Cyprus Greece Luxembourg Slovenia
Czech Republic Hungary Malta Spain
Denmark Ireland Netherlands Sweden
Estonia Italy Poland United Kingdom
Finland
STATISTICAL APPENDIX
173
Africa
Maghreb
Algeria *
Morocco *
Tunisia *
Sub-Sahara
South Africa *
Horn of Africa
Djibouti •
Ethiopia • *
Sudan *
Great Lakes
Burundi • *
Congo, Dem. Rep. of • *
Kenya •
Rwanda • *
Tanzania • *
Uganda * *
Southern Africa
Angola *
Botswana *
Comoros •
Lesotho *
Madagascar • *
Malawi • *
Mauritius *
Mozambique, Rep. of * *
Namibia *
Seychelles *
Swaziland *
Zambia • *
Zimbabwe *
West and Central Africa
Cape Verde *
Gambia, The * *
Ghana • *
Guinea • *
Mauritania * *
Nigeria *
São Tomé and Príncipe * *
Sierra Leone • *
CFA franc zone
Benin • *
Burkina Faso • *
Cameroon * *
Central African Republic •
Chad • *
Congo, Rep. of • *
Côte d’Ivoire •
Equatorial Guinea *
Gabon •
Guinea-Bissau • *
Mali • *
Niger • *
Senegal * *
Togo •
Central and eastern Europe
Albania *
Bulgaria *
Croatia *
Czech Republic *
Estonia *
Hungary *
Latvia *
Lithuania *
Macedonia, FYR *
Malta *
Poland *
Romania *
Slovak Republic *
Slovenia *
Turkey *
Commonwealth of
Independent States2
Armenia *
Azerbaijan *
Belarus *
Georgia *
Kazakhstan *
Kyrgyz Republic •
Moldova *
Mongolia •
Russia *
Tajikistan *
Turkmenistan *
Ukraine *
Uzbekistan *
Developing Asia
Bhutan •
Cambodia •
China *
Fiji *
Indonesia •
Kiribati *
Lao PDR *
Malaysia *
Myanmar *
Papua New Guinea •
Philippines *
Samoa *
Solomon Islands •
Thailand *
Tonga *
Vanuatu •
Vietnam •
South Asia
Bangladesh •
India *
Maldives *
Nepal •
Pakistan •
Sri Lanka •
Table F. Other Emerging Market and Developing
Countries by Region, Net External Position, and
Heavily
Indebted Poor Countries
Net External Net External
____P_o_s_i_ti_o_n____ Heavily ____P__o_s_it_io_n____
Heavily
Net Net Indebted Net Net Indebted
creditor debtor1 Poor Countries creditor debtor1 Poor
Countries
The analytical criterion, by source of export
earnings, distinguishes between categories: fuel
(Standard International Trade Classification—
SITC 3) and nonfuel and then focuses on
nonfuel primary products (SITC 0, 1, 2, 4,
and 68).
The financial criteria focus on net creditor, net
debtor countries, and heavily indebted poor countries
(HIPCs). Net debtor countries are further
differentiated
on the basis of two additional financial
criteria: by official external financing and by
experience
with debt servicing.6 The HIPC group comprises
the countries considered by the IMF and
the World Bank for their debt initiative, known
as the HIPC Initiative, with the aim of reducing
the external debt burdens of all the eligible
HIPCs to a “sustainable” level in a reasonably
short period of time.7
STATISTICAL APPENDIX
174
Middle East
Bahrain *
Iran, I.R. of *
Iraq *
Kuwait *
Libya *
Oman *
Qatar *
Saudi Arabia *
United Arab Emirates *
Yemen *
Mashreq
Egypt *
Jordan *
Lebanon •
Syrian Arab Republic *
Western Hemisphere
Mercosur
Argentina •
Bolivia (associate member) • *
Brazil *
Chile (associate member) *
Paraguay •
Uruguay •
Andean region
Colombia •
Ecuador *
Peru *
Venezuela *
Mexico, Central America,
and Caribbean
Mexico *
Central America
Costa Rica *
El Salvador •
Guatemala *
Honduras • *
Nicaragua * *
Panama *
Caribbean
Antigua and Barbuda *
Bahamas, The *
Barbados *
Belize *
Dominica *
Dominican Republic •
Grenada •
Guyana * *
Haiti •
Jamaica *
Netherlands Antilles *
St. Kitts and Nevis *
St. Lucia •
St. Vincent and the
Grenadines *
Suriname *
Trinidad and Tobago *
Table F (concluded)
Net External Net External
____P_o_s_i_ti_o_n____ Heavily ____P__o_s_it_io_n____
Heavily
Net Net Indebted Net Net Indebted
creditor debtor1 Poor Countries creditor debtor1 Poor
Countries
1Dot instead of star indicates that the net debtor’s
main external finance source is official financing.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities
in economic structure.
6During 1999–2003, 56 countries incurred external
payments arrears or entered into official or
commercial bank debtrescheduling
agreements. This group of countries is referred to as
countries with arrears and/or rescheduling during
1999–2003.
7See David Andrews, Anthony R. Boote, Syed S. Rizavi,
and Sukwinder Singh, Debt Relief for Low-Income
Countries: The
Enhanced HIPC Initiative, IMF Pamphlet Series, No. 51
(Washington: International Monetary Fund, November
1999)
Output
1. Summary of World Output 177
2. Advanced Economies: Real GDP and Total Domestic
Demand 178
3. Advanced Economies: Components of Real GDP 179
4. Advanced Economies: Unemployment, Employment, and
Real Per Capita GDP 181
5. Other Emerging Market and Developing Countries:
Real GDP 183
6. Other Emerging Market and Developing Countries—by
Country: Real GDP 184
Inflation
7. Summary of Inflation 188
8. Advanced Economies: GDP Deflators and Consumer
Prices 189
9. Advanced Economies: Hourly Earnings, Productivity,
and Unit Labor Costs
in Manufacturing 190
10. Other Emerging Market and Developing Countries:
Consumer Prices 191
11. Other Emerging Market and Developing Countries—by
Country: Consumer Prices 192
Financial Policies
12. Summary Financial Indicators 196
13. Advanced Economies: General and Central Government
Fiscal Balances and
Balances Excluding Social Security Transactions 197
14. Advanced Economies: General Government Structural
Balances 199
15. Advanced Economies: Monetary Aggregates 200
16. Advanced Economies: Interest Rates 201
17. Advanced Economies: Exchange Rates 202
18. Other Emerging Market and Developing Countries:
Central Government
Fiscal Balances 203
19. Other Emerging Market and Developing Countries:
Broad Money Aggregates 204
Foreign Trade
20. Summary of World Trade Volumes and Prices 205
21. Nonfuel Commodity Prices 207
22. Advanced Economies: Export Volumes, Import
Volumes, and Terms of Trade in
Goods and Services 208
23. Other Emerging Market and Developing Countries—by
Region: Total Trade in Goods 209
24. Other Emerging Market and Developing Countries—by
Source of Export
Earnings: Total Trade in Goods 212
Current Account Transactions
25. Summary of Payments Balances on Current Account
213
26. Advanced Economies: Balance of Payments on Current
Account 214
27. Advanced Economies: Current Account Transactions
216
28. Other Emerging Market and Developing Countries:
Payments Balances on
Current Account 217
STATISTICAL APPENDIX
175
29. Other Emerging Market and Developing Countries—by
Region: Current Account
Transactions 219
30. Other Emerging Market and Developing Countries—by
Analytical Criteria:
Current Account Transactions 221
31. Other Emerging Market and Developing Countries—by
Country: Balance of
Payments on Current Account 224
Balance of Payments and External Financing
32. Summary of Balance of Payments, Capital Flows, and
External Financing 228
33. Other Emerging Market and Developing Countries—by
Region: Balance of
Payments and External Financing 229
34. Other Emerging Market and Developing Countries—by
Analytical Criteria:
Balance of Payments and External Financing 232
35. Other Emerging Market and Developing Countries:
Reserves 235
36. Net Credit and Loans from IMF 237
External Debt and Debt Service
37. Summary of External Debt and Debt Service 238
38. Other Emerging Market and Developing Countries—by
Region: External Debt,
by Maturity and Type of Creditor 240
39. Other Emerging Market and Developing Countries—by
Analytical Criteria:
External Debt, by Maturity and Type of Creditor 242
40. Other Emerging Market and Developing Countries:
Ratio of External Debt to GDP 244
41. Other Emerging Market and Developing Countries:
Debt-Service Ratios 245
42. IMF Charges and Repurchases to the IMF 246
Flow of Funds
43. Summary of Sources and Uses of World Saving 247
Medium-Term Baseline Scenario
44. Summary of World Medium-Term Baseline Scenario 251
45. Other Emerging Market and Developing
Countries—Medium-Term
Baseline Scenario: Selected Economic Indicators 252
STATISTICAL APPENDIX
176
177
OUTPUT: SUMMARY
Table 1. Summary of World Output1
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
World 3.4 4.1 2.8 3.7 4.8 2.6 3.1 4.1 5.3 4.8 4.9 4.7
Advanced economies 2.9 2.6 2.6 3.4 3.9 1.2 1.6 2.0 3.3
2.7 3.0 2.8
United States 3.0 3.2 4.2 4.4 3.7 0.8 1.6 2.7 4.2 3.5
3.4 3.3
Euro area . . . 2.0 2.8 2.9 3.8 1.9 0.9 0.7 2.1 1.3
2.0 1.9
Japan 2.9 1.3 –1.8 –0.2 2.9 0.4 0.1 1.8 2.3 2.7 2.8
2.1
Other advanced economies2 3.6 3.3 2.0 4.7 5.3 1.7 3.2
2.5 3.9 3.1 3.5 3.3
Other emerging market and
developing countries 4.1 5.8 3.1 4.1 6.1 4.4 5.1 6.7
7.6 7.2 6.9 6.6
Regional groups
Africa 2.3 4.3 2.8 2.6 3.1 4.2 3.6 4.6 5.5 5.2 5.7 5.5
Central and eastern Europe 0.9 4.0 2.9 0.6 5.0 0.3 4.4
4.7 6.5 5.3 5.2 4.8
Commonwealth of Independent States3 . . . 5.7 –3.5 5.2
9.0 6.3 5.3 7.9 8.4 6.5 6.0 6.1
Developing Asia 7.9 7.3 4.3 6.3 7.0 6.1 7.0 8.4 8.8
8.6 8.2 8.0
Middle East 3.7 4.8 3.9 2.0 5.4 3.2 4.3 6.6 5.4 5.9
5.7 5.4
Western Hemisphere 2.9 2.7 2.3 0.5 3.9 0.5 — 2.2 5.6
4.3 4.3 3.6
Memorandum
European Union 2.3 2.3 3.0 3.0 3.9 2.0 1.3 1.3 2.5 1.8
2.4 2.3
Analytical groups
By source of export earnings
Fuel –0.1 5.2 –0.2 3.1 7.1 4.4 4.2 6.9 7.1 6.7 6.5 6.1
Nonfuel 4.8 5.9 3.6 4.3 5.9 4.4 5.2 6.7 7.7 7.2 7.0
6.7
of which, primary products 3.1 3.5 2.9 1.0 1.6 2.8 2.9
3.2 5.6 4.9 5.2 5.0
By external financing source
Net debtor countries 3.6 4.3 2.0 2.9 4.7 2.5 3.2 4.9
6.3 5.8 5.7 5.5
of which, official financing 4.5 3.6 –0.8 1.0 3.3 2.3
1.7 5.2 6.2 6.3 5.6 5.5
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 4.0 4.0 –0.9 1.6 3.7 3.1
2.3 5.7 6.4 6.6 6.2 5.9
Memorandum
Median growth rate
Advanced economies 3.0 2.9 3.6 4.0 4.1 1.5 1.8 2.0 3.6
2.7 3.1 2.7
Other emerging market and
developing countries 3.3 4.3 3.7 3.4 4.2 3.7 3.6 4.4
5.2 5.1 5.0 4.8
Output per capita
Advanced economies 2.2 2.1 2.0 2.8 3.3 0.6 1.0 1.4 2.7
2.2 2.4 2.3
Other emerging market and
developing countries 2.3 4.4 1.6 2.7 4.7 3.0 3.8 5.4
6.4 5.9 5.7 5.4
World growth based on market
exchange rates 2.6 3.0 2.1 3.1 4.1 1.5 1.8 2.7 4.0 3.4
3.6 3.4
Value of world output in billions
of U.S. dollars
At market exchange rates 25,120 37,495 29,656 30,760
31,624 31,461 32,729 36,758 41,253 44,433 46,718
49,557
At purchasing power parities 30,643 53,049 40,193
42,252 45,216 47,465 49,749 52,797 57,010 61,078
65,174 69,553
1Real GDP.
2In this table, “other advanced economies” means
advanced economies excluding the United States, euro
area countries, and Japan.
3Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
178
Table 2. Advanced Economies: Real GDP and Total
Domestic Demand
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___ ___F_o_u_r_th_
_Q_u_a_r_t_e_r1___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2005 2006 2007
Real GDP
Advanced economies 2.9 2.6 2.6 3.4 3.9 1.2 1.6 2.0 3.3
2.7 3.0 2.8 . . . . . . . . .
United States 3.0 3.2 4.2 4.4 3.7 0.8 1.6 2.7 4.2 3.5
3.4 3.3 3.2 3.7 3.3
Euro area . . . 2.0 2.8 2.9 3.8 1.9 0.9 0.7 2.1 1.3
2.0 1.9 1.7 2.3 1.7
Germany 2.7 1.3 2.0 1.9 3.1 1.2 0.1 –0.2 1.6 0.9 1.3
1.0 1.6 2.0 0.8
France 2.0 2.2 3.4 3.2 4.1 2.1 1.3 0.9 2.1 1.4 2.0 2.1
1.5 2.3 1.9
Italy 1.8 1.2 1.8 1.7 3.0 1.8 0.3 0.1 0.9 0.1 1.2 1.4
0.5 1.4 1.7
Spain 2.9 3.7 4.5 4.7 5.0 3.5 2.7 3.0 3.1 3.4 3.3 3.2
3.5 3.2 3.2
Netherlands 2.9 2.1 4.3 4.0 3.5 1.4 0.1 –0.1 1.7 1.1
2.5 2.4 2.1 2.0 2.5
Belgium 2.6 2.1 1.9 3.1 3.7 1.2 1.5 0.9 2.4 1.5 2.1
2.4 1.3 2.3 2.3
Austria 2.5 2.2 3.6 3.3 3.4 0.8 1.0 1.4 2.4 1.9 2.2
2.1 1.9 1.9 2.2
Finland 1.5 3.1 5.0 3.4 5.0 1.0 2.2 2.4 3.6 2.1 3.5
2.7 2.3 3.4 2.3
Greece 2.0 3.9 3.4 3.4 4.5 4.6 3.8 4.6 4.7 3.7 3.3 3.2
3.7 3.3 2.6
Portugal 3.7 1.8 4.8 3.9 3.9 2.0 0.8 –1.1 1.1 0.3 0.8
1.5 0.7 1.3 1.7
Ireland 5.9 6.4 8.5 10.7 9.2 6.2 6.1 4.4 4.5 4.7 5.0
5.2 5.5 5.0 5.0
Luxembourg 5.5 4.7 6.9 7.8 9.0 1.5 2.5 2.9 4.5 4.3 4.0
3.8 . . . . . . . . .
Japan 2.9 1.3 –1.8 –0.2 2.9 0.4 0.1 1.8 2.3 2.7 2.8
2.1 4.3 2.1 2.1
United Kingdom 2.2 2.7 3.2 3.0 4.0 2.2 2.0 2.5 3.1 1.8
2.5 2.7 1.8 2.6 2.8
Canada 2.2 3.4 4.1 5.5 5.2 1.8 3.1 2.0 2.9 2.9 3.1 3.0
2.9 3.1 3.0
Korea 7.7 4.3 –6.9 9.5 8.5 3.8 7.0 3.1 4.6 4.0 5.5 4.5
5.4 4.5 4.6
Australia 3.3 3.4 5.0 4.4 3.3 2.2 4.1 3.1 3.6 2.5 2.9
3.2 2.7 3.1 3.6
Taiwan Province of China 7.0 4.0 4.5 5.7 5.8 –2.2 4.2
3.4 6.1 4.1 4.5 4.5 6.4 3.2 5.1
Sweden 1.5 3.0 3.7 4.5 4.3 1.1 2.0 1.7 3.7 2.7 3.5 2.4
3.4 3.2 2.3
Switzerland 1.4 1.7 2.8 1.3 3.6 1.0 0.3 –0.3 2.1 1.8
2.2 1.7 2.8 1.9 1.7
Hong Kong SAR 5.2 3.9 –5.5 4.0 10.0 0.6 1.8 3.2 8.6
7.3 5.5 4.5 7.7 4.8 4.3
Denmark 2.0 2.0 2.2 2.6 3.5 0.7 0.5 0.7 1.9 3.4 2.7
2.3 3.8 2.4 2.2
Norway 3.3 2.3 2.6 2.1 2.8 2.7 1.1 1.1 3.1 2.3 2.2 2.6
2.5 2.0 3.2
Israel 5.2 3.2 3.7 2.3 7.7 –0.3 –1.2 1.7 4.4 5.2 4.2
4.2 5.0 3.4 4.7
Singapore 9.1 4.5 –1.4 7.2 10.0 –2.3 4.0 2.9 8.7 6.4
5.5 4.5 8.7 1.6 6.5
New Zealand 2.1 2.8 –0.1 4.4 3.4 3.0 4.8 3.4 4.4 2.2
0.9 2.1 1.8 1.1 2.8
Cyprus 5.3 3.9 5.0 4.8 5.0 4.1 2.1 1.9 3.9 3.7 4.0 4.0
. . . . . . . . .
Iceland 1.2 4.1 5.8 4.3 4.1 3.8 –1.0 3.0 8.2 5.5 5.5
2.3 . . . . . . . . .
Memorandum
Major advanced economies 2.7 2.5 2.6 3.1 3.6 1.1 1.2
1.9 3.1 2.6 2.8 2.6 2.8 2.9 2.6
Newly industrialized Asian economies 7.2 4.2 –2.4 7.4
7.9 1.1 5.3 3.2 5.8 4.6 5.2 4.5 6.2 4.0 4.8
Real total domestic demand
Advanced economies 2.9 2.8 3.0 4.0 3.9 1.1 1.7 2.2 3.4
2.8 2.9 2.6 . . . . . . . . .
United States 2.9 3.6 5.3 5.3 4.4 0.9 2.2 3.0 4.7 3.6
3.4 3.1 3.2 3.4 3.0
Euro area . . . 2.1 3.6 3.6 3.3 1.2 0.4 1.3 2.0 1.5
2.1 1.9 1.6 2.3 1.6
Germany 2.5 0.8 2.3 2.7 2.2 –0.5 –1.9 0.6 0.5 0.3 1.2
0.6 0.8 1.5 0.2
France 1.6 2.7 4.0 3.6 4.4 2.0 1.3 1.8 3.1 2.4 2.5 2.4
2.3 2.4 2.3
Italy 1.5 1.6 3.1 3.2 2.3 1.4 1.7 0.9 0.7 0.3 1.2 1.3
0.4 1.2 1.4
Spain 2.9 4.7 6.2 6.5 5.4 3.6 3.3 3.8 5.0 5.3 4.5 3.8
5.0 3.7 3.9
Japan 2.9 1.0 –2.2 –0.1 2.5 1.2 –0.6 1.2 1.5 2.6 2.3
2.1 3.6 2.2 2.1
United Kingdom 2.3 3.2 4.9 4.1 4.1 2.8 3.2 2.7 3.8 1.9
2.5 2.7 1.3 2.7 2.8
Canada 2.0 3.6 2.5 4.2 4.7 1.2 3.5 4.7 4.0 4.6 3.5 3.0
3.4 3.4 3.0
Other advanced economies 5.1 2.9 –1.3 5.4 5.3 0.4 3.5
1.3 4.2 3.0 3.6 3.3 . . . . . . . . .
Memorandum
Major advanced economies 2.6 2.7 3.3 3.8 3.7 1.1 1.4
2.3 3.3 2.7 2.7 2.5 2.7 2.7 2.4
Newly industrialized Asian economies 8.2 2.5 –7.7 7.8
7.6 –0.1 4.1 — 4.3 2.2 3.9 3.9 1.6 3.7 4.1
1From fourth quarter of preceding year.
179
OUTPUT: ADVANCED ECONOMIES
Table 3. Advanced Economies: Components of Real GDP
(Annual percent change)
__T_e_n_-_Y_e_a_r_ A_v_e_r_a_g_e_s__
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Private consumer expenditure
Advanced economies 2.9 2.8 2.9 4.1 3.9 2.2 2.2 1.9 2.9
2.6 2.5 2.4
United States 2.9 3.6 5.0 5.1 4.7 2.5 2.7 2.9 3.9 3.6
2.8 2.7
Euro area . . . 1.9 3.1 3.4 3.2 1.9 0.9 1.0 1.5 1.3
1.6 1.6
Germany 2.6 0.9 1.5 3.0 2.4 1.9 –0.5 0.1 0.6 — 0.6 —
France 1.4 2.6 3.6 3.3 3.5 2.5 2.4 1.6 2.2 2.1 2.4 2.4
Italy 1.9 1.4 3.2 2.6 2.7 0.8 0.2 1.0 0.5 0.1 1.2 1.5
Spain 2.5 4.0 4.8 5.3 4.9 3.2 2.9 2.6 4.4 4.4 3.7 3.6
Japan 2.9 1.3 –0.8 1.1 1.1 1.4 1.1 0.6 1.9 2.2 2.5 2.1
United Kingdom 2.6 3.2 4.0 4.4 4.6 3.0 3.5 2.6 3.5 1.7
2.5 2.6
Canada 2.3 3.3 2.8 3.8 4.0 2.3 3.7 3.1 3.4 4.0 3.3 2.6
Other advanced economies 5.0 3.1 –0.8 5.8 5.4 2.6 3.7
1.1 3.2 3.1 3.6 3.3
Memorandum
Major advanced economies 2.6 2.7 3.3 3.8 3.6 2.2 2.0
2.0 2.8 2.5 2.4 2.2
Newly industrialized Asian economies 7.8 3.1 –5.2 8.2
7.3 3.2 4.9 –0.4 2.2 3.1 4.2 3.9
Public consumption
Advanced economies 1.9 2.3 1.7 2.8 2.5 2.8 3.5 2.5 1.9
1.7 2.1 1.9
United States 1.1 2.5 1.6 3.1 1.7 3.1 4.3 3.0 2.1 1.5
2.2 2.6
Euro area . . . 1.8 1.4 2.0 2.2 2.2 2.6 1.7 1.1 1.4
1.8 1.2
Germany 1.8 0.4 1.8 1.2 1.4 0.5 1.4 0.1 –1.6 0.1 –0.4
—
France 2.2 1.9 –0.2 1.9 2.2 1.9 2.9 2.1 2.7 1.5 2.3
2.1
Italy 0.7 1.4 0.3 1.4 1.7 3.8 2.2 2.1 0.6 1.2 — 0.3
Spain 3.8 4.5 3.5 4.0 5.3 3.9 4.5 4.8 6.0 4.5 5.1 3.8
Japan 3.0 2.4 1.8 4.1 4.3 3.0 2.4 2.3 2.0 1.7 1.0 1.0
United Kingdom 0.9 3.1 1.1 4.0 3.7 1.7 4.4 4.5 3.1 2.9
3.2 2.5
Canada 1.1 2.8 3.2 2.1 3.1 3.9 2.6 2.9 2.7 2.8 2.5 2.2
Other advanced economies 4.3 2.4 2.7 1.8 2.1 3.3 3.6
2.0 1.6 2.3 2.7 2.2
Memorandum
Major advanced economies 1.5 2.2 1.5 2.9 2.3 2.7 3.4
2.6 1.8 1.6 1.7 1.9
Newly industrialized Asian economies 6.2 2.5 3.0 0.7
2.4 3.7 4.3 2.3 1.3 2.3 2.4 2.2
Gross fixed capital formation
Advanced economies 3.6 3.3 5.0 5.5 5.1 –0.8 –1.7 2.1
5.3 4.7 4.3 3.8
United States 3.9 4.6 9.1 8.2 6.1 –1.7 –3.5 3.3 8.4
7.3 5.3 4.5
Euro area . . . 2.7 5.7 6.1 4.9 0.5 –1.5 0.8 2.3 2.1
3.4 3.3
Germany 2.9 0.7 4.0 4.7 3.0 –3.7 –6.1 –0.8 –0.2 –0.2
3.3 3.3
France 1.4 3.7 6.9 7.9 7.5 2.3 –1.6 2.7 2.1 3.4 3.4
2.9
Italy 1.4 2.6 4.0 5.0 6.9 1.9 4.0 –1.5 1.9 –0.4 2.0
2.4
Spain 3.4 6.4 11.1 10.3 6.5 4.6 3.4 5.8 4.9 7.3 5.8
4.4
Japan 2.8 –0.2 –6.5 –0.7 1.2 –0.9 –5.0 0.3 1.1 3.3 3.0
2.9
United Kingdom 2.8 3.7 13.0 2.1 3.5 2.4 3.0 — 5.1 3.2
2.5 3.1
Canada 2.4 4.9 2.4 7.3 4.7 4.0 1.7 5.9 6.6 6.6 5.9 4.3
Other advanced economies 6.7 2.9 –1.1 2.8 6.8 –4.4 3.4
2.6 6.9 4.0 4.6 3.9
Memorandum
Major advanced economies 3.2 3.2 5.4 5.7 4.9 –0.7 –2.7
1.9 5.2 4.8 4.2 3.8
Newly industrialized Asian economies 10.5 1.8 –9.0 2.8
10.8 –6.5 1.9 1.6 7.6 1.5 3.8 4.7
STATISTICAL APPENDIX
180
Table 3 (concluded)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Final domestic demand
Advanced economies 2.9 2.8 3.0 4.1 3.9 1.6 1.6 2.1 3.2
2.9 2.8 2.6
United States 2.8 3.6 5.3 5.4 4.5 1.8 1.8 3.0 4.4 3.9
3.2 3.0
Euro area . . . 2.0 3.2 3.7 3.1 1.7 0.6 1.2 1.4 1.5
2.0 2.0
Germany 2.4 0.7 2.4 2.7 2.2 –0.5 –1.9 0.6 0.6 0.3 0.7
0.7
France 1.6 2.6 3.3 3.8 4.0 2.3 1.7 1.9 2.3 2.2 2.6 2.4
Italy 1.5 1.6 2.8 2.9 3.4 1.6 1.4 0.6 0.8 0.2 1.1 1.5
Spain 3.0 4.7 6.0 6.3 5.4 3.7 3.3 3.8 4.8 5.2 4.5 3.8
Japan 2.9 1.1 –2.0 1.1 1.6 1.1 –0.2 0.8 1.8 2.4 2.4
2.1
United Kingdom 2.3 3.3 4.8 3.9 4.2 2.7 3.6 2.5 3.7 2.2
2.6 2.7
Canada 2.0 3.5 2.8 4.2 4.0 2.9 3.0 3.6 3.9 4.3 3.7 2.9
Other advanced economies 5.7 2.9 –1.1 4.3 5.4 1.0 3.8
1.6 3.8 3.1 3.7 3.3
Memorandum
Major advanced economies 2.5 2.7 3.3 4.0 3.6 1.6 1.2
2.2 3.1 2.8 2.6 2.5
Newly industrialized Asian economies 8.3 2.6 –5.7 5.4
7.6 0.7 4.0 0.6 3.3 2.6 3.9 3.9
Stock building1
Advanced economies — — — — 0.1 –0.5 — 0.1 0.3 –0.1 0.1
—
United States 0.1 — — — –0.1 –0.9 0.4 0.1 0.4 –0.3 0.2
0.1
Euro area . . . 0.1 0.4 –0.1 0.2 –0.5 –0.2 0.1 0.6 0.1
0.1 –0.1
Germany — — 0.4 –0.2 –0.1 –0.9 –0.6 0.6 0.5 0.3 0.1 —
France — 0.1 0.7 –0.2 0.5 –0.3 –0.4 –0.1 0.8 0.2 –0.1
—
Italy –0.1 — 0.3 0.3 –1.1 –0.1 0.3 0.2 –0.1 0.1 — –0.2
Spain — 0.1 0.2 0.3 — –0.1 — — 0.2 0.2 — —
Japan 0.1 — –0.2 –1.1 0.8 0.2 –0.4 0.3 –0.2 0.2 — —
United Kingdom — — 0.1 0.2 –0.1 0.1 –0.3 0.2 0.1 –0.3
–0.1 —
Canada 0.1 — –0.3 0.1 0.8 –1.7 0.4 0.9 — 0.3 –0.2 0.1
Other advanced economies — — –0.8 1.2 — –0.5 –0.1 –0.2
0.5 –0.2 — —
Memorandum
Major advanced economies — — 0.1 –0.2 0.1 –0.6 0.1 0.2
0.3 –0.1 0.1 —
Newly industrialized Asian economies — –0.1 –1.9 2.1
–0.1 –0.7 0.1 –0.5 0.9 –0.4 — —
Foreign balance1
Advanced economies 0.1 –0.1 –0.3 –0.6 — 0.1 –0.1 –0.2
–0.2 –0.1 0.1 0.1
United States 0.1 –0.5 –1.2 –1.0 –0.9 –0.2 –0.7 –0.5
–0.7 –0.3 –0.1 0.1
Euro area . . . — –0.6 –0.6 0.6 0.6 0.5 –0.6 0.1 –0.2
— 0.1
Germany 0.2 0.5 –0.4 –0.8 1.0 1.7 1.9 –0.8 1.1 0.6 0.2
0.4
France 0.4 –0.5 –0.5 –0.4 –0.3 0.1 — –0.9 –1.1 –1.0
–0.5 –0.3
Italy 0.4 –0.4 –1.2 –1.4 0.8 –0.4 –1.0 –0.8 0.1 –0.3
0.4 0.1
Spain –0.3 –1.3 –1.7 –1.9 –0.5 –0.2 –0.7 –0.9 –2.2
–2.2 –1.5 –1.0
Japan — 0.3 0.4 –0.2 0.5 –0.8 0.7 0.6 0.8 0.2 0.5 —
United Kingdom — –0.6 –1.4 –0.9 –0.1 –0.6 –1.2 –0.2
–0.8 –0.1 –0.1 –0.1
Canada 0.1 –0.1 1.7 1.4 0.6 0.7 –0.2 –2.4 –0.9 –1.5
–0.3 0.2
Other advanced economies –0.3 1.0 2.8 0.3 0.7 0.9 0.4
1.4 0.8 1.0 0.9 0.7
Memorandum
Major advanced economies 0.1 –0.3 –0.7 –0.7 –0.2 –0.1
–0.2 –0.4 –0.3 –0.2 — 0.1
Newly industrialized Asian economies –0.9 2.0 5.6 0.4
0.5 1.1 1.2 3.2 2.2 2.6 1.7 1.1
1Changes expressed as percent of GDP in the preceding
period.
181
OUTPUT: ADVANCED ECONOMIES
Table 4. Advanced Economies: Unemployment, Employment,
and Real Per Capita GDP
(Percent)
__T_e_n_-_Y_e_a_r_ A_v_e_r_a_g_e_s_1__
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Unemployment rate
Advanced economies 6.8 6.1 6.7 6.3 5.8 5.8 6.3 6.6 6.3
6.0 5.8 5.8
United States2 6.0 5.0 4.5 4.2 4.0 4.7 5.8 6.0 5.5 5.1
4.9 5.1
Euro area . . . 8.6 10.0 9.2 8.2 7.8 8.3 8.7 8.9 8.6
8.3 8.1
Germany 7.0 8.2 8.1 7.5 6.9 6.9 7.7 8.8 9.2 9.1 8.7
8.8
France 10.5 9.5 11.1 10.5 9.1 8.4 8.9 9.5 9.5 9.6 9.6
9.1
Italy 11.3 9.3 11.8 11.4 10.6 9.5 9.0 8.2 8.3 8.1 7.8
7.6
Spain 20.0 11.9 18.6 15.6 13.9 10.6 11.5 11.5 11.0 9.2
8.6 8.5
Netherlands 6.2 3.7 3.8 3.2 2.8 2.2 2.8 3.7 4.6 4.9
4.5 4.3
Belgium 8.3 8.0 9.3 8.6 6.9 6.6 7.5 8.2 8.4 8.4 8.3
8.2
Austria 3.5 4.3 4.5 3.9 3.6 3.6 4.2 4.3 4.8 5.2 4.8
4.5
Finland 10.5 9.2 11.4 10.2 9.8 9.1 9.1 9.0 8.8 8.4 7.9
7.8
Greece 8.6 10.5 11.2 12.1 11.4 10.8 10.3 9.7 10.5 9.9
9.5 9.5
Portugal 5.8 5.8 5.0 4.4 3.9 4.0 5.0 6.3 6.7 7.6 7.7
7.6
Ireland 13.9 4.7 7.6 5.6 4.3 3.9 4.4 4.7 4.5 4.3 4.1
4.0
Luxembourg 2.2 3.4 3.0 2.9 2.5 2.3 2.6 3.5 3.9 4.2 4.5
4.7
Japan 2.6 4.6 4.1 4.7 4.7 5.0 5.4 5.3 4.7 4.4 4.1 4.0
United Kingdom 8.6 5.2 6.3 6.0 5.5 5.1 5.2 5.0 4.8 4.8
4.9 4.8
Canada 9.5 7.2 8.3 7.6 6.8 7.2 7.6 7.6 7.2 6.8 6.6 6.6
Korea 2.5 4.3 7.0 6.6 4.4 4.0 3.3 3.6 3.7 3.7 3.5 3.3
Australia 8.5 6.1 7.7 6.9 6.3 6.8 6.4 6.1 5.5 5.1 5.2
5.2
Taiwan Province of China 1.8 4.0 2.7 2.9 3.0 4.6 5.2
5.0 4.4 4.1 4.0 3.9
Sweden 5.3 4.9 6.5 5.6 4.7 4.0 4.0 4.9 5.5 5.6 4.5 4.2
Switzerland 2.5 2.8 3.4 2.4 1.7 1.6 2.3 3.4 3.5 3.4
3.3 3.3
Hong Kong SAR 2.0 5.8 4.4 6.3 5.1 4.9 7.2 7.9 6.9 5.7
4.5 4.5
Denmark 10.2 5.7 6.6 5.7 5.4 5.2 5.2 6.2 6.4 5.7 5.1
5.3
Norway 5.1 3.9 3.2 3.2 3.4 3.5 3.9 4.5 4.5 4.6 4.1 4.0
Israel 8.6 9.3 8.5 8.9 8.7 9.3 10.3 10.7 10.3 9.0 8.5
8.2
Singapore 2.3 3.0 2.5 2.8 2.7 2.7 3.6 4.0 3.4 3.0 2.9
2.9
New Zealand 7.8 5.2 7.4 6.8 6.0 5.3 5.2 4.7 3.9 3.7
4.1 4.6
Cyprus 2.6 3.3 3.4 3.6 3.4 2.9 3.2 3.5 3.6 3.3 3.0 3.0
Iceland 3.1 2.2 2.8 1.9 1.3 1.4 2.5 3.4 3.1 2.1 1.9
2.0
Memorandum
Major advanced economies 6.5 6.1 6.2 6.0 5.6 5.8 6.4
6.6 6.3 6.0 5.9 5.8
Newly industrialized Asian economies 2.2 4.3 5.4 5.4
4.0 4.2 4.2 4.4 4.2 4.0 3.7 3.5
Growth in employment
Advanced economies 1.1 1.0 1.1 1.4 2.1 0.7 0.3 0.6 1.0
1.2 1.2 0.9
United States 1.4 1.2 1.5 1.5 2.5 — –0.3 0.9 1.1 1.8
1.8 1.2
Euro area . . . 1.2 1.9 1.8 2.7 1.5 0.6 0.2 0.7 1.0
1.0 0.9
Germany 0.4 0.4 1.2 1.4 1.9 0.4 –0.6 –0.9 0.4 –0.2 0.5
0.4
France 0.3 1.0 1.5 2.0 2.7 1.7 0.7 –0.1 0.1 0.2 0.4
0.6
Italy –0.3 1.1 1.1 1.3 1.9 2.1 1.5 1.9 0.7 0.2 0.3 0.3
Spain 2.3 3.4 4.5 4.6 5.1 3.2 2.4 2.6 2.6 3.6 3.2 2.7
Japan 1.0 –0.3 –0.7 –0.8 –0.2 –0.5 –1.3 –0.3 0.2 0.4
0.1 —
United Kingdom 0.5 0.9 1.0 1.4 1.2 0.8 0.8 1.0 1.0 1.0
0.4 0.6
Canada 1.1 1.9 2.5 2.6 2.5 1.2 2.4 2.4 1.8 1.4 1.2 0.9
Other advanced economies 1.7 1.3 –1.0 1.6 2.9 1.1 1.6
0.5 1.6 1.5 1.4 1.4
Memorandum
Major advanced economies 0.9 0.8 1.0 1.1 1.8 0.4 –0.1
0.5 0.8 1.0 1.0 0.7
Newly industrialized Asian economies 2.3 1.2 –3.0 1.5
3.6 0.8 2.0 0.3 1.9 1.2 1.7 1.8
STATISTICAL APPENDIX
182
Table 4 (concluded)
__T_e_n_-_Y_e_a_r_ A_v_e_r_a_g_e_s_1__
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Growth in real per capita GDP
Advanced economies 2.2 2.1 2.0 2.8 3.3 0.6 1.0 1.4 2.7
2.2 2.4 2.3
United States 1.8 2.1 3.0 3.3 2.5 –0.3 0.6 1.7 3.2 2.6
2.4 2.3
Euro area . . . 1.7 2.6 2.6 3.3 1.5 0.4 0.2 1.5 0.8
1.7 1.6
Germany 1.9 1.2 2.0 1.9 3.0 1.1 –0.1 –0.3 1.6 0.9 1.3
0.9
France 1.5 1.7 3.0 2.7 3.5 1.4 0.7 0.3 1.4 1.0 1.6 1.7
Italy 1.7 1.1 1.7 1.6 3.0 1.8 0.4 0.2 — –0.1 1.1 1.3
Spain 2.7 3.0 4.2 4.3 3.8 2.9 2.0 2.4 2.5 2.8 2.8 2.7
Japan 2.5 1.2 –2.0 –0.4 2.7 0.1 –0.1 1.6 2.2 2.7 2.7
2.1
United Kingdom 2.0 2.3 3.0 2.7 3.7 1.8 1.6 2.1 2.6 1.3
2.0 2.2
Canada 1.0 2.4 3.2 4.7 4.3 0.7 1.9 1.0 1.9 2.0 2.0 2.1
Other advanced economies 3.6 2.8 –0.3 4.5 5.0 0.6 3.0
1.8 3.9 3.0 3.4 3.1
Memorandum
Major advanced economies 2.0 1.9 2.0 2.5 3.0 0.5 0.6
1.3 2.6 2.1 2.3 2.1
Newly industrialized Asian economies 6.1 3.5 –3.4 6.5
7.0 0.4 4.7 2.6 5.3 4.0 4.7 4.0
1Compound annual rate of change for employment and per
capita GDP; arithmetic average for unemployment rate.
2The projections for unemployment have been adjusted
to reflect the survey techniques adopted by the U.S.
Bureau of Labor Statistics in January 1994.
183
Table 5. Other Emerging Market and Developing
Countries: Real GDP
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Other emerging market and
developing countries 4.1 5.8 3.1 4.1 6.1 4.4 5.1 6.7
7.6 7.2 6.9 6.6
Regional groups
Africa 2.3 4.3 2.8 2.6 3.1 4.2 3.6 4.6 5.5 5.2 5.7 5.5
Sub-Sahara 2.3 4.2 1.9 2.6 3.4 4.2 3.6 4.2 5.6 5.5 5.8
5.7
Excluding Nigeria and South Africa 2.3 4.7 3.2 3.0 2.4
5.5 4.0 3.6 6.3 5.6 6.9 6.8
Central and eastern Europe 0.9 4.0 2.9 0.6 5.0 0.3 4.4
4.7 6.5 5.3 5.2 4.8
Commonwealth of Independent States1 . . . 5.7 –3.5 5.2
9.0 6.3 5.3 7.9 8.4 6.5 6.0 6.1
Russia . . . 5.3 –5.3 6.3 10.0 5.1 4.7 7.3 7.2 6.4 6.0
5.8
Excluding Russia . . . 6.4 0.6 2.3 6.6 9.1 6.6 9.1
11.1 6.7 6.0 6.6
Developing Asia 7.9 7.3 4.3 6.3 7.0 6.1 7.0 8.4 8.8
8.6 8.2 8.0
China 9.9 8.9 7.8 7.1 8.4 8.3 9.1 10.0 10.1 9.9 9.5
9.0
India 5.9 6.5 6.0 7.0 5.3 4.1 4.2 7.2 8.1 8.3 7.3 7.0
Excluding China and India 6.3 4.1 –4.7 3.7 5.7 3.2 4.8
5.8 6.0 5.6 5.4 5.9
Middle East 3.7 4.8 3.9 2.0 5.4 3.2 4.3 6.6 5.4 5.9
5.7 5.4
Western Hemisphere 2.9 2.7 2.3 0.5 3.9 0.5 — 2.2 5.6
4.3 4.3 3.6
Brazil 2.0 2.3 0.1 0.8 4.4 1.3 1.9 0.5 4.9 2.3 3.5 3.5
Mexico 3.0 3.1 5.0 3.8 6.6 — 0.8 1.4 4.2 3.0 3.5 3.1
Analytical groups
By source of export earnings
Fuel –0.1 5.2 –0.2 3.1 7.1 4.4 4.2 6.9 7.1 6.7 6.5 6.1
Nonfuel 4.8 5.9 3.6 4.3 5.9 4.4 5.2 6.7 7.7 7.2 7.0
6.7
of which, primary products 3.1 3.5 2.9 1.0 1.6 2.8 2.9
3.2 5.6 4.9 5.2 5.0
By external financing source
Net debtor countries 3.6 4.3 2.0 2.9 4.7 2.5 3.2 4.9
6.3 5.8 5.7 5.5
of which, official financing 4.5 3.6 –0.8 1.0 3.3 2.3
1.7 5.2 6.2 6.3 5.6 5.5
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 4.0 4.0 –0.9 1.6 3.7 3.1
2.3 5.7 6.4 6.6 6.2 5.9
Other groups
Heavily indebted poor countries 1.7 4.6 3.3 3.6 2.8
5.0 3.6 4.3 6.5 5.6 5.6 5.7
Middle East and north Africa 3.3 4.8 4.3 2.2 4.9 3.5
4.2 6.5 5.3 5.6 5.9 5.6
Memorandum
Real per capita GDP
Other emerging market and
developing countries 2.3 4.4 1.6 2.7 4.7 3.0 3.8 5.4
6.4 5.9 5.7 5.4
Africa –0.4 2.0 0.4 0.3 0.8 2.0 1.4 2.4 3.3 3.0 3.5
3.4
Central and eastern Europe 0.3 3.5 2.4 0.2 4.6 –0.1
4.0 4.2 6.1 4.9 4.8 4.4
Commonwealth of Independent States1 . . . 5.9 –3.4 5.4
9.3 6.5 5.6 8.2 8.7 6.7 6.2 6.3
Developing Asia 6.2 6.0 2.9 4.9 5.7 4.9 5.8 7.2 7.6
7.5 7.1 6.8
Middle East 1.1 2.7 1.7 –0.1 3.3 1.2 2.2 4.5 3.4 3.9
3.6 3.4
Western Hemisphere 1.1 1.2 0.7 –1.1 2.4 –1.0 –1.4 0.7
4.2 2.9 2.9 2.3
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
OUTPUT: OTHER EMERGING MARKET AND DEVELOPING COUNTRIES
STATISTICAL APPENDIX
184
Table 6. Other Emerging Market and Developing
Countries—by Country: Real GDP1
(Annual percent change)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Africa 2.3 2.8 2.6 3.1 4.2 3.6 4.6 5.5 5.2 5.7 5.5
Algeria 1.0 5.1 3.2 2.2 2.6 4.7 6.9 5.2 5.3 4.9 5.0
Angola 0.9 — 3.2 3.0 3.1 14.4 3.4 11.1 15.7 26.0 20.2
Benin 4.0 4.0 5.3 4.9 6.2 4.5 3.9 3.1 3.5 4.0 5.1
Botswana 7.0 5.9 5.5 7.6 5.1 5.0 6.6 4.9 3.8 3.5 3.5
Burkina Faso 5.7 8.4 4.1 3.3 6.7 5.2 7.9 5.5 7.5 4.2
6.3
Burundi –1.0 4.8 –1.0 –0.9 2.1 4.4 –1.2 4.8 0.9 6.3
5.8
Cameroon2 –1.6 5.0 4.4 4.2 4.5 4.0 4.1 3.6 2.6 4.2 4.3
Cape Verde 5.3 8.4 11.9 7.3 6.1 5.3 4.7 4.4 6.3 7.0
6.5
Central African Republic — 3.9 3.6 1.8 0.3 –0.6 –7.6
1.3 2.2 3.2 3.8
Chad 3.5 7.0 –0.7 –0.4 10.4 8.4 14.9 29.5 5.6 3.0 3.0
Comoros 1.1 1.2 1.9 2.4 2.3 2.3 2.1 1.9 2.0 3.0 4.1
Congo, Dem. Rep. of –5.1 –1.7 –4.3 –6.9 –2.1 3.5 6.0
6.9 6.5 7.0 7.2
Congo, Rep. of 4.7 3.7 –3.0 8.2 3.6 5.4 0.3 3.6 9.2
5.2 2.2
Côte d’Ivoire 3.4 4.7 1.5 –3.3 — –1.4 –1.5 1.8 0.5 2.4
2.6
Djibouti –1.6 0.1 4.1 0.4 2.0 2.6 3.2 3.0 3.2 4.2 5.0
Equatorial Guinea 23.5 25.7 24.3 14.1 78.3 21.3 14.1
32.4 6.0 –1.1 9.4
Eritrea . . . 1.8 — –13.1 9.2 0.7 3.0 2.8 4.8 1.5 1.3
Ethiopia 2.3 –4.3 6.6 5.4 7.9 — –3.1 12.3 8.7 5.3 5.7
Gabon 4.8 3.5 –8.9 –1.9 2.1 –0.3 2.4 1.4 2.9 2.9 3.0
Gambia, The 3.6 6.5 6.4 6.4 5.8 –3.2 6.9 5.1 5.0 4.5
5.0
Ghana 4.6 4.7 4.4 3.7 4.2 4.5 5.2 5.8 5.8 6.0 6.0
Guinea 4.4 4.8 4.7 1.9 4.0 4.2 1.2 2.7 3.0 5.0 5.4
Guinea-Bissau 3.6 –27.2 7.6 7.5 0.2 –7.1 –0.6 2.2 2.0
2.6 2.9
Kenya 2.6 3.3 2.4 0.6 4.7 0.3 2.8 4.3 4.7 3.3 4.9
Lesotho 6.0 –3.5 –0.6 1.6 2.8 3.2 3.3 2.0 –0.7 2.3 2.0
Madagascar 1.5 3.9 4.7 4.7 6.0 –12.7 9.8 5.3 4.6 5.7
6.3
Malawi 3.9 1.1 3.5 0.8 –4.1 2.1 3.9 5.1 1.9 8.3 5.6
Mali 5.1 8.4 3.0 –3.2 12.1 4.3 7.2 2.3 5.4 5.4 6.1
Mauritania 3.1 3.9 7.8 6.7 3.6 2.3 6.4 6.2 5.5 18.4
13.6
Mauritius 6.4 5.9 4.4 6.0 6.0 2.5 2.9 4.2 3.5 2.7 2.9
Morocco 3.1 7.7 –0.1 1.0 6.3 3.2 5.5 4.2 1.8 5.4 4.4
Mozambique, Rep. of 4.6 12.6 7.5 1.9 13.1 8.2 7.9 7.5
7.7 7.9 7.0
Namibia 3.4 3.3 3.4 3.5 2.4 6.7 3.5 5.9 3.5 4.5 4.5
Niger 1.6 10.4 –0.6 –1.4 7.1 3.0 5.3 — 7.0 3.6 4.2
Nigeria 4.3 0.3 1.5 5.4 3.1 1.5 10.7 6.0 6.9 6.2 5.2
Rwanda –2.6 8.9 7.6 6.0 6.7 9.4 0.9 4.0 5.0 4.0 4.3
São Tomé and Príncipe 1.3 2.5 2.5 3.0 4.0 4.1 4.0 3.8
3.8 4.5 5.5
Senegal 2.3 4.5 6.2 3.0 4.7 1.1 6.5 6.2 6.2 5.0 5.1
Seychelles 6.0 2.5 1.9 4.3 –2.2 1.3 –6.3 –2.0 –2.3
–1.4 –1.5
Sierra Leone –6.3 –0.8 –8.1 3.8 18.2 27.5 9.3 7.4 7.2
7.4 6.5
South Africa 1.7 0.5 2.4 4.2 2.7 3.7 3.0 4.5 4.9 4.3
4.1
Sudan 2.6 4.3 3.1 8.4 6.1 6.4 5.6 5.2 8.0 13.0 10.3
Swaziland 4.6 2.8 3.5 2.6 1.6 2.9 2.4 2.1 2.2 1.2 1.0
Tanzania 3.4 3.7 3.5 5.1 6.2 7.2 7.1 6.7 6.9 5.8 7.0
Togo 2.7 –2.3 2.4 –1.6 2.9 4.1 1.9 3.0 0.8 4.2 4.5
Tunisia 4.1 4.8 6.1 4.7 4.9 1.7 5.6 6.0 4.2 5.8 6.0
Uganda 6.6 3.6 8.3 5.3 4.8 6.9 4.4 5.6 5.6 6.2 6.1
Zambia –0.1 –1.9 2.2 3.6 4.9 3.3 5.1 5.4 5.1 6.0 6.0
Zimbabwe 3.6 0.1 –3.6 –7.3 –2.7 –4.4 –10.4 –3.8 –6.5
–4.7 –4.1
185
Table 6 (continued)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Central and eastern Europe3 0.9 2.9 0.6 5.0 0.3 4.4
4.7 6.5 5.3 5.2 4.8
Albania –1.8 12.7 10.1 7.3 7.0 2.9 5.7 5.9 5.5 5.0 6.0
Bosnia and Herzegovina . . . 17.6 9.5 5.4 4.3 5.3 4.4
6.2 5.0 5.0 5.2
Bulgaria –5.8 4.0 2.3 5.4 4.1 4.9 4.5 5.7 5.5 5.6 5.8
Croatia . . . 2.5 –0.9 2.9 4.4 5.2 4.3 3.8 4.1 4.1 4.5
Czech Republic . . . –1.1 1.2 3.9 2.6 1.5 3.2 4.7 6.0
5.5 4.5
Estonia . . . 4.4 0.3 7.9 6.5 7.2 6.7 7.8 9.8 7.9 7.1
Hungary –0.9 4.9 4.2 5.2 4.3 3.8 3.4 4.6 4.1 4.4 4.2
Latvia . . . 4.7 3.3 8.4 8.0 6.5 7.2 8.5 10.2 9.0 7.0
Lithuania . . . 7.3 –1.7 4.7 6.4 6.8 10.5 7.0 7.3 6.5
6.0
Macedonia, FYR . . . 3.4 4.4 4.5 –4.5 0.9 2.8 4.1 3.8
4.0 4.5
Malta 5.8 3.4 4.1 9.9 –0.4 1.0 –1.9 1.0 1.0 1.3 1.5
Serbia and Montenegro . . . 2.5 –18.0 5.0 5.5 4.3 2.4
8.8 4.7 4.9 4.9
Poland 2.3 5.0 4.5 4.2 1.1 1.4 3.8 5.3 3.2 4.2 3.8
Romania –2.5 –4.8 –1.2 2.1 5.7 5.1 5.2 8.4 4.1 5.2 5.6
Slovak Republic . . . 4.2 1.5 2.0 3.8 4.6 4.5 5.5 6.0
6.3 6.7
Slovenia . . . 3.9 5.4 4.1 2.7 3.5 2.7 4.2 3.9 4.0 4.0
Turkey 4.2 3.1 –4.7 7.4 –7.5 7.9 5.8 8.9 7.4 6.0 5.0
Commonwealth of
Independent States3,4 . . . –3.5 5.2 9.0 6.3 5.3 7.9
8.4 6.5 6.0 6.1
Russia . . . –5.3 6.3 10.0 5.1 4.7 7.3 7.2 6.4 6.0 5.8
Excluding Russia . . . 0.6 2.3 6.6 9.1 6.6 9.1 11.1
6.7 6.0 6.6
Armenia . . . 7.3 3.3 6.0 9.6 13.2 13.9 10.1 13.9 7.5
6.0
Azerbaijan . . . 6.0 11.4 6.2 6.5 8.1 10.4 10.2 24.3
26.2 22.9
Belarus . . . 8.4 3.4 5.8 4.7 5.0 7.0 11.4 9.2 5.5 4.0
Georgia . . . 2.9 3.0 1.9 4.7 5.5 11.1 6.2 7.7 6.4 5.0
Kazakhstan . . . –1.9 2.7 9.8 13.5 9.8 9.3 9.6 9.4 8.0
8.3
Kyrgyz Republic . . . 2.1 3.7 5.4 5.3 — 7.0 7.0 –0.6
5.0 5.5
Moldova . . . –6.5 –3.4 2.1 6.1 7.8 6.6 7.3 7.0 6.0
5.0
Mongolia –0.1 3.5 3.2 1.1 1.0 4.0 5.6 10.7 6.2 6.5 6.0
Tajikistan . . . 5.2 3.7 8.3 10.2 9.1 10.2 10.6 6.7
8.0 6.0
Turkmenistan . . . 6.7 16.5 18.6 20.4 15.8 17.1 17.2
9.6 6.5 6.0
Ukraine . . . –1.9 –0.2 5.9 9.2 5.2 9.6 12.1 2.6 2.3
4.3
Uzbekistan . . . 2.1 3.4 3.3 4.1 3.1 1.5 7.4 7.0 7.2
5.0
OUTPUT: OTHER EMERGING MARKET AND DEVELOPING COUNTRIES
STATISTICAL APPENDIX
186
Table 6 (continued)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Developing Asia 7.9 4.3 6.3 7.0 6.1 7.0 8.4 8.8 8.6
8.2 8.0
Afghanistan, I.S. of . . . . . . . . . . . . . . .
28.6 15.7 8.0 13.8 11.7 10.6
Bangladesh 4.4 5.0 5.4 5.6 4.8 4.8 5.8 5.9 5.8 6.0 6.3
Bhutan 4.3 5.8 7.7 9.5 8.6 7.1 6.8 8.7 6.5 13.2 11.5
Brunei Darussalam . . . –4.0 2.6 2.8 3.1 2.8 3.8 1.7
3.0 2.2 2.3
Cambodia . . . 5.0 12.6 8.4 5.7 5.5 7.1 7.7 7.0 6.0
6.0
China 9.9 7.8 7.1 8.4 8.3 9.1 10.0 10.1 9.9 9.5 9.0
Fiji 4.1 1.2 9.2 –2.8 2.7 4.3 3.0 4.1 2.1 2.6 1.8
India 5.9 6.0 7.0 5.3 4.1 4.2 7.2 8.1 8.3 7.3 7.0
Indonesia 6.9 –13.1 0.8 5.4 3.8 4.4 4.7 5.1 5.6 5.0
6.0
Kiribati 3.6 12.6 9.5 6.9 5.0 2.2 –1.4 –3.7 0.3 0.8
0.8
Lao PDR 6.0 4.0 7.3 5.8 5.8 5.8 6.1 6.4 7.0 7.1 6.0
Malaysia 9.3 –7.4 6.1 8.9 0.3 4.4 5.4 7.1 5.3 5.5 5.8
Maldives 7.7 9.8 7.2 4.8 3.5 6.5 8.5 8.8 –3.6 8.0 4.0
Myanmar 3.5 5.8 10.9 13.7 11.3 12.0 13.8 3.0 5.0 3.5
3.5
Nepal 5.3 2.9 4.5 6.1 5.6 –0.6 3.3 3.8 2.7 3.0 3.0
Pakistan 4.4 3.1 4.0 3.0 2.5 4.1 5.7 7.1 7.0 6.4 6.3
Papua New Guinea 4.0 4.7 1.9 –2.5 –0.1 –0.2 2.9 2.9
3.0 3.5 3.5
Philippines 3.8 –0.6 3.4 6.0 1.8 4.4 4.5 6.0 5.1 5.0
5.6
Samoa 2.6 1.1 2.1 3.7 7.1 4.4 1.8 2.8 5.6 4.5 3.5
Solomon Islands 4.7 1.8 –0.5 –14.3 –9.0 –2.4 5.6 5.5
5.2 4.8 4.5
Sri Lanka 4.8 4.7 4.3 6.0 –1.5 4.0 6.0 5.4 5.9 5.6 6.2
Thailand 8.4 –10.5 4.4 4.8 2.2 5.3 7.0 6.2 4.4 5.0 5.4
Timor-Leste, Dem. Rep. of . . . . . . . . . 15.4 16.6
–6.7 –6.2 1.8 3.2 5.0 4.6
Tonga 1.0 3.6 2.3 5.6 1.8 2.1 2.9 1.5 2.5 2.8 2.9
Vanuatu 4.3 4.5 –3.2 2.7 –2.7 –4.6 2.4 4.0 3.0 3.0 2.8
Vietnam 7.6 5.8 4.8 6.8 6.9 7.1 7.3 7.7 7.5 7.4 7.4
Middle East 3.7 3.9 2.0 5.4 3.2 4.3 6.6 5.4 5.9 5.7
5.4
Bahrain 4.9 4.8 4.2 5.3 4.6 5.2 7.2 5.4 6.9 7.1 6.3
Egypt 3.4 7.5 6.1 5.4 3.5 3.2 3.1 4.1 5.0 5.2 5.2
Iran, I.R. of 3.6 2.7 1.9 5.1 3.7 7.5 6.7 5.6 5.9 5.3
5.0
Iraq . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Jordan 2.6 3.0 3.4 4.3 5.3 5.7 4.1 7.7 7.2 5.0 5.0
Kuwait 1.2 3.7 –1.8 4.7 0.7 5.1 13.4 6.2 8.5 6.2 4.7
Lebanon –3.6 2.3 –1.2 1.2 4.2 2.9 5.0 6.0 1.0 3.0 3.4
Libya 0.3 –0.4 0.3 1.1 4.5 3.3 9.1 4.6 3.5 5.0 4.6
Oman 5.5 2.7 –0.2 5.5 7.5 2.3 1.9 4.5 3.8 6.2 6.0
Qatar 4.0 11.7 4.5 9.1 4.5 7.3 8.6 9.3 5.5 7.1 5.3
Saudi Arabia 3.7 2.8 –0.7 4.9 0.5 0.1 7.7 5.2 6.5 6.3
6.4
Syrian Arab Republic 5.7 5.5 –3.6 0.6 3.6 4.1 1.3 2.5
3.5 3.6 3.6
United Arab Emirates 6.3 0.1 3.1 12.4 1.7 2.6 11.6 7.8
8.0 6.5 5.2
Yemen . . . 5.3 3.5 4.4 4.6 3.9 3.1 2.6 3.8 3.9 3.0
187
OUTPUT: OTHER EMERGING MARKET AND DEVELOPING COUNTRIES
Table 6 (concluded)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Western Hemisphere 2.9 2.3 0.5 3.9 0.5 — 2.2 5.6 4.3
4.3 3.6
Antigua and Barbuda 3.6 4.9 4.9 3.3 1.5 2.0 4.3 5.2
3.0 4.0 4.3
Argentina 3.2 3.9 –3.4 –0.8 –4.4 –10.9 8.8 9.0 9.2 7.3
4.0
Bahamas, The 1.1 6.8 4.0 1.9 0.8 1.4 1.9 3.0 3.4 3.6
4.0
Barbados 0.9 6.2 0.5 2.3 –2.6 0.5 1.9 4.8 4.2 4.2 4.5
Belize 5.9 3.7 8.7 13.0 4.6 4.7 9.2 4.6 2.2 2.7 4.0
Bolivia 4.1 5.0 0.4 2.5 1.7 2.4 2.8 3.6 3.9 4.1 3.9
Brazil 2.0 0.1 0.8 4.4 1.3 1.9 0.5 4.9 2.3 3.5 3.5
Chile 7.9 3.2 –0.8 4.5 3.4 2.2 3.7 6.1 6.3 5.5 5.2
Colombia 4.0 0.6 –4.2 2.9 1.5 1.9 3.9 4.8 5.1 4.5 4.0
Costa Rica 4.6 8.4 8.2 1.8 1.1 2.9 6.4 4.1 4.1 3.6 3.0
Dominica 2.6 3.0 1.6 1.3 –4.2 –5.1 0.1 3.6 2.4 3.0 3.0
Dominican Republic 3.7 7.4 8.1 8.1 3.6 4.4 –1.9 2.0
9.0 5.4 5.0
Ecuador 3.7 2.1 –6.3 2.8 5.1 3.3 2.7 6.9 3.3 3.0 2.2
El Salvador 4.4 3.7 3.4 2.2 1.7 2.2 1.8 1.5 2.8 3.5
3.5
Grenada 3.0 7.9 7.3 7.0 –4.4 0.8 5.8 –3.0 1.5 6.5 5.0
Guatemala 4.0 5.0 3.8 3.6 2.3 2.2 2.1 2.7 3.2 4.1 4.0
Guyana 3.8 –1.7 3.0 –1.3 2.3 1.1 –0.7 1.6 –2.8 4.2 3.8
Haiti –0.6 2.2 2.7 0.9 –1.0 –0.5 0.5 –3.8 1.5 2.5 4.0
Honduras 3.5 2.9 –1.9 5.7 2.6 2.7 3.5 4.6 4.2 4.3 4.5
Jamaica 0.9 –0.6 1.1 0.8 1.0 1.9 2.0 2.5 0.7 3.7 3.0
Mexico 3.0 5.0 3.8 6.6 — 0.8 1.4 4.2 3.0 3.5 3.1
Netherlands Antilles 3.0 –3.1 –1.8 –2.0 1.4 0.4 1.4
1.0 0.7 1.8 2.7
Nicaragua 0.5 3.7 7.0 4.1 3.0 0.8 2.3 5.1 4.0 3.7 4.3
Panama 3.6 7.3 3.9 2.7 0.6 2.2 4.2 7.6 5.5 4.5 4.0
Paraguay 3.7 0.6 –1.5 –3.3 2.1 — 3.8 4.1 3.0 3.5 4.0
Peru 0.6 –0.7 0.9 2.9 0.2 4.9 4.0 4.8 6.7 5.0 4.5
St. Kitts and Nevis 5.2 1.0 3.9 6.5 1.7 –0.3 –0.9 6.4
4.9 3.7 4.4
St. Lucia 4.5 3.3 3.9 –0.3 –4.1 0.1 2.9 4.0 5.1 5.8
2.4
St. Vincent and the Grenadines 4.2 4.6 4.1 1.8 –0.1
3.2 3.4 4.3 4.9 4.3 4.1
Suriname 1.7 1.6 –0.9 –0.1 4.5 3.0 5.3 7.8 5.1 4.5 4.4
Trinidad and Tobago 1.8 8.1 8.0 6.9 4.2 7.4 13.7 6.6
7.0 10.4 4.9
Uruguay 3.3 4.5 –2.8 –1.4 –3.4 –11.0 2.2 12.3 6.0 4.0
3.5
Venezuela 2.6 0.3 –6.0 3.7 3.4 –8.9 –7.7 17.9 9.3 6.0
3.0
1For many countries, figures for recent years are IMF
staff estimates. Data for some countries are for
fiscal years.
2The percent changes in 2002 are calculated over a
period of 18 months, reflecting a change in the fiscal
year cycle (from July–June to January–December).
3Data for some countries refer to real net material
product (NMP) or are estimates based on NMP. For many
countries, figures for recent years are IMF staff
estimates. The
figures should be interpreted only as indicative of
broad orders of magnitude because reliable, comparable
data are not generally available. In particular, the
growth of output of
new private enterprises of the informal economy is not
fully reflected in the recent figures.
4Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
188
Table 7. Summary of Inflation
(Percent)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
GDP deflators
Advanced economies 3.1 1.6 1.3 0.9 1.5 2.1 1.6 1.6 1.8
1.8 1.9 1.9
United States 2.7 2.1 1.1 1.4 2.2 2.4 1.7 2.0 2.6 2.8
2.4 2.0
Euro area . . . 1.9 1.6 0.9 1.5 3.1 2.6 2.0 1.9 1.7
1.9 2.2
Japan 0.9 –1.0 –0.1 –1.3 –1.7 –1.2 –1.6 –1.6 –1.2 –1.3
— 0.4
Other advanced economies1 4.3 1.9 2.0 1.0 2.0 2.0 1.7
1.9 1.9 1.9 2.2 2.0
Consumer prices
Advanced economies 3.4 1.9 1.5 1.4 2.2 2.1 1.5 1.8 2.0
2.3 2.3 2.1
United States 3.5 2.6 1.5 2.2 3.4 2.8 1.6 2.3 2.7 3.4
3.2 2.5
Euro area2 . . . 2.0 1.1 1.1 2.1 2.3 2.2 2.1 2.1 2.2
2.1 2.2
Japan 1.5 –0.2 0.6 –0.3 –0.9 –0.7 –0.9 –0.3 — –0.3 0.3
0.6
Other advanced economies 4.2 1.9 2.2 1.1 1.8 2.1 1.7
1.8 1.7 2.1 2.0 2.1
Other emerging market and
developing countries 53.5 6.8 11.1 10.1 7.1 6.6 5.8
5.8 5.7 5.4 5.4 4.8
Regional groups
Africa 29.1 10.1 9.3 11.9 13.6 12.7 9.9 10.8 8.1 8.5
9.1 7.3
Central and eastern Europe 65.4 13.6 32.7 23.0 22.8
19.4 14.7 9.2 6.1 4.8 4.1 3.4
Commonwealth of Independent States3 . . . 19.7 23.9
69.6 24.6 20.3 13.8 12.0 10.3 12.3 10.4 9.7
Developing Asia 10.5 3.4 7.7 2.4 1.8 2.6 2.0 2.5 4.2
3.6 3.9 3.5
Middle East 14.1 7.6 8.3 8.4 5.9 5.5 6.3 7.1 8.4 8.4
8.7 8.5
Western Hemisphere 162.8 7.4 9.0 8.2 7.6 6.1 8.9 10.5
6.5 6.3 5.8 5.6
Memorandum
European Union 9.3 2.2 2.1 1.7 2.5 2.5 2.2 2.0 2.2 2.2
2.1 2.2
Analytical groups
By source of export earnings
Fuel 73.7 14.5 18.4 37.2 14.8 14.3 12.1 11.7 10.0 10.3
9.6 9.1
Nonfuel 50.6 5.6 10.0 6.5 5.9 5.5 4.8 5.0 5.1 4.7 4.7
4.2
of which, primary products 65.9 19.2 12.9 25.4 31.4
28.4 15.7 18.9 14.0 16.1 17.9 13.3
By external financing source
Net debtor countries 61.1 8.4 15.5 10.6 9.1 8.4 8.4
7.6 6.0 6.6 6.6 5.5
of which, official financing 37.6 9.2 18.9 10.3 6.3
7.5 9.6 7.5 6.9 8.9 9.6 7.0
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 45.9 12.4 21.5 13.8 10.0
11.3 13.7 11.1 9.5 11.4 13.0 9.7
Memorandum
Median inflation rate
Advanced economies 3.3 2.0 1.6 1.4 2.6 2.5 2.1 2.1 1.9
2.1 2.0 2.0
Other emerging market and
developing countries 10.7 4.7 6.6 4.0 4.3 4.8 3.4 4.2
4.6 5.9 5.1 4.5
1In this table, “other advanced economies” means
advanced economies excluding the United States, euro
area countries, and Japan.
2Based on Eurostat’s harmonized index of consumer
prices.
3Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
189
INFLATION: ADVANCED ECONOMIES
Table 8. Advanced Economies: GDP Deflators and
Consumer Prices
(Annual percent change)
__T_e_n_-_Y_e_a_r_ A_v_e_r_a_g_e_s__ ____F_o_u_r_th_
_Q_u_a_r_te_r_1___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2005 2006 2007
GDP deflators
Advanced economies 3.1 1.6 1.3 0.9 1.5 2.1 1.6 1.6 1.8
1.8 1.9 1.9 . . . . . . . . .
United States 2.7 2.1 1.1 1.4 2.2 2.4 1.7 2.0 2.6 2.8
2.4 2.0 3.1 2.0 2.0
Euro area . . . 1.9 1.6 0.9 1.5 3.1 2.6 2.0 1.9 1.7
1.9 2.2 2.2 1.8 2.2
Germany 3.5 0.9 0.6 0.4 –0.6 1.2 1.4 1.1 0.8 0.5 1.2
2.4 0.5 1.6 2.8
France 2.1 1.4 1.1 –0.1 1.5 1.8 2.2 1.4 1.6 1.3 1.5
1.6 1.3 1.5 1.7
Italy 5.4 2.7 2.7 1.6 2.2 5.2 3.4 3.1 2.9 2.1 2.1 2.2
1.7 2.4 1.9
Spain 5.2 3.6 2.5 2.6 3.5 4.2 4.4 4.0 4.1 4.4 3.6 3.1
4.4 3.1 3.0
Netherlands 1.9 2.9 1.7 1.6 3.9 9.7 3.8 2.5 0.9 1.6
1.6 2.2 1.6 1.6 2.6
Belgium 2.6 1.8 1.8 0.7 1.7 1.8 1.8 1.7 2.3 2.4 2.4
1.8 3.5 1.2 2.2
Austria 2.7 1.5 0.3 0.6 1.8 1.8 1.3 1.4 1.9 2.0 1.8
1.7 1.8 1.8 1.6
Finland 3.5 1.4 3.7 –0.3 3.0 3.2 1.0 –0.3 0.5 1.6 0.7
1.0 1.7 0.6 1.3
Greece 13.5 3.6 5.2 3.0 3.4 3.5 4.0 3.5 3.6 3.2 3.3
3.0 2.4 2.0 3.6
Portugal 7.9 3.0 3.7 3.3 3.0 3.7 3.9 2.7 2.8 2.7 2.3
2.3 2.8 2.5 2.1
Ireland 3.2 4.0 6.5 4.0 5.5 5.7 5.0 2.0 2.2 3.1 3.1
2.7 3.7 2.4 2.9
Luxembourg 3.1 2.4 2.7 2.2 4.2 1.9 1.1 2.1 2.5 2.5 2.5
2.5 . . . . . . . . .
Japan 0.9 –1.0 –0.1 –1.3 –1.7 –1.2 –1.6 –1.6 –1.2 –1.3
— 0.4 –1.7 1.2 –0.3
United Kingdom 4.5 2.4 2.8 2.1 1.2 2.3 3.1 2.9 2.1 2.0
2.7 2.5 1.7 2.7 2.4
Canada 2.4 2.2 –0.4 1.7 4.1 1.1 1.0 3.3 3.1 3.1 3.0
1.7 4.1 1.6 1.8
Korea 7.3 2.1 5.8 –0.1 0.7 3.5 2.8 2.7 2.7 0.4 1.0 1.7
— 1.6 1.8
Australia 3.1 2.9 0.5 0.5 4.1 4.0 2.6 3.2 3.4 4.5 3.5
2.5 4.9 2.2 3.0
Taiwan Province of China 2.7 –0.4 2.6 –1.3 –1.6 0.5
–0.8 –2.1 –1.6 –0.7 –0.1 1.4 — 0.5 1.5
Sweden 4.4 1.5 0.6 0.9 1.4 2.1 1.6 2.0 0.8 1.1 2.1 2.2
1.8 2.3 2.2
Switzerland 2.3 0.8 –0.3 0.7 0.8 0.6 1.6 1.2 0.5 0.6
1.0 1.1 0.1 1.0 1.1
Hong Kong SAR 7.7 –2.6 0.2 –5.8 –5.6 –1.8 –3.5 –6.3
–3.6 –0.3 –0.2 1.3 0.4 –0.8 2.5
Denmark 2.5 2.2 1.2 1.7 3.0 2.5 2.3 1.9 2.2 2.5 2.7
1.8 1.4 3.8 0.5
Norway 2.8 4.6 –0.7 6.6 15.9 1.1 –1.6 2.6 5.6 8.5 6.0
3.4 9.0 4.1 2.9
Israel 14.3 2.5 6.5 6.5 1.5 1.9 4.4 — –0.2 0.6 1.7 2.0
2.6 1.6 2.0
Singapore 3.2 0.2 –1.7 –5.3 3.7 –1.8 –0.7 –0.9 3.5 0.6
2.5 2.3 –0.2 2.5 2.3
New Zealand 3.0 2.3 1.8 0.6 2.9 3.9 0.3 2.2 3.8 2.3
2.9 2.4 1.3 2.9 2.1
Cyprus 4.2 2.8 2.4 2.3 3.7 3.2 2.2 5.0 2.4 2.6 2.0 2.0
. . . . . . . . .
Iceland 8.3 3.9 5.0 3.2 3.6 8.6 5.6 0.5 2.3 2.9 6.0
1.8 . . . . . . . . .
Memorandum
Major advanced economies 2.8 1.5 1.0 0.8 1.2 1.8 1.4
1.5 1.8 1.7 1.9 1.8 1.8 1.9 1.7
Newly industrialized Asian
economies 5.7 0.6 3.6 –1.5 –0.6 1.6 0.7 –0.1 0.6 — 0.6
1.6 0.1 1.1 1.9
Consumer prices
Advanced economies 3.4 1.9 1.5 1.4 2.2 2.1 1.5 1.8 2.0
2.3 2.3 2.1 . . . . . . . . .
United States 3.5 2.6 1.5 2.2 3.4 2.8 1.6 2.3 2.7 3.4
3.2 2.5 3.7 2.6 2.5
Euro area2 . . . 2.0 1.1 1.1 2.1 2.3 2.2 2.1 2.1 2.2
2.1 2.2 2.2 1.9 1.9
Germany 2.7 1.5 0.6 0.7 1.4 1.8 1.4 1.0 1.8 1.9 1.8
2.5 2.2 1.6 2.6
France 2.4 1.7 0.7 0.6 1.8 1.8 1.9 2.2 2.3 1.9 1.7 1.8
1.8 1.9 1.4
Italy 4.9 2.3 2.0 1.7 2.6 2.3 2.6 2.8 2.3 2.3 2.5 2.1
2.7 2.2 2.0
Spain 5.1 3.0 1.8 2.2 3.5 2.8 3.6 3.1 3.1 3.4 3.4 3.1
3.5 3.3 3.0
Japan 1.5 –0.2 0.6 –0.3 –0.9 –0.7 –0.9 –0.3 — –0.3 0.3
0.6 –0.5 0.6 0.7
United Kingdom2 4.0 1.5 1.6 1.4 0.8 1.2 1.3 1.4 1.3
2.1 1.9 1.9 2.1 1.9 2.0
Canada 2.8 2.1 1.0 1.7 2.7 2.5 2.3 2.7 1.8 2.2 1.8 2.0
2.3 1.7 2.0
Other advanced economies 4.8 2.0 2.9 0.9 2.0 2.4 1.7
1.8 1.9 2.1 2.2 2.3 . . . . . . . . .
Memorandum
Major advanced economies 3.1 1.8 1.2 1.4 2.1 1.9 1.3
1.7 2.0 2.3 2.3 2.1 2.5 2.0 2.1
Newly industrialized Asian
economies 5.3 1.9 4.4 — 1.1 1.9 0.9 1.4 2.4 2.2 2.2
2.3 2.3 2.5 2.2
1From fourth quarter of preceding year.
2Based on Eurostat’s harmonized index of consumer
prices.
STATISTICAL APPENDIX
190
Table 9. Advanced Economies: Hourly Earnings,
Productivity, and Unit Labor Costs in Manufacturing
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Hourly earnings
Advanced economies 4.7 3.8 3.3 3.1 5.4 3.0 4.4 5.0 2.5
4.3 3.6 3.9
United States 3.3 5.3 5.8 3.9 9.0 2.4 7.3 8.3 2.2 6.6
3.5 4.0
Euro area . . . 3.5 2.8 5.2 5.2 4.4 3.3 2.6 3.1 2.6
2.9 3.1
Germany 5.4 2.4 1.3 2.5 3.6 3.5 2.4 2.5 0.7 1.9 3.0
3.0
France 3.7 3.0 0.6 1.0 3.8 1.2 4.1 4.1 3.5 3.6 3.9 4.5
Italy 6.5 2.4 –1.4 2.3 3.1 3.3 2.3 3.0 3.5 2.9 2.7 2.6
Spain 6.4 3.3 3.3 2.7 2.8 4.1 4.4 4.2 3.0 2.7 2.7 2.7
Japan 3.9 0.7 0.8 –0.7 –0.1 1.0 –1.3 1.0 0.4 1.2 2.6
2.5
United Kingdom 6.4 4.1 4.6 4.0 4.7 4.3 3.5 3.6 3.7 3.6
4.7 4.1
Canada 3.8 3.5 2.7 1.2 2.0 2.3 4.7 0.9 2.3 4.9 5.9 8.6
Other advanced economies 8.4 5.0 2.8 6.4 6.2 6.3 4.5
4.9 5.3 3.6 5.0 5.0
Memorandum
Major advanced economies 4.2 3.7 3.4 2.6 5.6 2.4 4.4
5.2 2.0 4.5 3.5 3.8
Newly industrialized Asian economies 12.9 6.5 1.7 9.6
7.7 8.2 5.9 7.1 7.6 4.1 6.4 6.3
Productivity1
Advanced economies 3.1 3.5 2.3 3.8 5.3 0.9 4.1 3.9 4.7
3.5 3.1 3.1
United States 2.9 4.4 4.9 3.6 4.6 2.1 6.6 5.6 5.4 4.8
3.3 3.0
Euro area . . . 3.2 3.8 5.3 6.6 2.4 1.5 1.1 3.9 2.5
2.5 2.6
Germany 3.6 3.2 0.3 2.6 5.4 3.0 1.1 4.3 4.9 5.4 2.8
2.8
France 4.3 3.6 5.5 2.9 6.9 0.9 3.8 0.1 4.0 3.0 4.5 5.0
Italy 2.6 0.3 –0.6 1.5 3.8 –0.8 –2.0 –0.8 –0.3 –0.1
0.9 1.1
Spain 3.0 1.7 1.4 1.4 0.4 — 1.4 3.4 2.4 2.2 2.2 2.2
Japan 2.7 2.5 –3.6 3.2 6.8 –3.0 3.7 5.3 5.3 1.8 3.2
2.7
United Kingdom 3.0 3.7 1.3 4.3 6.3 3.4 1.5 4.5 6.2 2.5
3.3 4.1
Canada 2.6 3.3 3.1 4.1 4.5 –2.4 4.0 –1.5 3.8 5.1 5.2
8.0
Other advanced economies 3.7 3.8 0.9 7.9 7.1 0.1 4.3
3.6 5.0 3.0 3.5 3.2
Memorandum
Major advanced economies 3.1 3.5 2.3 3.3 5.3 1.0 4.3
4.2 4.8 3.8 3.3 3.3
Newly industrialized Asian economies 6.0 5.8 –0.8 13.0
11.9 –0.5 6.1 5.5 7.8 5.5 5.6 5.0
Unit labor costs
Advanced economies 1.6 0.4 1.1 –0.7 0.1 2.1 0.3 1.0
–2.1 0.7 0.4 0.7
United States 0.3 0.9 0.9 0.3 4.2 0.3 0.6 2.5 –3.1 1.8
0.2 1.0
Euro area . . . 0.3 –1.0 –0.2 –1.3 1.9 1.8 1.4 –0.8
0.1 0.5 0.6
Germany 1.7 –0.8 1.0 –0.1 –1.7 0.5 1.3 –1.7 –4.0 –3.3
0.2 0.2
France –0.5 –0.6 –4.6 –1.8 –2.9 0.2 0.3 4.0 –0.5 0.5
–0.6 –0.5
Italy 3.8 2.1 –0.8 0.8 –0.7 4.1 4.3 3.9 3.7 3.0 1.7
1.5
Spain 3.3 1.5 1.9 1.2 2.3 4.1 2.9 0.9 0.6 0.5 0.5 0.5
Japan 1.1 –1.7 4.6 –3.8 –6.5 4.0 –4.8 –4.1 –4.7 –0.6
–0.6 –0.2
United Kingdom2 3.4 0.3 3.3 –0.3 –1.5 0.8 1.9 –0.9
–2.4 1.1 1.3 —
Canada 1.2 0.2 –0.4 –2.8 –2.4 4.8 0.7 2.5 –1.4 –0.1
0.6 0.5
Other advanced economies 4.6 1.0 2.3 –1.3 –1.0 6.0 —
0.8 –0.1 0.4 1.3 1.5
Memorandum
Major advanced economies 1.1 0.2 1.1 –0.7 0.3 1.4 0.2
1.0 –2.6 0.8 0.2 0.6
Newly industrialized Asian economies 6.4 0.3 3.2 –2.7
–3.9 8.0 –0.5 0.8 –1.0 –1.6 0.4 1.0
1Refers to labor productivity, measured as the ratio
of hourly compensation to unit labor costs.
2Data refer to unit wage cost.
191
INFLATION: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 10. Other Emerging Market and Developing
Countries: Consumer Prices
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Other emerging market and
developing countries 53.5 6.8 11.1 10.1 7.1 6.6 5.8
5.8 5.7 5.4 5.4 4.8
Regional groups
Africa 29.1 10.1 9.3 11.9 13.6 12.7 9.9 10.8 8.1 8.5
9.1 7.3
Sub-Sahara 34.6 12.4 10.9 15.0 17.4 15.7 12.3 13.4 9.7
10.6 10.7 8.3
Excluding Nigeria and South Africa 55.1 17.9 14.1 24.4
29.6 23.0 14.3 19.1 14.7 14.4 15.4 11.0
Central and eastern Europe 65.4 13.6 32.7 23.0 22.8
19.4 14.7 9.2 6.1 4.8 4.1 3.4
Commonwealth of Independent States1 . . . 19.7 23.9
69.6 24.6 20.3 13.8 12.0 10.3 12.3 10.4 9.7
Russia . . . 21.3 27.7 85.7 20.8 21.5 15.8 13.7 10.9
12.6 10.4 9.5
Excluding Russia . . . 16.0 15.9 37.0 34.3 17.6 9.3
8.3 9.1 11.7 10.5 10.2
Developing Asia 10.5 3.4 7.7 2.4 1.8 2.6 2.0 2.5 4.2
3.6 3.9 3.5
China 11.4 0.9 –0.8 –1.4 0.4 0.7 –0.8 1.2 3.9 1.8 2.0
2.2
India 9.3 5.1 13.2 4.7 4.0 3.8 4.3 3.8 3.8 4.2 4.8 4.9
Excluding China and India 10.0 7.7 21.7 8.8 2.7 6.0
6.5 4.6 5.4 8.0 8.7 5.8
Middle East 14.1 7.6 8.3 8.4 5.9 5.5 6.3 7.1 8.4 8.4
8.7 8.5
Western Hemisphere 162.8 7.4 9.0 8.2 7.6 6.1 8.9 10.5
6.5 6.3 5.8 5.6
Brazil 576.3 6.8 3.2 4.9 7.1 6.8 8.4 14.8 6.6 6.9 4.9
4.4
Mexico 28.0 7.2 15.9 16.6 9.5 6.4 5.0 4.5 4.7 4.0 3.5
3.0
Analytical groups
By source of export earnings
Fuel 73.7 14.5 18.4 37.2 14.8 14.3 12.1 11.7 10.0 10.3
9.6 9.1
Nonfuel 50.6 5.6 10.0 6.5 5.9 5.5 4.8 5.0 5.1 4.7 4.7
4.2
of which, primary products 65.9 19.2 12.9 25.4 31.4
28.4 15.7 18.9 14.0 16.1 17.9 13.3
By external financing source
Net debtor countries 61.1 8.4 15.5 10.6 9.1 8.4 8.4
7.6 6.0 6.6 6.6 5.5
of which, official financing 37.6 9.2 18.9 10.3 6.3
7.5 9.6 7.5 6.9 8.9 9.6 7.0
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 45.9 12.4 21.5 13.8 10.0
11.3 13.7 11.1 9.5 11.4 13.0 9.7
Other groups
Heavily indebted poor countries 64.6 11.8 10.6 19.5
26.6 20.4 6.1 8.5 6.6 9.9 7.0 5.0
Middle East and north Africa 15.3 6.6 7.7 7.3 5.0 4.9
5.5 6.1 7.3 7.0 7.6 7.4
Memorandum
Median
Other emerging market and
developing countries 10.7 4.7 6.6 4.0 4.3 4.8 3.4 4.2
4.6 5.9 5.1 4.5
Africa 10.3 5.1 6.0 4.1 5.7 5.0 4.1 5.4 4.1 6.5 5.0
4.9
Central and eastern Europe 51.6 4.1 8.2 3.3 6.2 5.5
3.3 2.3 3.5 3.1 3.2 2.7
Commonwealth of Independent States1 . . . 10.6 10.5
23.5 18.7 9.8 5.6 5.6 7.1 10.3 7.9 6.5
Developing Asia 8.7 5.0 8.6 4.0 2.2 3.7 3.8 3.5 6.0
7.0 6.0 5.0
Middle East 7.0 2.7 3.0 2.1 1.0 1.6 1.4 2.0 4.0 3.7
3.9 4.0
Western Hemisphere 12.7 4.4 5.1 3.5 4.6 3.6 4.2 4.5
4.4 5.4 4.7 4.2
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
192
Table 11. Other Emerging Market and Developing
Countries—by Country: Consumer Prices1
(Annual percent change)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Africa 29.1 9.3 11.9 13.6 12.7 9.9 10.8 8.1 8.5 9.1
7.3
Algeria 18.2 5.0 2.6 0.3 4.2 1.4 2.6 3.6 1.6 5.0 5.5
Angola 363.6 107.4 248.2 325.0 152.6 108.9 98.3 43.6
23.0 13.0 8.3
Benin 6.9 5.8 0.3 4.2 4.0 2.4 1.5 0.9 5.5 3.0 2.5
Botswana 11.5 6.5 7.8 8.5 6.6 8.0 9.3 6.9 8.6 8.9 5.8
Burkina Faso 4.3 5.0 –1.1 –0.3 4.7 2.3 2.0 –0.4 6.3
2.1 2.0
Burundi 13.6 12.5 3.4 24.3 9.3 –1.3 10.7 8.0 13.6 3.1
5.5
Cameroon2 4.6 3.9 2.9 0.8 2.8 6.3 0.6 0.3 2.0 2.6 1.0
Cape Verde 7.2 4.4 4.3 –2.4 3.7 1.9 1.2 –1.9 0.4 2.1
2.0
Central African Republic 3.5 –1.9 –1.4 3.2 3.8 2.3 4.4
–2.2 3.0 2.3 2.1
Chad 5.6 4.3 –8.4 3.8 12.4 5.2 –1.8 –5.4 7.9 3.0 3.0
Comoros 2.8 1.2 1.1 5.9 5.6 3.5 3.8 4.5 4.9 4.4 3.5
Congo, Dem. Rep. of 821.6 29.1 284.9 550.0 357.3 25.3
12.8 4.0 21.4 9.3 6.4
Congo, Rep. of 4.2 1.8 3.1 0.4 0.8 3.1 1.5 3.6 2.0 2.5
2.2
Côte d’Ivoire 6.0 4.5 0.7 2.5 4.4 3.1 3.3 1.5 3.9 2.8
3.0
Djibouti 4.9 2.2 0.2 1.6 1.8 0.6 2.0 3.1 3.1 2.2 2.0
Equatorial Guinea 6.2 7.9 0.4 4.8 8.8 7.6 7.8 3.8 6.8
5.5 5.0
Eritrea . . . 9.5 8.4 19.9 14.6 16.9 22.7 25.1 12.4
10.9 10.0
Ethiopia 7.5 3.6 4.8 6.2 –5.2 –7.2 15.1 8.6 6.8 10.8
6.0
Gabon 4.4 2.3 –0.7 0.5 2.1 0.2 2.1 0.4 0.1 1.0 1.0
Gambia, The 6.8 1.1 3.8 0.9 4.5 8.6 17.0 14.2 4.3 4.0
3.7
Ghana 29.4 19.2 12.4 25.2 32.9 14.8 26.7 12.6 15.1 8.8
7.1
Guinea 5.2 5.1 4.6 6.8 5.4 3.0 12.9 17.5 31.4 24.1 9.5
Guinea-Bissau 49.9 8.0 –2.1 8.6 3.3 3.3 –3.5 0.8 3.4
3.1 2.5
Kenya 16.0 6.7 5.8 10.0 5.8 2.0 9.8 11.6 10.3 11.5 2.8
Lesotho 12.1 7.8 8.6 6.1 6.9 11.6 7.7 5.2 3.7 5.0 5.0
Madagascar 18.5 6.2 8.1 10.7 6.9 16.2 –1.1 14.0 18.4
9.5 7.0
Malawi 26.2 29.8 44.8 29.6 27.2 14.9 9.6 11.6 12.3 9.0
7.0
Mali 4.4 4.1 –1.2 –0.7 5.2 5.0 –1.3 –2.8 5.0 –1.5 2.5
Mauritania 6.5 8.5 9.3 4.5 4.8 6.4 4.6 10.4 12.1 6.5
4.7
Mauritius 8.2 6.1 6.9 5.5 4.8 6.3 5.1 4.1 5.6 7.1 6.2
Morocco 4.7 2.7 0.7 1.9 0.6 2.8 1.2 1.5 1.0 2.0 2.0
Mozambique, Rep. of 42.5 0.6 2.9 12.7 9.1 16.8 13.4
12.6 7.2 7.5 6.5
Namibia 11.5 6.2 8.6 9.3 9.3 11.3 7.2 4.1 2.4 5.1 5.0
Niger 4.2 4.5 –2.3 2.9 4.0 2.7 –1.8 0.4 7.8 0.3 2.0
Nigeria 35.7 10.0 6.6 6.9 18.0 13.7 14.0 15.0 17.9 9.4
6.5
Rwanda 16.3 6.8 –2.4 3.9 3.4 2.0 7.4 12.0 9.2 5.5 5.0
São Tomé and Príncipe 43.0 42.1 11.0 11.0 9.5 9.2 9.6
12.8 16.2 14.8 11.1
Senegal 3.7 1.1 0.8 0.7 3.0 2.3 — 0.5 1.8 2.6 1.7
Seychelles 1.5 2.7 6.3 6.3 6.0 0.2 3.2 3.9 1.0 –0.7
1.7
Sierra Leone 45.0 36.0 34.1 –0.9 2.6 –3.7 7.5 14.2
12.5 11.7 9.0
South Africa 11.4 6.9 5.2 5.4 5.7 9.2 5.8 1.4 3.4 4.5
4.9
Sudan 87.6 17.1 16.0 8.0 4.9 8.3 7.7 8.4 8.5 7.5 5.0
Swaziland 10.9 7.5 5.9 7.2 7.5 11.7 7.4 3.4 4.8 5.1
5.6
Tanzania 25.8 13.2 9.0 6.2 5.2 4.6 4.5 4.3 4.6 5.2 5.0
Togo 5.8 1.0 –0.1 1.9 3.9 3.1 –0.9 0.4 6.8 2.9 2.7
Tunisia 5.8 3.1 2.7 3.0 1.9 2.8 2.8 3.6 2.0 3.0 2.0
Uganda 38.6 5.8 0.2 5.8 4.5 –2.0 5.7 5.0 8.0 6.5 4.0
Zambia 82.4 24.5 26.8 26.1 21.7 22.2 21.4 18.0 18.3
13.3 7.5
Zimbabwe 21.4 31.3 58.0 55.6 73.4 133.2 365.0 350.0
237.8 850.4 584.2
193
INFLATION: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 11 (continued)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Central and eastern Europe3 65.4 32.7 23.0 22.8 19.4
14.7 9.2 6.1 4.8 4.1 3.4
Albania 32.0 20.9 0.4 — 3.1 5.2 2.4 2.9 2.5 2.5 3.0
Bosnia and Herzegovina . . . –0.4 3.0 5.1 3.2 0.3 0.6
0.3 2.8 5.0 2.5
Bulgaria 108.0 18.8 2.6 10.4 7.5 5.8 2.3 6.1 5.0 7.2
4.1
Croatia . . . 5.7 4.1 6.2 4.9 1.7 1.8 2.1 3.3 3.2 2.5
Czech Republic . . . 10.6 2.1 3.9 4.7 1.8 0.1 2.8 1.8
2.8 3.0
Estonia . . . 8.2 3.3 4.0 5.8 3.6 1.3 3.0 4.1 3.6 3.2
Hungary 22.9 14.2 10.0 9.8 9.2 5.2 4.7 6.7 3.5 2.0 2.7
Latvia . . . 4.6 2.4 2.6 2.5 1.9 2.9 6.3 6.7 6.4 5.5
Lithuania . . . 5.1 0.7 1.0 1.3 0.3 –1.2 1.2 2.6 3.2
2.7
Macedonia, FYR . . . –0.1 –2.0 6.2 5.3 2.4 1.2 –0.3
0.5 1.8 2.0
Malta 2.7 3.8 2.2 3.1 2.5 2.7 1.9 2.7 3.1 2.8 2.4
Poland 76.7 11.8 7.3 10.1 5.5 1.9 0.8 3.5 2.1 1.3 2.3
Romania 94.0 59.1 45.8 45.7 34.5 22.5 15.3 11.9 9.0
7.9 4.8
Serbia and Montenegro . . . 29.5 42.1 69.9 91.1 21.2
11.3 9.5 16.3 11.4 8.2
Slovak Republic . . . 6.7 10.7 12.0 7.3 3.3 8.5 7.5
2.8 3.6 2.5
Slovenia . . . 8.0 6.2 8.8 8.4 7.5 5.6 3.6 2.5 2.4 2.4
Turkey 75.8 83.6 63.5 54.3 53.9 44.8 25.2 8.6 8.2 6.5
4.4
Commonwealth of
Independent States3,4 . . . 23.9 69.6 24.6 20.3 13.8
12.0 10.3 12.3 10.4 9.7
Russia . . . 27.7 85.7 20.8 21.5 15.8 13.7 10.9 12.6
10.4 9.5
Excluding Russia . . . 15.9 37.0 34.3 17.6 9.3 8.3 9.1
11.7 10.5 10.2
Armenia . . . 8.7 0.6 –0.8 3.1 1.1 4.7 7.0 0.6 3.0 3.0
Azerbaijan . . . –0.8 –8.5 1.8 1.5 2.8 2.2 6.7 9.7 8.6
11.8
Belarus . . . 73.0 293.7 168.6 61.1 42.6 28.4 18.1
10.3 10.4 13.3
Georgia . . . 3.6 19.1 4.0 4.7 5.6 4.8 5.7 8.3 5.3 4.0
Kazakhstan . . . 7.3 8.4 13.3 8.4 5.9 6.4 6.9 7.6 7.5
7.5
Kyrgyz Republic . . . 10.5 35.9 18.7 6.9 2.1 3.1 4.1
4.3 5.7 4.5
Moldova . . . 7.7 39.3 31.3 9.8 5.3 11.7 12.5 11.9 9.4
8.7
Mongolia . . . 9.4 7.6 11.6 6.3 0.9 5.1 7.9 12.5 5.5
5.0
Tajikistan . . . 43.2 27.5 32.9 38.6 12.2 16.4 7.1 7.1
7.8 5.0
Turkmenistan . . . 16.8 23.5 8.0 11.6 8.8 5.6 5.9 10.8
7.9 5.0
Ukraine . . . 10.6 22.7 28.2 12.0 0.8 5.2 9.0 13.5
13.0 12.5
Uzbekistan . . . 16.7 44.7 49.5 47.5 44.3 14.8 8.8
21.0 11.3 6.5
STATISTICAL APPENDIX
194
Table 11 (continued)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Developing Asia 10.5 7.7 2.4 1.8 2.6 2.0 2.5 4.2 3.6
3.9 3.5
Afghanistan, I.S. of . . . . . . . . . . . . . . . . .
. 35.8 13.1 12.9 8.9 5.0
Bangladesh 6.8 8.6 6.2 2.2 1.5 3.8 5.4 6.1 7.0 6.1 5.6
Bhutan 10.0 10.6 6.8 4.0 3.4 2.5 2.1 4.6 5.2 6.0 6.0
Brunei Darussalam . . . –0.4 — 1.2 0.6 –2.3 0.3 0.9
1.0 1.0 1.0
Cambodia . . . 13.3 –0.5 –0.8 0.7 3.3 1.2 3.9 5.8 4.1
3.2
China 11.4 –0.8 –1.4 0.4 0.7 –0.8 1.2 3.9 1.8 2.0 2.2
Fiji 5.1 5.9 2.0 1.1 4.3 0.8 4.2 2.8 3.7 4.2 3.2
India 9.3 13.2 4.7 4.0 3.8 4.3 3.8 3.8 4.2 4.8 4.9
Indonesia 8.0 58.0 20.7 3.8 11.5 11.8 6.8 6.1 10.5
14.2 6.6
Kiribati 3.7 4.7 0.4 1.0 7.3 1.1 –1.6 –0.6 — 1.6 2.5
Lao PDR 12.5 90.1 128.4 23.2 7.8 10.6 15.5 10.5 7.2
6.8 5.0
Malaysia 3.4 5.1 2.8 1.6 1.4 1.8 1.1 1.4 3.0 3.1 2.7
Maldives 9.7 –1.4 3.0 –1.2 0.7 0.9 –2.9 6.4 5.7 7.0
6.0
Myanmar 25.9 49.1 10.9 –1.7 34.5 58.1 24.9 4.2 17.7
27.5 32.5
Nepal 9.8 11.4 3.4 2.4 2.9 4.7 4.0 4.5 9.1 5.3 5.5
Pakistan 10.3 6.5 4.1 4.4 3.1 3.2 2.9 7.4 9.1 8.4 6.9
Papua New Guinea 6.8 13.6 14.9 15.6 9.3 11.8 14.7 7.4
6.0 4.5 3.0
Philippines 10.4 9.7 6.7 4.3 6.1 2.9 3.5 6.0 7.6 7.4
4.7
Samoa 5.3 5.4 0.8 –0.2 1.9 7.4 4.3 7.9 7.8 3.0 3.0
Solomon Islands 11.8 12.3 8.0 6.9 7.6 9.4 10.1 6.9 7.3
7.2 7.7
Sri Lanka 12.3 9.4 4.0 1.5 12.1 10.2 2.6 7.9 10.6 8.0
7.0
Thailand 5.1 8.1 0.3 1.6 1.7 0.6 1.8 2.8 4.5 3.6 2.2
Timor-Leste, Dem. Rep. of . . . . . . . . . 63.6 3.6
4.8 7.1 3.3 0.9 2.0 2.5
Tonga 5.1 2.9 3.9 4.9 7.3 10.0 10.7 11.8 11.2 9.0 5.0
Vanuatu 4.3 3.3 2.2 2.5 3.7 2.0 3.0 1.4 1.0 2.3 2.4
Vietnam 47.2 7.7 4.2 –1.7 –0.4 4.0 3.2 7.7 8.0 7.0 6.0
Middle East 14.1 8.3 8.4 5.9 5.5 6.3 7.1 8.4 8.4 8.7
8.5
Bahrain 1.2 –0.4 –1.3 –3.6 –1.2 –0.5 1.7 2.3 2.6 2.0
2.1
Egypt5 13.4 4.7 3.7 2.8 2.4 2.4 3.2 10.3 11.4 4.4 4.5
Iran, I.R. of5 24.4 18.1 20.1 12.6 11.4 15.8 15.6 15.2
13.0 17.0 17.0
Iraq . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Jordan 7.7 3.1 0.6 0.7 1.8 1.8 1.6 3.4 3.5 6.9 5.8
Kuwait 3.1 0.6 3.1 1.6 1.4 0.8 1.0 1.3 3.9 3.5 3.0
Lebanon 44.2 4.5 0.2 –0.4 –0.4 1.8 1.3 3.0 0.3 2.5 2.0
Libya 7.1 3.7 2.6 –2.9 –8.8 –9.9 –2.1 –2.2 2.5 3.0 3.5
Oman 1.8 0.4 0.5 –1.2 –0.8 –0.2 0.2 0.8 1.9 1.1 1.2
Qatar 3.2 2.9 2.2 1.7 1.4 1.0 2.3 6.8 3.0 2.7 2.5
Saudi Arabia 1.5 –0.2 –1.3 –0.6 –0.8 0.2 0.6 0.3 0.4
1.0 1.0
Syrian Arab Republic 12.1 –1.0 –3.7 –3.9 5.6 –2.3 5.9
4.6 7.2 7.2 5.0
United Arab Emirates 3.9 2.0 2.1 1.4 2.8 2.9 3.1 4.6
6.0 5.5 5.0
Yemen 37.2 11.5 8.0 10.9 11.9 12.2 10.8 12.5 11.8 15.5
12.0
195
INFLATION: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 11 (concluded)
Average
1988–97 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
Western Hemisphere 162.8 9.0 8.2 7.6 6.1 8.9 10.5 6.5
6.3 5.8 5.6
Antigua and Barbuda 4.0 3.8 0.6 –0.6 –0.4 1.8 2.8 1.3
1.2 4.1 2.0
Argentina 159.4 0.9 –1.2 –0.9 –1.1 25.9 13.4 4.4 9.6
12.9 15.0
Bahamas, The 3.5 1.3 1.3 1.6 2.0 2.2 3.0 0.8 2.0 1.2
2.0
Barbados 4.0 –1.3 1.6 2.4 2.8 0.2 1.6 1.4 5.9 6.2 4.7
Belize 2.7 –0.9 –1.2 0.6 1.2 2.2 2.6 3.1 3.5 1.9 3.6
Bolivia 12.5 7.7 2.2 4.6 1.6 0.9 3.3 4.4 5.4 3.4 3.1
Brazil 576.3 3.2 4.9 7.1 6.8 8.4 14.8 6.6 6.9 4.9 4.4
Chile 13.9 5.1 3.3 3.8 3.6 2.5 2.8 1.1 3.1 3.8 3.0
Colombia 24.5 18.7 10.9 9.2 8.0 6.3 7.1 5.9 5.0 4.7
4.2
Costa Rica 18.3 11.7 10.0 11.0 11.3 9.2 9.4 11.5 13.6
13.1 11.0
Dominica 3.1 1.0 1.2 0.9 1.6 0.1 1.6 2.4 1.6 1.5 1.5
Dominican Republic 21.2 4.8 6.5 7.7 8.9 5.2 27.4 51.5
4.2 8.5 5.0
Ecuador 42.7 36.1 52.2 96.1 37.7 12.6 7.9 2.7 2.4 3.4
3.0
El Salvador 13.9 2.5 –1.0 4.3 1.4 2.8 2.5 5.4 4.0 4.0
2.5
Grenada 3.0 1.4 0.5 2.2 1.7 1.1 2.2 2.5 6.0 2.0 2.0
Guatemala 15.9 6.6 5.2 6.0 7.3 8.1 5.6 7.6 9.1 6.9 5.4
Guyana 33.2 4.7 7.4 6.1 2.7 5.4 6.0 4.7 7.1 6.9 4.4
Haiti 19.6 13.5 8.0 11.0 16.7 9.6 26.7 28.3 16.8 13.1
8.9
Honduras 18.3 13.7 11.6 11.0 9.7 7.7 7.7 8.1 8.8 6.8
5.7
Jamaica 27.2 8.1 6.3 7.7 8.0 6.5 12.9 12.8 16.5 11.3
10.2
Mexico 28.0 15.9 16.6 9.5 6.4 5.0 4.5 4.7 4.0 3.5 3.0
Netherlands Antilles 2.6 1.4 0.8 4.4 1.6 0.4 1.9 1.6
3.2 2.8 2.5
Nicaragua 269.4 18.5 7.2 9.9 4.7 4.0 5.2 8.5 9.6 8.8
6.1
Panama 1.0 0.6 1.3 1.4 0.3 1.0 0.6 0.5 2.9 2.2 1.5
Paraguay 19.3 11.6 6.8 9.0 7.3 10.5 14.2 4.3 6.8 7.4
4.4
Peru 267.1 7.3 3.5 3.8 2.0 0.2 2.3 3.7 1.6 2.7 2.2
St. Kitts and Nevis 3.3 3.7 3.4 2.1 2.1 2.1 2.3 2.1
1.8 2.0 2.0
St. Lucia 3.0 2.8 3.5 3.6 2.1 –0.3 1.0 1.5 3.0 4.0 4.0
St. Vincent and the Grenadines 3.1 2.1 1.0 0.2 0.8 1.3
0.2 3.0 2.6 1.9 1.7
Suriname 58.0 19.1 98.7 58.6 39.8 15.5 23.0 9.1 9.9
14.8 7.0
Trinidad and Tobago 6.9 5.3 3.4 3.6 5.5 4.2 3.8 3.8
6.9 7.8 7.5
Uruguay 59.0 10.8 5.7 4.8 4.4 25.9 10.2 7.6 5.9 5.5
4.9
Venezuela 51.4 35.8 23.6 16.2 12.5 22.4 31.1 21.7 15.9
11.7 17.3
1In accordance with standard practice in the World
Economic Outlook, movements in consumer prices are
indicated as annual averages rather than as
December/December
changes, as is the practice in some countries. For
many countries, figures for recent years are IMF staff
estimates. Data for some countries are for fiscal
years.
2The percent changes in 2002 are calculated over a
period of 18 months, reflecting a change in the fiscal
year cycle (from July–June to January–December).
3For many countries, inflation for the earlier years
is measured on the basis of a retail price index.
Consumer price indices with a broader and more
up-to-date coverage are
typically used for more recent years.
4Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
5Data refer to fiscal years.
STATISTICAL APPENDIX
196
Table 12. Summary Financial Indicators
(Percent)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Advanced economies
Central government fiscal balance1
Advanced economies –1.0 –1.0 0.1 –0.9 –2.4 –3.0 –2.8
–2.4 –2.4 –2.4
United States 0.5 1.2 2.0 0.5 –2.4 –3.5 –3.5 –3.0 –3.2
–3.1
Euro area –2.4 –1.6 –0.4 –1.6 –2.1 –2.3 –2.3 –1.9 –1.8
–1.7
Japan –3.5 –8.2 –6.7 –6.1 –6.7 –6.8 –5.8 –5.4 –5.4
–5.3
Other advanced economies2 — 0.5 1.4 0.6 –0.1 –0.6 –0.2
–0.1 — —
General government fiscal balance1
Advanced economies –1.5 –1.1 –0.2 –1.6 –3.5 –4.1 –3.6
–3.1 –3.1 –3.0
United States 0.1 0.6 1.3 –0.7 –4.0 –5.0 –4.7 –4.1
–4.3 –4.0
Euro area –2.3 –1.3 –1.0 –1.9 –2.6 –3.0 –2.7 –2.3 –2.3
–2.1
Japan –5.6 –7.5 –7.7 –6.4 –8.2 –8.1 –6.6 –5.8 –5.7
–5.4
Other advanced economies2 –0.2 0.6 1.8 0.2 –0.9 –1.2
–0.6 –0.2 –0.2 –0.1
General government structural balance3
Advanced economies –1.6 –1.4 –1.3 –1.9 –3.3 –3.6 –3.4
–3.0 –3.1 –2.9
Growth of broad money4
Advanced economies 6.8 5.9 4.9 8.1 5.7 5.5 5.3 5.5 . .
. . . .
United States 8.7 6.0 6.1 10.5 6.4 4.8 5.6 3.9 . . . .
. .
Euro area 5.0 5.7 4.1 8.0 6.9 7.1 6.6 7.3 . . . . . .
Japan 4.0 2.7 1.9 3.3 1.8 1.6 1.8 2.0 . . . . . .
Other advanced economies2 9.4 9.2 6.7 8.2 6.2 8.3 5.4
8.8 . . . . . .
Short-term interest rates5
United States 4.9 4.8 6.0 3.5 1.6 1.0 1.4 3.2 4.9 5.1
Euro area 3.7 3.0 4.4 4.3 3.3 2.3 2.1 2.2 3.0 3.4
Japan 0.2 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.3 0.9
LIBOR 5.6 5.5 6.6 3.7 1.9 1.2 1.8 3.8 5.0 5.1
Other emerging market and
developing countries
Central government fiscal balance1
Weighted average –3.7 –3.8 –2.9 –3.1 –3.4 –2.7 –1.6
–0.8 –0.9 –0.8
Median –2.8 –3.1 –2.6 –3.6 –3.6 –3.1 –2.6 –2.2 –2.4
–1.7
General government fiscal balance1
Weighted average –4.7 –4.7 –3.4 –3.9 –4.3 –3.4 –2.1
–1.3 –1.2 –1.0
Median –3.4 –3.3 –2.7 –3.2 –3.6 –2.9 –2.4 –1.9 –2.0
–1.6
Growth of broad money
Weighted average 18.5 17.7 16.5 15.0 16.7 16.3 17.6
18.8 15.1 13.0
Median 11.3 13.2 14.1 13.7 13.2 13.0 13.9 13.4 11.9
10.3
1Percent of GDP.
2In this table, “other advanced economies” means
advanced economies excluding the United States, euro
area countries, and Japan.
3Percent of potential GDP.
4M2, defined as M1 plus quasi-money, except for Japan,
for which the data are based on M2 plus certificates
of deposit (CDs). Quasi-money is essentially private
term
deposits and other notice deposits. The United States
also includes money market mutual fund balances, money
market deposit accounts, overnight repurchase
agreements, and
overnight Eurodollars issued to U.S. residents by
foreign branches of U.S. banks. For the euro area, M3
is composed of M2 plus marketable instruments held by
euro-area residents,
which comprise repurchase agreements, money market
fund shares/units, money market paper, and debt
securities up to two years.
5Annual data are period average. For the United
States, three-month treasury bills; for Japan,
three-month certificates of deposit; for the euro
area, the three-month EURIBOR;
and for LIBOR, London interbank offered rate on
six-month U.S. dollar deposits.
197
FINANCIAL POLICIES: ADVANCED ECONOMIES
Table 13. Advanced Economies: General and Central
Government Fiscal Balances and Balances
Excluding Social Security Transactions1
(Percent of GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
General government fiscal balance
Advanced economies –1.5 –1.1 –0.2 –1.6 –3.5 –4.1 –3.6
–3.1 –3.1 –3.0
United States 0.1 0.6 1.3 –0.7 –4.0 –5.0 –4.7 –4.1
–4.3 –4.0
Euro area –2.3 –1.3 –1.0 –1.9 –2.6 –3.0 –2.7 –2.3 –2.3
–2.1
Germany –2.2 –1.5 1.3 –2.8 –3.7 –4.0 –3.7 –3.3 –3.3
–2.4
France2 –2.6 –2.5 –1.5 –1.5 –3.1 –4.2 –3.7 –2.9 –2.9
–3.0
Italy –2.8 –1.7 –0.8 –3.1 –2.7 –3.4 –3.4 –4.1 –4.0
–4.3
Spain –3.0 –1.1 –0.9 –0.5 –0.3 — –0.1 1.1 0.9 0.7
Netherlands –0.8 0.7 2.2 –0.3 –2.0 –3.2 –2.1 –0.6 –1.0
–0.7
Belgium –0.8 –0.5 0.1 0.6 — 0.1 — — –0.4 –1.1
Austria3 –2.4 –2.3 –1.6 — –0.6 –1.3 –1.1 –1.8 –1.8
–0.9
Finland 1.6 2.2 7.1 5.2 4.2 2.3 1.9 2.4 2.5 2.4
Greece –4.3 –3.5 –4.1 –6.1 –4.9 –5.7 –6.6 –4.6 –2.8
–3.2
Portugal –2.4 –2.7 –2.7 –4.2 –2.9 –2.9 –3.2 –6.0 –4.6
–3.8
Ireland4 2.5 2.4 4.4 0.7 –0.5 0.2 1.5 0.3 –0.3 –0.5
Luxembourg 3.3 3.5 6.1 6.1 2.1 0.2 –1.2 –2.3 –2.2 –2.1
Japan –5.6 –7.5 –7.7 –6.4 –8.2 –8.1 –6.6 –5.8 –5.7
–5.4
United Kingdom — 1.1 1.5 0.9 –1.5 –3.2 –3.2 –3.6 –3.1
–2.8
Canada 0.1 1.6 2.9 0.7 –0.1 — 0.7 1.7 1.3 1.1
Korea5 –3.9 –2.5 1.1 0.6 2.3 2.7 2.3 1.9 1.5 1.7
Australia6 0.8 1.7 1.4 0.1 0.3 1.1 1.1 0.8 0.6 0.6
Taiwan Province of China –3.2 –5.7 –4.5 –6.4 –4.3 –2.8
–2.9 –2.5 –1.7 –1.7
Sweden 1.9 2.3 5.0 2.6 –0.5 –0.1 1.0 1.4 0.7 1.1
Switzerland –1.5 –0.6 2.2 0.1 –1.2 –1.6 –1.2 –1.1 –1.0
–0.9
Hong Kong SAR –1.8 0.8 –0.6 –4.9 –4.8 –3.3 –0.3 0.3
0.6 0.7
Denmark — 1.4 2.3 1.2 0.2 –0.1 1.7 2.5 2.4 2.2
Norway 3.6 6.2 15.6 13.6 9.3 7.5 11.7 15.8 16.3 16.5
Israel –3.7 –4.2 –2.0 –3.9 –4.2 –6.5 –5.1 –2.5 –3.5
–3.5
Singapore 3.6 4.6 7.9 4.8 4.0 5.7 6.0 6.0 4.3 4.4
New Zealand7 2.1 1.5 1.2 1.6 1.7 3.4 4.6 3.8 3.6 3.0
Cyprus –4.2 –4.4 –2.4 –2.3 –4.5 –6.3 –4.1 –2.7 –2.1
–1.9
Iceland 0.5 2.3 2.4 0.2 –0.8 –2.0 –0.1 1.5 2.2 —
Memorandum
Major advanced economies –1.5 –1.3 –0.4 –1.9 –4.1 –4.9
–4.4 –3.9 –3.9 –3.7
Newly industrialized Asian economies –2.1 –3.0 –2.1
–4.7 –3.4 –1.9 –1.2 –0.8 –0.4 –0.4
Fiscal balance excluding social
security transactions
United States –0.6 –0.4 0.2 –1.5 –4.4 –5.3 –5.2 –4.7
–4.8 –4.7
Japan –7.0 –8.5 –8.2 –6.5 –7.9 –8.2 –6.9 –5.7 –5.5
–5.3
Germany –2.3 –1.7 1.3 –2.6 –3.4 –3.6 –3.6 –2.9 –2.8
–1.5
France –2.9 –3.1 –2.0 –1.7 –2.9 –3.8 –2.7 –2.4 –2.8
–2.9
Italy 1.3 2.7 3.3 0.8 1.4 0.7 0.8 0.1 0.6 0.4
Canada 2.7 3.9 4.8 2.4 1.4 1.4 2.1 3.3 2.8 2.6
STATISTICAL APPENDIX
198
Table 13 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Central government fiscal balance
Advanced economies –1.0 –1.0 0.1 –0.9 –2.4 –3.0 –2.8
–2.4 –2.4 –2.4
United States8 0.5 1.2 2.0 0.5 –2.4 –3.5 –3.5 –3.0
–3.2 –3.1
Euro area –2.4 –1.6 –0.4 –1.6 –2.1 –2.3 –2.3 –1.9 –1.8
–1.7
Germany9 –1.8 –1.5 1.4 –1.3 –1.7 –1.8 –2.3 –2.5 –2.2
–1.8
France –3.7 –2.5 –2.4 –2.2 –3.8 –3.9 –3.2 –3.1 –2.7
–2.8
Italy –2.7 –1.5 –1.1 –2.9 –2.8 –2.6 –2.6 –2.9 –2.9
–3.0
Spain –2.3 –1.0 –1.0 –0.6 –0.5 –0.3 –1.2 0.4 0.1 0.1
Japan10 –3.5 –8.2 –6.7 –6.1 –6.7 –6.8 –5.8 –5.4 –5.4
–5.3
United Kingdom 0.1 1.2 1.6 0.9 –1.7 –3.5 –3.2 –3.4
–3.1 –2.9
Canada 0.8 0.9 1.9 1.1 0.8 0.1 0.6 0.4 0.3 0.2
Other advanced economies –0.4 — 1.2 0.4 0.5 0.6 1.2
1.4 1.4 1.4
Memorandum
Major advanced economies –1.0 –1.1 — –1.1 –2.9 –3.7
–3.5 –3.2 –3.2 –3.1
Newly industrialized Asian economies –1.1 –0.8 0.2
–0.7 0.3 0.4 0.7 0.5 0.6 0.7
1On a national income accounts basis except as
indicated in footnotes. See Box A1 for a summary of
the policy assumptions underlying the projections.
2Adjusted for valuation changes of the foreign
exchange stabilization fund.
3Based on ESA95 methodology, according to which swap
income is not included.
4Data include the impact of discharging future pension
liabilities of the formerly state-owned
telecommunications company at a cost of 1.8 percent of
GDP in 1999.
5Data cover the consolidated central government
including the social security funds but excluding
privatization.
6Cash basis, underlying balance.
7Government balance is revenue minus expenditure plus
balance of state-owned enterprises, excluding
privatization receipts.
8Data are on a budget basis.
9Data are on an administrative basis and exclude
social security transactions.
10Data are on a national income basis and exclude
social security transactions.
199
FINANCIAL POLICIES: ADVANCED ECONOMIES
Table 14. Advanced Economies: General Government
Structural Balances1
(Percent of potential GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Structural balance
Advanced economies –1.6 –1.4 –1.3 –1.9 –3.3 –3.6 –3.4
–3.0 –3.1 –2.9
United States –0.7 –0.6 0.1 –1.1 –3.7 –4.4 –4.4 –3.9
–4.0 –3.9
Euro area2,3 –1.9 –1.5 –1.6 –2.3 –2.6 –2.5 –2.2 –1.8
–1.7 –1.5
Germany2 –1.4 –1.0 –1.2 –2.7 –3.2 –3.0 –3.2 –2.6 –2.8
–1.6
France2 –1.8 –2.2 –2.1 –2.1 –3.1 –3.4 –2.7 –2.1 –1.6
–1.9
Italy2 –3.1 –2.0 –2.8 –3.9 –3.4 –2.9 –3.2 –3.3 –3.1
–3.3
Spain2 –2.8 –1.4 –1.6 –1.2 –0.3 0.1 0.9 1.1 0.9 0.7
Netherlands2 –1.4 –0.7 –0.2 –1.2 –2.3 –2.4 –1.2 –0.2
–0.1 0.2
Belgium2 –0.6 –1.0 –1.5 –0.7 –0.4 –1.3 0.3 0.6 0.2
–0.7
Austria2 –2.6 –2.7 –3.4 –0.8 –0.4 –0.2 –0.8 –1.6 –1.7
–0.8
Finland 1.5 1.6 5.9 4.8 4.2 2.6 2.0 2.9 2.6 2.4
Greece –2.5 –2.0 –3.8 –6.2 –5.1 –6.1 –7.5 –5.4 –3.4
–3.7
Portugal2 –2.9 –3.7 –4.6 –5.6 –5.5 –4.7 –4.6 –5.1 –3.6
–2.8
Ireland2 1.9 0.8 2.6 –0.6 –1.2 0.4 1.7 0.2 –0.6 –1.0
Japan –4.9 –6.3 –7.2 –5.6 –6.9 –7.0 –5.8 –5.4 –5.6
–5.5
United Kingdom — 1.2 1.3 0.3 –1.8 –3.2 –3.4 –3.7 –3.0
–2.6
Canada 0.5 1.3 2.0 0.4 –0.2 0.3 0.9 1.9 1.3 1.1
Other advanced economies –0.2 0.4 1.3 0.6 — 0.2 0.6
0.6 0.4 0.4
Australia4 0.7 1.5 1.3 0.1 0.3 1.1 0.9 0.8 0.7 0.7
Sweden 2.7 1.9 4.5 3.2 0.6 1.2 1.9 2.1 1.0 1.1
Denmark –1.4 –0.9 0.7 0.3 0.2 0.4 1.1 1.3 1.4 2.2
Norway5 –4.5 –3.7 –2.4 –1.1 –3.8 –5.7 –4.4 –4.3 –4.4
–5.2
New Zealand6 1.8 0.9 1.3 2.1 3.2 4.2 4.8 4.4 3.7 3.3
Memorandum
Major advanced economies –1.7 –1.6 –1.4 –2.1 –3.8 –4.2
–4.0 –3.6 –3.6 –3.4
1On a national income accounts basis. The structural
budget position is defined as the actual budget
deficit (or surplus) less the effects of cyclical
deviations of output from
potential output. Because of the margin of uncertainty
that attaches to estimates of cyclical gaps and to tax
and expenditure elasticities with respect to national
income, indicators
of structural budget positions should be interpreted
as broad orders of magnitude. Moreover, it is
important to note that changes in structural budget
balances are not necessarily
attributable to policy changes but may reflect the
built-in momentum of existing expenditure programs. In
the period beyond that for which specific
consolidation
programs exist, it is assumed that the structural
deficit remains unchanged.
2Excludes one-off receipts from the sale of mobile
telephone licenses equivalent to 2.5 percent of GDP in
2000 for Germany, 0.1 percent of GDP in 2001 and 2002
for France,
1.2 percent of GDP in 2000 for Italy, 0.1 percent of
GDP in 2000 for Spain, 0.7 percent of GDP in 2000 for
the Netherlands, and 0.2 percent of GDP in 2001 for
Belgium, 0.4 percent
of GDP in 2000 for Austria, 0.3 percent of GDP in 2000
for Portugal, and 0.2 percent of GDP in 2002 for
Ireland. Also excludes one-off receipts from sizable
asset transactions,
in particular 0.5 percent of GDP for France in 2005.
3Excludes Luxembourg.
4Excludes commonwealth government privatization
receipts.
5Excludes oil.
6Government balance is revenue minus expenditure plus
balance of state-owned enterprises, excluding
privatization receipts.
STATISTICAL APPENDIX
200
Table 15. Advanced Economies: Monetary Aggregates1
(Annual percent change)
1998 1999 2000 2001 2002 2003 2004 2005
Narrow money2
Advanced economies 5.7 8.4 2.0 9.4 9.1 8.1 6.4 5.1
United States 2.1 2.6 –3.2 8.7 3.1 7.0 5.2 –0.2
Euro area3 10.5 10.6 5.3 6.0 9.9 10.6 8.9 11.3
Japan 5.0 11.7 3.5 13.7 23.5 4.5 4.0 5.6
United Kingdom 6.0 11.4 4.6 7.6 6.4 7.4 5.7 4.7
Canada4 8.7 8.9 14.4 15.3 4.6 10.8 11.9 11.2
Memorandum
Newly industrialized Asian economies 0.9 19.9 4.6 11.4
13.4 13.9 9.2 1.6
Broad money5
Advanced economies 6.8 5.9 4.9 8.1 5.7 5.5 5.3 5.5
United States 8.7 6.0 6.1 10.5 6.4 4.8 5.6 3.9
Euro area3 5.0 5.7 4.1 8.0 6.9 7.1 6.6 7.3
Japan 4.0 2.7 1.9 3.3 1.8 1.6 1.8 2.0
United Kingdom 8.4 4.1 8.4 6.7 7.0 7.2 8.8 12.6
Canada4 0.8 5.1 6.6 6.0 5.1 6.1 6.3 5.4
Memorandum
Newly industrialized Asian economies 20.0 17.3 14.5
7.3 5.7 6.8 3.4 3.7
1End-of-period based on monthly data.
2M1 except for the United Kingdom, where M0 is used
here as a measure of narrow money; it comprises notes
in circulation plus bankers’ operational deposits. M1
is generally
currency in circulation plus private demand deposits.
In addition, the United States includes traveler’s
checks of nonbank issues and other checkable deposits
and excludes
private sector float and demand deposits of banks.
Canada excludes private sector float.
3Excludes Greece prior to 2001.
4Average of Wednesdays.
5M2, defined as M1 plus quasi-money, except for Japan,
and the United Kingdom, for which the data are based
on M2 plus certificates of deposit (CDs), and M4,
respectively.
Quasi-money is essentially private term deposits and
other notice deposits. The United States also includes
money market mutual fund balances, money market
deposit
accounts, overnight repurchase agreements, and
overnight Eurodollars issued to U.S. residents by
foreign branches of U.S. banks. For the United
Kingdom, M4 is composed of
non-interest-bearing M1, private sector
interest-bearing sterling sight bank deposits, private
sector sterling time bank deposits, private sector
holdings of sterling bank CDs, private
sector holdings of building society shares and
deposits, and sterling CDs less building society of
banks deposits and bank CDs and notes and coins. For
the euro area, M3
is composed of M2 plus marketable instruments held by
euro-area residents, which comprise repurchase
agreements, money market fund shares/units, money
market paper,
and debt securities up to two years.
Table 16. Advanced Economies: Interest Rates
(Percent a year)
March
1998 1999 2000 2001 2002 2003 2004 2005 2006
Policy-related interest rate1
United States 4.7 5.3 6.4 1.8 1.2 1.0 2.2 4.2 4.5
Euro area2 . . . 3.0 4.8 3.3 2.8 2.0 2.0 2.3 2.5
Japan 0.3 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0
United Kingdom 6.3 5.5 6.0 4.0 4.0 3.8 4.8 4.5 4.5
Canada 5.0 4.8 5.8 2.3 2.8 2.8 2.5 3.3 3.8
Short-term interest rate2
Advanced economies 4.0 3.4 4.4 3.2 2.1 1.6 1.7 2.5 3.4
United States 4.9 4.8 6.0 3.5 1.6 1.0 1.4 3.2 4.5
Euro area 3.7 3.0 4.4 4.3 3.3 2.3 2.1 2.2 2.7
Japan 0.2 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0
United Kingdom 7.4 5.5 6.1 5.0 4.0 3.7 4.6 4.7 4.6
Canada 4.7 4.7 5.5 3.9 2.6 2.9 2.2 2.7 3.9
Memorandum
Newly industrialized Asian economies 10.6 4.6 4.6 3.7
2.7 2.3 2.2 2.5 3.8
Long-term interest rate3
Advanced economies 4.5 4.6 5.1 4.4 4.1 3.6 3.8 3.7 3.9
United States 5.3 5.6 6.0 5.0 4.6 4.0 4.3 4.3 4.6
Euro area 4.7 4.6 5.5 5.0 4.9 4.0 3.9 3.7 3.6
Japan 1.3 1.7 1.7 1.3 1.3 1.0 1.5 1.4 1.8
United Kingdom 5.1 5.2 5.0 5.0 4.8 4.5 4.8 4.3 4.1
Canada 5.3 5.6 5.9 5.5 5.3 4.8 4.6 4.1 4.2
Memorandum
Newly industrialized Asian economies 9.6 7.3 7.0 5.5
5.0 3.9 3.8 4.0 5.3
1Annual data are end of period. For the United States,
federal funds rate; for Japan, overnight call rate;
for the euro area, main refinancing rate; for the
United Kingdom, base
lending rate; and for Canada, target rate for
overnight money market financing.
2Annual data are period average. For the United
States, three-month treasury bill market bid yield at
constant maturity; for Japan, three-month bond yield
with repurchase
agreement; for the euro area, three-month EURIBOR; for
the United Kingdom, three-month interbank offered
rate; for the Canada, three-month treasury bill yield.
3Annual data are period average. For the United
States, 10-year treasury bond yield at constant
maturity; for Japan, 10-year government bond yield;
for the euro area, a
weighted average of national 10-year government bond
yields through 1998 and 10-year euro bond yield
thereafter; for the United Kingdom, 10-year government
bond yield; and
for Canada, 10-year government bond yield.
FINANCIAL POLICIES: ADVANCED ECONOMIES
201
STATISTICAL APPENDIX
202
Table 17. Advanced Economies: Exchange Rates
Exchange Rate
Assumption
1998 1999 2000 2001 2002 2003 2004 2005 2006
U.S. dollars per national currency unit
U.S. dollar nominal exchange rates
Euro . . . 1.067 0.924 0.896 0.944 1.131 1.243 1.246
1.195
Pound sterling 1.656 1.618 1.516 1.440 1.501 1.634
1.832 1.820 1.751
National currency units per U.S. dollar
Japanese yen 130.4 113.5 107.7 121.5 125.2 115.8 108.1
110.0 116.9
Canadian dollar 1.482 1.486 1.485 1.548 1.569 1.397
1.299 1.211 1.154
Swedish krona 7.948 8.257 9.132 10.314 9.707 8.068
7.338 7.450 7.859
Danish krone 6.691 6.967 8.060 8.317 7.870 6.577 5.985
5.987 6.230
Swiss franc 1.447 1.500 1.687 1.686 1.554 1.346 1.242
1.243 1.308
Norwegian krone 7.544 7.797 8.782 8.989 7.932 7.074
6.730 6.439 6.765
Israeli new sheqel 3.786 4.138 4.077 4.205 4.735 4.548
4.481 4.485 4.755
Icelandic krona 70.94 72.30 78.28 96.84 91.19 76.64
70.07 62.94 66.26
Cyprus pound 0.517 0.542 0.621 0.643 0.609 0.517 0.468
0.464 0.481
Korean won 1,401.4 1,188.8 1,131.0 1,291.0 1,251.1
1,191.6 1,145.3 1,024.1 970.0
Australian dollar 1.589 1.550 1.717 1.932 1.839 1.534
1.358 1.309 1.354
New Taiwan dollar 33.434 32.263 31.216 33.787 34.571
34.441 33.418 32.156 32.243
Hong Kong dollar 7.745 7.757 7.791 7.799 7.799 7.787
7.788 7.777 7.758
Singapore dollar 1.674 1.695 1.724 1.792 1.791 1.742
1.690 1.664 1.639
Percent change
from previous
Index, 2000 = 100 assumption2
Real effective exchange rates1
United States 90.5 90.3 100.0 102.4 102.5 93.8 85.9
85.3 –1.0
Euro area3 118.1 113.4 100.0 101.8 107.5 121.3 127.5
126.6 0.1
Germany 105.0 104.8 100.0 101.5 101.7 105.4 104.4
102.8 —
France 112.6 107.6 100.0 97.9 99.8 104.1 104.5 102.9 —
Italy 106.7 106.7 100.0 100.7 107.3 116.4 123.6 126.9
—
Spain 101.0 100.2 100.0 102.1 104.9 109.1 112.6 112.5
—
Netherlands 105.6 103.9 100.0 102.9 108.5 117.8 119.7
117.3 —
Belgium 106.1 106.5 100.0 102.0 103.0 107.5 110.9
110.9 0.1
Austria 116.0 110.5 100.0 96.4 97.4 100.4 101.5 100.0
—
Finland 114.7 110.3 100.0 105.2 104.8 109.9 113.8
112.9 —
Greece 103.8 104.6 100.0 99.4 102.6 107.5 115.4 118.3
–0.1
Portugal 97.8 99.8 100.0 102.4 105.3 109.7 113.4 112.6
—
Ireland 130.9 117.8 100.0 98.8 93.6 101.1 109.0 109.2
0.1
Luxembourg 103.9 104.7 100.0 101.8 102.2 105.3 108.2
108.3 —
Japan 87.9 97.5 100.0 92.8 83.9 80.2 79.9 74.8 –0.1
United Kingdom 97.6 97.9 100.0 97.1 100.2 94.9 98.7
97.9 –0.6
Canada 106.6 103.9 100.0 101.5 99.0 108.6 113.9 120.5
1.1
Korea 90.4 94.2 100.0 92.9 96.7 94.9 97.7 115.7 4.7
Australia 100.9 103.4 100.0 94.3 99.6 111.6 124.4
130.9 –0.7
Taiwan Province of China 90.0 96.2 100.0 106.0 94.1
86.3 82.5 83.9 2.0
Sweden 110.8 103.4 100.0 96.9 92.6 95.2 99.2 97.8 0.6
Switzerland 101.6 101.1 100.0 105.5 111.6 113.5 114.8
113.9 –0.8
Hong Kong SAR 108.2 102.9 100.0 103.4 98.5 86.1 77.3
73.0 –0.8
Denmark 106.5 105.2 100.0 101.3 103.7 108.1 113.9
113.6 –0.1
Norway 98.0 99.3 100.0 102.3 116.1 116.4 113.0 116.7
–1.1
Israel 91.9 89.5 100.0 101.6 89.3 82.4 83.2 85.9 –2.5
Singapore 112.7 98.7 100.0 104.7 102.1 97.8 99.7 100.0
2.1
New Zealand 115.7 113.1 100.0 96.3 105.3 120.1 131.4
138.2 –4.2
1Defined as the ratio, in common currency, of the unit
labor costs in the manufacturing sector to the
weighted average of those of its industrial country
trading partners, using
1999–2001 trade weights.
2In nominal effective terms. Average December 2–30,
2005 rates compared with February 9–March 9, 2006
rates.
3A synthetic euro for the period prior to January 1,
1999 is used in the calculation of real effective
exchange rates for the euro. See Box 5.5 in the World
Economic Outlook,
October 1998.
203
FINANCIAL POLICIES: OTHER EMERGING MARKET AND
DEVELOPING COUNTRIES
Table 18. Other Emerging Market and Developing
Countries: Central Government Fiscal Balances
(Percent of GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other emerging market and
developing countries –3.7 –3.8 –2.9 –3.1 –3.4 –2.7
–1.6 –0.8 –0.9 –0.8
Regional groups
Africa –3.8 –3.5 –1.3 –2.1 –2.3 –1.4 –0.1 1.3 1.8 1.9
Sub-Sahara –3.7 –3.8 –2.4 –2.6 –2.4 –2.4 –0.6 0.2 0.9
1.0
Excluding Nigeria and South Africa –3.4 –4.9 –4.4 –2.8
–2.9 –2.9 –1.7 –1.2 –1.1 –0.7
Central and eastern Europe –4.1 –5.4 –5.0 –7.3 –8.0
–6.3 –5.1 –3.1 –3.4 –2.6
Commonwealth of Independent States1 –5.2 –4.0 0.3 1.8
1.0 1.1 2.7 5.4 5.1 4.3
Russia –6.0 –4.2 0.8 2.7 1.3 1.6 4.3 7.4 7.6 6.5
Excluding Russia –3.1 –3.2 –1.5 –0.9 0.3 –0.1 –1.8
–0.1 –1.8 –1.8
Developing Asia –3.4 –4.2 –4.3 –3.9 –3.7 –3.2 –2.3
–2.0 –2.0 –1.7
China –2.8 –3.7 –3.3 –2.7 –3.0 –2.4 –1.5 –1.3 –1.1
–1.0
India –5.3 –6.5 –7.1 –6.6 –6.1 –5.3 –4.4 –4.1 –4.2
–3.7
Excluding China and India –2.8 –2.9 –3.9 –3.7 –3.2
–2.8 –2.3 –2.0 –2.1 –1.8
Middle East –5.1 –1.8 4.2 –0.5 –3.4 –1.1 1.3 5.9 4.7
3.9
Western Hemisphere –3.3 –2.9 –2.3 –2.6 –3.0 –3.0 –1.4
–2.1 –1.9 –1.6
Brazil –5.4 –2.7 –2.3 –2.1 –0.8 –4.0 –1.5 –3.8 –2.8
–2.1
Mexico –2.3 –2.2 –1.6 –1.3 –1.5 –1.6 — –0.5 –1.1 –1.1
Analytical groups
By source of export earnings
Fuel –5.7 –3.0 3.7 1.2 –0.3 1.4 4.1 8.2 8.2 7.4
Nonfuel –3.4 –3.9 –3.9 –3.8 –3.9 –3.4 –2.4 –2.2 –2.2
–1.9
of which, primary products –2.3 –4.0 –4.7 –3.0 –3.1
–2.6 –1.4 0.3 0.2 –0.4
By external financing source
Net debtor countries –3.8 –4.1 –4.1 –4.2 –4.3 –3.8
–2.8 –2.5 –2.5 –2.2
of which, official financing –3.2 –3.5 –4.1 –4.0 –4.5
–3.0 –2.6 –2.4 –2.6 –2.3
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 –2.9 –3.1 –3.1 –3.3 –3.8
–2.4 –1.4 –1.1 –0.8 –0.4
Other groups
Heavily indebted poor countries –3.6 –4.4 –4.9 –4.0
–4.3 –3.9 –3.0 –2.3 –2.6 –2.4
Middle East and north Africa –4.7 –1.8 3.6 –0.6 –2.8
–0.4 1.4 5.4 4.5 3.9
Memorandum
Median
Other emerging market and developing countries –2.8
–3.1 –2.6 –3.6 –3.6 –3.1 –2.6 –2.2 –2.4 –1.7
Africa –3.2 –3.4 –2.7 –3.4 –3.8 –3.1 –2.7 –2.1 –2.0
–1.7
Central and eastern Europe –2.8 –2.9 –2.5 –4.2 –5.3
–3.9 –3.3 –2.3 –2.7 –1.6
Commonwealth of Independent States1 –5.0 –4.2 –1.2
–1.4 –0.4 –0.9 –0.2 –0.6 –1.7 –2.1
Developing Asia –2.2 –3.3 –3.8 –4.4 –4.1 –3.1 –2.6
–3.1 –3.3 –2.7
Middle East –5.7 –1.3 5.2 0.8 –0.8 –0.2 –0.2 2.1 1.2
0.6
Western Hemisphere –2.3 –2.9 –2.3 –4.2 –4.6 –3.8 –2.9
–2.3 –2.4 –1.5
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
204
Table 19. Other Emerging Market and Developing
Countries: Broad Money Aggregates
(Annual percent change)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other emerging market and
developing countries 18.5 17.7 16.5 15.0 16.7 16.3
17.6 18.8 15.1 13.0
Regional groups
Africa 18.0 19.3 19.8 20.8 21.1 21.4 18.9 23.0 16.7
13.6
Sub-Sahara 16.4 21.4 22.4 21.9 24.3 24.7 21.9 27.0
18.0 14.4
Central and eastern Europe 36.9 37.2 24.0 37.8 10.9
10.4 15.7 15.3 12.0 11.3
Commonwealth of Independent States1 44.1 53.2 57.5
37.9 34.0 38.7 34.7 35.3 29.2 23.2
Russia 50.2 48.1 57.2 35.7 33.9 39.4 33.7 35.5 30.0
24.0
Excluding Russia 24.8 70.3 58.2 43.2 34.2 36.8 37.5
35.0 26.7 20.6
Developing Asia 18.6 14.3 12.2 13.1 15.6 16.3 14.8
16.6 16.0 13.6
China 14.8 14.7 12.3 14.8 19.7 19.6 14.9 17.6 16.0
13.0
India 20.2 18.6 16.2 13.9 15.1 15.9 18.3 18.4 18.1
17.3
Excluding China and India 22.2 11.5 9.7 9.6 8.5 10.4
12.1 13.2 14.6 12.1
Middle East 8.6 10.7 12.6 14.0 17.1 13.9 19.2 19.7
17.6 14.3
Western Hemisphere 10.3 10.2 12.0 6.0 15.7 13.5 17.4
17.5 8.8 8.2
Brazil 4.1 6.9 15.5 12.6 23.2 3.7 18.6 18.9 0.5 8.2
Mexico 24.6 22.8 16.2 13.7 12.6 11.7 13.5 14.9 12.8
6.0
Analytical groups
By source of export earnings
Fuel 25.3 24.8 29.3 21.2 22.2 24.3 25.9 27.3 22.4 18.4
Nonfuel 17.1 16.3 14.2 13.8 15.6 14.7 15.9 17.0 13.4
11.6
of which, primary products 17.0 20.5 22.5 21.5 21.5
25.3 30.4 31.4 19.4 14.6
By external financing source
Net debtor countries 17.8 16.8 15.2 13.9 14.8 13.2
16.4 16.8 12.8 11.3
of which, official financing 21.9 10.6 9.5 — 13.7 19.1
15.6 15.5 15.7 12.3
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 23.6 12.5 14.2 2.7 18.2
24.4 20.4 21.9 19.5 16.0
Other groups
Heavily indebted poor countries 18.0 23.8 30.4 19.3
19.9 16.2 16.4 15.3 15.3 12.2
Middle East and north Africa 11.1 11.2 12.7 14.7 16.4
13.9 18.0 18.8 17.0 13.9
Memorandum
Median
Other emerging market and developing countries 11.3
13.2 14.1 13.7 13.2 13.0 13.9 13.4 11.9 10.3
Africa 8.6 12.6 13.6 15.2 17.7 15.3 14.1 13.0 14.1
12.3
Central and eastern Europe 13.0 14.2 16.5 21.4 9.5
10.9 13.9 11.3 11.9 9.2
Commonwealth of Independent States1 25.3 32.1 40.1
35.7 34.1 30.7 32.3 26.4 23.6 15.8
Developing Asia 11.7 14.7 12.3 11.7 13.3 13.4 14.9
12.8 11.9 11.0
Middle East 8.3 11.0 10.4 13.4 12.8 10.9 12.2 15.9
13.9 11.4
Western Hemisphere 12.6 10.8 9.0 8.9 8.5 9.6 12.0 9.8
8.3 6.1
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
205
FOREIGN TRADE: SUMMARY
Table 20. Summary of World Trade Volumes and Prices
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Trade in goods and services
World trade1
Volume 7.0 6.4 4.6 5.7 12.1 0.3 3.4 5.4 10.4 7.3 8.0
7.5
Price deflator
In U.S. dollars 1.4 1.5 –5.7 –1.6 –0.4 –3.5 1.2 10.4
9.7 5.2 0.7 0.4
In SDRs 0.8 1.1 –4.4 –2.3 3.3 — –0.6 2.1 3.8 5.5 3.5
0.2
Volume of trade
Exports
Advanced economies 7.1 5.2 4.3 5.6 11.7 –0.6 2.2 3.3
8.5 5.3 6.6 6.1
Other emerging market and
developing countries 7.6 9.0 5.5 3.4 13.3 3.1 7.0 10.6
14.6 11.5 10.9 10.3
Imports
Advanced economies 6.7 5.8 6.0 8.1 11.6 –0.5 2.5 4.1
8.9 5.8 6.2 5.6
Other emerging market and
developing countries 7.3 8.6 –0.1 0.1 14.5 3.4 6.3
10.3 15.8 12.4 12.9 11.9
Terms of trade
Advanced economies –0.1 –0.1 1.3 –0.3 –2.6 0.5 0.8 1.1
–0.1 –1.3 –0.9 0.2
Other emerging market and
developing countries –0.8 1.1 –6.7 4.5 6.9 –2.7 0.7
0.6 2.2 5.0 1.5 –0.1
Trade in goods
World trade1
Volume 7.2 6.5 4.8 5.4 12.9 –0.3 3.7 6.0 10.7 7.2 8.0
7.5
Price deflator
In U.S. dollars 1.3 1.6 –6.7 –1.0 0.2 –3.8 0.6 10.3
9.9 6.1 1.2 0.4
In SDRs 0.7 1.1 –5.3 –1.8 3.9 –0.3 –1.2 2.0 4.0 6.3
4.0 0.2
World trade prices in U.S. dollars2
Manufactures 1.4 1.3 –4.1 –2.5 –5.9 –3.7 2.4 14.4 9.6
4.5 –1.4 1.2
Oil 0.6 12.6 –32.1 37.5 57.0 –13.8 2.5 15.8 30.7 41.3
14.8 2.9
Nonfuel primary commodities 1.3 1.6 –14.3 –7.2 4.8
–4.9 1.7 6.9 18.5 10.3 10.2 –5.5
World trade prices in SDRs2
Manufactures 0.8 0.8 –2.7 –3.3 –2.4 –0.2 0.6 5.8 3.7
4.7 1.4 0.9
Oil — 12.1 –31.2 36.4 62.8 –10.7 0.8 7.1 23.6 41.6
18.0 2.6
Nonfuel primary commodities 0.7 1.1 –13.1 –7.9 8.6
–1.5 — –1.2 12.1 10.5 13.2 –5.7
World trade prices in euros2
Manufactures 1.6 0.7 –2.9 2.4 8.7 –0.7 –2.9 –4.5 –0.3
4.3 2.8 1.2
Oil 0.7 12.0 –31.3 44.4 81.3 –11.1 –2.8 –3.3 18.9 41.0
19.7 2.8
Nonfuel primary commodities 1.5 1.1 –13.3 –2.6 20.9
–1.9 –3.5 –10.8 7.8 10.0 14.9 –5.5
STATISTICAL APPENDIX
206
Table 20 (concluded)
___T_e_n_-_Y_e_a_r_ A_v_e_r_a_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Trade in goods
Volume of trade
Exports
Advanced economies 7.2 5.2 4.5 5.1 12.6 –1.3 2.3 3.4
8.5 5.1 6.6 6.1
Other emerging market and
developing countries 7.6 8.9 5.7 2.6 14.2 2.8 7.4 11.4
14.4 10.8 10.1 10.0
Fuel exporters 4.4 5.0 1.6 –1.8 8.4 1.7 3.1 9.1 9.9
6.0 6.6 5.3
Nonfuel exporters 8.9 10.2 7.1 3.8 16.0 3.1 8.9 12.1
16.0 12.5 11.6 12.0
Imports
Advanced economies 7.0 5.9 6.0 8.5 12.3 –1.5 2.9 4.7
9.4 5.9 6.3 5.5
Other emerging market and
developing countries 7.4 8.9 1.3 –1.2 14.9 3.5 6.6
11.5 16.6 12.1 12.9 12.4
Fuel exporters 1.3 9.0 –2.4 –8.2 13.5 15.3 8.9 6.4
14.4 19.4 16.2 10.3
Nonfuel exporters 9.5 8.9 2.2 0.3 15.2 1.4 6.1 12.6
17.1 10.7 12.3 12.8
Price deflators in SDRs
Exports
Advanced economies 0.5 0.5 –4.0 –3.0 0.4 –0.3 –0.9 3.0
3.3 3.9 2.4 0.5
Other emerging market and
developing countries 1.4 3.5 –10.8 5.4 14.4 –1.2 –0.2
1.9 6.9 13.4 7.8 —
Fuel exporters 1.0 8.5 –23.5 24.2 41.4 –7.2 0.5 5.3
14.0 31.1 13.5 0.8
Nonfuel exporters 1.7 1.7 –6.4 0.3 5.8 1.2 –0.5 0.7
4.5 7.0 5.5 –0.3
Imports
Advanced economies 0.3 0.6 –5.1 –3.0 3.7 –0.6 –1.8 1.5
3.3 5.6 3.1 0.2
Other emerging market and
developing countries 2.3 1.9 –4.8 –0.4 6.3 1.5 –0.8
1.1 4.3 6.7 5.4 —
Fuel exporters 2.5 1.0 –3.0 –3.0 1.1 1.6 –0.1 2.6 2.4
4.8 4.0 0.5
Nonfuel exporters 2.1 2.0 –5.2 0.1 7.3 1.5 –1.0 0.8
4.7 7.1 5.7 –0.1
Terms of trade
Advanced economies 0.2 –0.1 1.2 — –3.1 0.4 0.9 1.5 —
–1.7 –0.7 0.3
Other emerging market and
developing countries –0.9 1.6 –6.3 5.8 7.6 –2.7 0.6
0.8 2.5 6.2 2.3 0.1
Fuel exporters –1.5 7.4 –21.2 28.1 39.8 –8.7 0.6 2.7
11.3 25.2 9.2 0.3
Nonfuel exporters –0.4 –0.3 –1.3 0.2 –1.4 –0.3 0.5
–0.1 –0.2 –0.1 –0.2 –0.2
Memorandum
World exports in billions of U.S. dollars
Goods and services 5,039 9,884 6,789 7,046 7,835 7,572
7,944 9,254 11,196 12,641 13,731 14,829
Goods 4,026 7,919 5,381 5,584 6,295 6,031 6,304 7,375
8,952 10,171 11,103 11,990
1Average of annual percent change for world exports
and imports.
2As represented, respectively, by the export unit
value index for the manufactures of the advanced
economies; the average of U.K. Brent, Dubai, and West
Texas Intermediate
crude oil spot prices; and the average of world market
prices for nonfuel primary commodities weighted by
their 1995–97 shares in world commodity exports.
207
FOREIGN TRADE: NONFUEL COMMODITY PRICES
Table 21. Nonfuel Commodity Prices1
(Annual percent change; U.S. dollar terms)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Nonfuel primary commodities 1.3 1.6 –14.3 –7.2 4.8
–4.9 1.7 6.9 18.5 10.3 10.2 –5.5
Food 0.7 –0.1 –11.1 –12.6 2.5 0.2 3.4 5.2 14.3 –0.3
2.7 –2.5
Beverages 1.8 –3.2 –13.2 –21.3 –15.1 –16.1 16.5 4.9
3.0 21.0 1.6 –3.8
Agricultural raw materials 2.6 –0.4 –16.7 1.2 4.4 –4.9
1.8 3.7 5.5 1.6 6.1 –4.8
Metals 1.3 5.5 –17.7 –1.1 12.2 –9.8 –2.7 12.2 36.1
26.4 20.0 –8.3
Advanced economies 1.5 2.1 –15.8 –6.0 5.6 –6.1 1.9 8.1
20.6 12.2 12.8 –6.3
Other emerging market and
developing countries 1.6 1.7 –16.1 –7.3 4.5 –7.0 2.2
8.4 20.8 12.3 12.1 –6.6
Regional groups
Africa 1.2 1.4 –14.7 –6.9 2.6 –6.9 4.4 8.1 14.7 10.8
11.6 –5.0
Sub-Sahara 1.2 1.5 –14.8 –6.7 2.6 –7.2 4.5 8.3 14.7
11.2 12.0 –5.0
Central and eastern Europe 1.6 2.7 –16.6 –4.6 6.5 –7.1
1.0 8.4 23.4 15.4 14.1 –7.1
Commonwealth of Independent States2 . . . 4.1 –17.9
–2.6 9.9 –8.5 –0.7 10.6 29.8 20.7 17.9 –8.2
Developing Asia 1.6 1.0 –13.6 –7.5 2.3 –6.3 2.8 6.7
16.6 9.1 9.6 –5.6
Middle East 1.3 2.4 –15.4 –7.1 6.4 –7.2 0.9 9.8 21.8
13.7 13.2 –6.2
Western Hemisphere 1.9 1.2 –18.4 –10.0 4.6 –7.1 2.5
9.2 22.8 11.1 11.3 –7.0
Analytical groups
By source of export earnings
Fuel 1.3 3.4 –17.0 –4.6 8.3 –8.4 –0.4 10.8 26.6 18.3
15.9 –7.0
Nonfuel 1.7 1.7 –16.1 –7.4 4.4 –7.0 2.3 8.3 20.7 12.1
12.0 –6.6
of which, primary products 1.2 2.4 –16.8 –7.7 4.6 –7.6
4.1 9.3 23.6 15.1 15.4 –8.9
By source of external financing
Net debtor countries 1.7 1.5 –16.1 –8.1 3.9 –6.9 2.6
8.3 20.1 11.6 11.6 –6.4
of which, official financing 1.1 1.1 –12.9 –10.1 0.4
–7.1 4.5 8.1 15.7 10.9 10.8 –4.8
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 1.5 1.3 –15.4 –9.6 2.6
–7.3 3.6 8.8 18.9 11.1 11.1 –5.7
Other groups
Heavily indebted poor countries 0.6 0.8 –13.7 –12.4
–2.5 –7.6 9.7 9.5 12.3 10.0 10.8 –3.3
Middle East and north Africa 1.3 1.9 –14.9 –7.7 5.5
–6.3 1.6 8.9 19.7 11.6 11.8 –5.7
Memorandum
Average oil spot price3 0.6 12.6 –32.1 37.5 57.0 –13.8
2.5 15.8 30.7 41.3 14.8 2.9
In U.S. dollars a barrel 18.36 35.28 13.08 17.98 28.24
24.33 24.95 28.89 37.76 53.35 61.25 63.00
Export unit value of manufactures4 1.4 1.3 –4.1 –2.5
–5.9 –3.7 2.4 14.4 9.6 4.5 –1.4 1.2
1Averages of world market prices for individual
commodities weighted by 1995–97 exports as a share of
world commodity exports and total commodity exports
for the indicated
country group, respectively.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
3Average of U.K. Brent, Dubai, and West Texas
Intermediate crude oil spot prices.
4For the manufactures exported by the advanced
economies.
STATISTICAL APPENDIX
208
Table 22. Advanced Economies: Export Volumes, Import
Volumes, and Terms of Trade in Goods and Services
(Annual percent change)
___T_e_n_-_Y_e_a_r _A_v_e_r_a_g_e_s__
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Export volume
Advanced economies 7.1 5.2 4.3 5.6 11.7 –0.6 2.2 3.3
8.5 5.3 6.6 6.1
United States 9.2 4.1 2.4 4.3 8.7 –5.4 –2.3 1.8 8.4
7.0 8.2 9.0
Euro area 6.5 5.1 7.4 5.2 12.0 3.6 1.5 1.3 6.1 3.7 5.5
5.5
Germany 6.0 6.7 8.0 5.9 13.5 6.4 4.2 2.4 9.3 6.3 6.0
5.3
France 6.5 4.6 7.7 3.9 13.0 2.6 1.5 –1.8 2.2 3.2 6.5
7.5
Italy 6.4 2.4 3.4 0.1 9.7 6.8 –4.0 –2.2 2.5 0.7 4.0
4.1
Spain 8.6 4.5 8.0 7.4 10.3 4.0 1.8 3.6 3.3 1.0 2.1 3.7
Japan 5.4 5.6 –2.3 1.5 12.2 –6.7 7.5 9.0 13.9 6.9 10.4
5.4
United Kingdom 5.4 4.1 3.1 4.3 9.1 2.9 0.2 1.2 4.6 5.6
5.7 4.8
Canada 6.9 4.1 9.1 10.7 8.9 –3.0 1.0 –2.1 5.0 2.3 5.1
4.8
Other advanced economies 8.3 7.1 2.4 8.5 14.7 –1.9 6.2
8.1 13.1 7.2 6.9 6.4
Memorandum
Major advanced economies 6.8 4.7 4.0 4.3 10.7 –0.6 1.0
1.7 7.4 5.3 6.9 6.3
Newly industrialized Asian economies 10.8 8.9 1.2 9.4
17.1 –3.8 10.0 13.4 17.7 9.3 9.0 7.6
Import volume
Advanced economies 6.7 5.8 6.0 8.1 11.6 –0.5 2.5 4.1
8.9 5.8 6.2 5.6
United States 6.9 6.9 11.6 11.5 13.1 –2.7 3.4 4.6 10.7
6.4 6.0 5.4
Euro area 5.7 5.5 9.9 7.6 11.0 2.1 0.2 2.8 6.2 4.6 5.7
5.5
Germany 5.5 5.6 9.4 8.6 10.2 1.2 –1.4 5.1 7.0 5.3 6.2
4.9
France 4.5 6.4 10.6 5.9 14.9 2.4 1.5 1.3 6.1 6.5 7.6
7.9
Italy 5.1 4.0 8.9 5.6 7.1 8.5 –0.5 1.0 1.9 1.8 2.5 3.7
Spain 9.3 8.0 14.8 13.6 10.8 4.2 3.9 6.0 9.3 7.1 5.8
5.4
Japan 7.3 4.0 –6.7 3.6 8.5 1.0 0.8 4.0 8.5 6.2 8.6 6.9
United Kingdom 5.6 5.9 9.3 7.9 9.0 4.8 4.5 1.8 6.7 5.3
5.3 4.7
Canada 6.8 4.7 5.1 7.8 8.1 –5.1 1.5 4.1 8.1 7.0 6.5
5.0
Other advanced economies 8.8 6.1 –2.1 7.1 14.1 –3.7
6.2 7.2 13.8 7.2 6.8 6.2
Memorandum
Major advanced economies 6.1 5.8 7.7 8.3 11.0 0.3 1.8
3.6 8.0 5.7 6.2 5.5
Newly industrialized Asian economies 12.6 6.7 –8.2 8.4
17.6 –5.7 8.8 9.7 16.8 7.2 7.9 7.5
Terms of trade
Advanced economies –0.1 –0.1 1.3 –0.3 –2.6 0.5 0.8 1.1
–0.1 –1.3 –0.9 0.2
United States 0.4 –0.3 3.4 –1.2 –2.1 2.3 0.6 –0.9 –1.3
–2.6 –1.6 0.4
Euro area –0.6 — 1.2 0.1 –3.9 1.0 1.2 1.1 –0.1 –1.1
–0.5 0.5
Germany –1.8 –0.1 1.3 0.4 –4.6 0.2 1.5 1.7 0.2 –1.5
–1.0 1.2
France –0.7 –0.1 1.2 0.3 –3.7 1.2 0.6 0.8 0.4 –0.9
–0.9 0.2
Italy 0.2 0.1 2.0 0.3 –7.2 3.3 1.9 2.3 –0.1 –1.7 –0.2
0.6
Spain 0.9 0.7 2.5 –0.1 –2.8 2.4 3.1 1.3 0.1 –0.2 1.0 —
Japan –0.5 –2.0 3.4 –0.2 –5.3 — –0.6 –1.8 –3.6 –5.7
–5.6 –0.6
United Kingdom 0.7 0.4 2.1 0.6 –0.8 –0.6 2.8 1.1 —
–1.7 0.4 –0.1
Canada — 1.4 –3.9 1.4 4.0 –1.6 –2.4 5.9 3.9 3.9 3.9
–0.7
Other advanced economies 0.3 –0.2 –0.3 –0.9 –0.8 –0.4
0.3 — — — — –0.1
Memorandum
Major advanced economies –0.3 –0.2 1.9 –0.1 –3.2 0.7
0.9 1.6 — –2.0 –1.6 0.3
Newly industrialized Asian economies 0.2 –1.4 0.3 –2.4
–3.2 –0.6 — –1.7 –2.0 –2.5 –1.5 –0.3
Memorandum
Trade in goods
Advanced economies
Export volume 7.2 5.2 4.5 5.1 12.6 –1.3 2.3 3.4 8.5
5.1 6.6 6.1
Import volume 7.0 5.9 6.0 8.5 12.3 –1.5 2.9 4.7 9.4
5.9 6.3 5.5
Terms of trade 0.2 –0.1 1.2 — –3.1 0.4 0.9 1.5 — –1.7
–0.7 0.3
209
FOREIGN TRADE: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 23. Other Emerging Market and Developing
Countries—by Region: Total Trade in Goods
(Annual percent change)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Other emerging market and
developing countries
Value in U.S. dollars
Exports 9.0 12.8 –7.0 7.8 25.4 –2.0 8.7 22.5 28.9 24.7
15.3 10.1
Imports 9.6 11.3 –4.7 –1.7 17.7 1.3 7.6 21.7 28.5 19.3
15.7 12.4
Volume
Exports 7.6 8.9 5.7 2.6 14.2 2.8 7.4 11.4 14.4 10.8
10.1 10.0
Imports 7.4 8.9 1.3 –1.2 14.9 3.5 6.6 11.5 16.6 12.1
12.9 12.4
Unit value in U.S. dollars
Exports 2.0 4.0 –12.1 6.2 10.3 –4.7 1.5 10.2 13.0 13.1
4.9 0.3
Imports 2.9 2.3 –6.1 0.3 2.5 –2.0 0.9 9.3 10.3 6.5 2.5
0.2
Terms of trade –0.9 1.6 –6.3 5.8 7.6 –2.7 0.6 0.8 2.5
6.2 2.3 0.1
Memorandum
Real GDP growth in developing
country trading partners 3.5 3.3 1.8 3.5 4.9 1.6 2.3
3.0 4.5 3.8 3.8 3.5
Market prices of nonfuel commodities
exported by other emerging market
and developing countries 1.6 1.7 –16.1 –7.3 4.5 –7.0
2.2 8.4 20.8 12.3 12.1 –6.6
Regional groups
Africa
Value in U.S. dollars
Exports 4.9 11.6 –13.9 7.7 28.0 –6.4 2.7 25.7 29.0
27.2 16.4 9.4
Imports 5.5 9.5 –2.4 0.5 3.5 1.5 9.7 22.5 26.4 17.0
11.3 8.3
Volume
Exports 4.5 5.3 2.2 1.4 10.6 1.4 1.9 6.6 6.9 5.2 8.9
8.0
Imports 4.5 6.6 4.1 1.9 2.3 6.6 8.3 7.1 9.4 8.7 9.9
8.2
Unit value in U.S. dollars
Exports 0.6 6.2 –15.8 6.8 15.6 –7.7 0.9 18.1 20.7 21.0
7.2 1.5
Imports 1.5 3.0 –6.1 –1.2 1.9 –4.7 1.4 16.2 15.6 7.8
1.5 —
Terms of trade –0.9 3.1 –10.3 8.1 13.4 –3.2 –0.5 1.7
4.4 12.2 5.6 1.5
Sub-Sahara
Value in U.S. dollars
Exports 4.5 11.5 –14.2 6.5 25.5 –6.5 3.1 26.4 30.1
26.4 16.6 10.4
Imports 5.4 9.2 –4.9 –0.5 3.3 1.3 9.0 25.2 26.4 19.9
9.7 7.6
Volume
Exports 4.7 5.4 1.5 –0.8 12.0 1.3 0.9 7.3 7.6 5.2 10.8
9.5
Imports 4.5 6.3 2.0 1.3 1.8 5.6 8.5 8.5 9.7 10.2 8.6
7.3
Unit value in U.S. dollars
Exports –0.1 5.8 –15.5 7.9 11.8 –7.7 2.3 18.2 21.0
20.4 5.4 1.1
Imports 1.3 3.2 –6.7 –1.7 2.5 –3.9 0.7 18.0 15.2 9.0
1.2 0.2
Terms of trade –1.4 2.6 –9.4 9.8 9.1 –3.9 1.6 0.2 5.0
10.4 4.1 0.9
STATISTICAL APPENDIX
210
Table 23 (continued)
___T_en__-Y_e_a_r_ A__ve_r_a_g_e_s__
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Central and eastern Europe
Value in U.S. dollars
Exports 7.0 13.5 6.4 –2.3 13.2 10.8 13.7 28.9 31.4
16.5 9.8 10.1
Imports 9.6 12.3 5.9 –4.2 16.0 –0.4 13.5 29.6 31.6
15.8 10.4 9.6
Volume
Exports 5.5 9.9 9.7 0.2 14.8 10.9 8.1 11.8 16.4 9.4
9.0 9.5
Imports 9.5 8.7 11.9 –3.0 14.9 2.1 8.4 11.4 17.3 8.0
8.1 8.9
Unit value in U.S. dollars
Exports 2.3 3.4 –3.1 –2.5 –1.5 0.6 5.3 15.7 13.2 6.6
0.7 0.5
Imports 2.4 3.5 –5.3 –1.1 1.0 –2.3 5.0 16.7 12.4 7.4
2.2 0.6
Terms of trade –0.1 –0.1 2.4 –1.4 –2.5 2.9 0.3 –0.8
0.7 –0.7 –1.4 –0.1
Commonwealth of Independent States1
Value in U.S. dollars
Exports . . . 13.0 –14.0 0.1 37.0 –0.9 6.3 26.8 36.7
28.9 16.0 5.7
Imports . . . 8.9 –15.9 –25.8 14.6 15.0 9.6 26.5 29.5
23.6 15.6 11.0
Volume
Exports . . . 5.4 — –1.4 9.9 3.8 7.0 10.8 13.4 1.4 4.4
6.0
Imports . . . 6.8 –12.3 –21.5 14.2 17.9 8.4 14.8 16.0
16.5 12.1 10.9
Unit value in U.S. dollars
Exports . . . 7.2 –13.4 1.2 23.9 –4.6 –0.7 14.6 20.9
27.3 11.1 –0.5
Imports . . . 2.0 –4.4 –5.5 0.4 –2.3 1.6 10.3 11.8 6.2
3.3 0.3
Terms of trade . . . 5.1 –9.4 7.1 23.4 –2.4 –2.3 3.9
8.2 19.8 7.5 –0.8
Developing Asia
Value in U.S. dollars
Exports 15.7 14.2 –2.4 8.5 22.3 –1.7 14.0 23.3 28.0
22.5 17.1 15.3
Imports 14.2 14.0 –13.7 9.1 26.9 –0.6 12.8 26.8 31.5
20.1 19.2 16.0
Volume
Exports 13.3 12.8 7.3 5.6 21.3 0.5 13.4 16.3 18.8 16.7
14.9 15.1
Imports 11.8 11.5 –5.3 5.6 20.7 1.5 12.8 18.7 19.2
12.6 15.5 16.6
Unit value in U.S. dollars
Exports 2.3 1.6 –8.8 4.7 0.8 –2.2 0.6 6.1 8.0 5.1 2.1
0.3
Imports 2.5 2.6 –9.0 6.2 5.5 –1.9 — 6.9 10.4 6.5 3.3
–0.3
Terms of trade –0.2 –1.0 0.2 –1.5 –4.4 –0.3 0.6 –0.8
–2.1 –1.3 –1.2 0.6
Excluding China and India
Value in U.S. dollars
Exports 14.9 8.0 –4.2 10.3 18.9 –9.3 6.1 11.7 18.3
14.1 9.8 7.6
Imports 15.4 7.0 –23.3 6.2 22.8 –6.8 6.2 13.4 23.5
17.6 10.8 8.6
Volume
Exports 12.2 6.0 9.5 3.7 17.6 –6.7 5.7 4.6 7.4 7.3 6.5
6.1
Imports 12.6 4.6 –14.6 –0.5 20.4 –6.6 6.7 7.2 12.8 9.8
8.1 7.4
Unit value in U.S. dollars
Exports 2.6 2.3 –12.3 9.9 1.1 –2.8 0.5 7.0 10.4 6.4
3.1 1.5
Imports 2.9 2.8 –10.3 12.1 2.1 –0.1 –0.4 5.8 9.8 7.0
2.5 1.2
Terms of trade –0.3 –0.5 –2.2 –2.0 –1.0 –2.7 0.9 1.1
0.6 –0.6 0.6 0.3
211
FOREIGN TRADE: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 23 (concluded)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Middle East
Value in U.S. dollars
Exports 7.1 14.1 –25.9 31.6 45.3 –8.3 6.1 23.6 28.9
37.1 17.2 5.9
Imports 5.2 10.8 –0.9 –1.5 9.3 8.8 9.0 15.4 20.8 21.1
16.7 11.6
Volume
Exports 8.1 5.4 1.5 0.6 7.3 3.4 3.6 9.8 9.1 7.7 7.3
4.5
Imports 3.3 9.4 3.0 1.5 12.1 11.0 7.7 5.1 13.8 17.1
14.9 9.4
Unit value in U.S. dollars
Exports –0.5 8.5 –26.4 30.7 35.2 –11.2 3.7 12.1 18.5
27.9 9.2 1.4
Imports 2.0 1.2 –3.7 –2.9 –2.3 –2.0 1.1 9.9 6.3 3.6
1.2 1.3
Terms of trade –2.5 7.2 –23.6 34.5 38.4 –9.3 2.6 2.0
11.5 23.4 7.9 0.1
Western Hemisphere
Value in U.S. dollars
Exports 10.6 8.6 –3.9 4.0 19.6 –3.7 0.5 11.3 24.4 22.1
12.1 4.2
Imports 13.9 6.6 4.6 –6.9 14.7 –1.4 –8.6 4.3 22.9 19.3
13.9 8.3
Volume
Exports 8.6 5.4 7.7 2.1 7.8 2.1 0.3 3.4 10.9 8.4 5.9
6.1
Imports 11.2 5.3 8.8 –4.4 12.4 –0.3 –7.6 0.5 15.0 12.0
11.9 7.9
Unit value in U.S. dollars
Exports 3.2 3.2 –10.9 3.3 11.0 –5.7 0.4 7.7 12.0 12.6
6.0 –1.7
Imports 3.6 1.3 –3.8 –2.5 2.2 –1.1 –1.2 4.0 7.0 6.6
1.8 0.5
Terms of trade –0.3 1.9 –7.4 6.0 8.6 –4.7 1.6 3.6 4.7
5.7 4.2 –2.2
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
212
Table 24. Other Emerging Market and Developing
Countries—by Source of Export Earnings: Total Trade in
Goods
(Annual percent change)
___T_e_n_-_Y_e_a_r_ A_v_e_r_a_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Fuel
Value in U.S. dollars
Exports 5.5 14.1 –23.7 22.3 48.3 –8.9 4.6 24.6 32.1
38.2 17.6 6.4
Imports 3.8 10.7 –6.5 –10.1 10.5 13.1 10.4 17.7 23.6
24.5 17.6 11.4
Volume
Exports 4.4 5.0 1.6 –1.8 8.4 1.7 3.1 9.1 9.9 6.0 6.6
5.3
Imports 1.3 9.0 –2.4 –8.2 13.5 15.3 8.9 6.4 14.4 19.4
16.2 10.3
Unit value in U.S. dollars
Exports 1.6 9.0 –24.6 25.2 36.4 –10.5 2.3 13.9 20.5
30.8 10.5 1.0
Imports 3.1 1.5 –4.3 –2.3 –2.5 –2.0 1.6 10.9 8.3 4.5
1.2 0.7
Terms of trade –1.5 7.4 –21.2 28.1 39.8 –8.7 0.6 2.7
11.3 25.2 9.2 0.3
Nonfuel
Value in U.S. dollars
Exports 10.6 12.4 –1.3 4.0 18.3 0.7 10.2 21.8 27.8
19.9 14.3 11.7
Imports 11.5 11.4 –4.3 0.1 19.1 –0.8 7.0 22.5 29.5
18.3 15.3 12.6
Volume
Exports 8.9 10.2 7.1 3.8 16.0 3.1 8.9 12.1 16.0 12.5
11.6 12.0
Imports 9.5 8.9 2.2 0.3 15.2 1.4 6.1 12.6 17.1 10.7
12.3 12.8
Unit value in U.S. dollars
Exports 2.3 2.2 –7.7 1.1 2.1 –2.4 1.2 8.9 10.5 6.8 2.6
–0.1
Imports 2.7 2.5 –6.5 0.9 3.5 –2.0 0.8 9.0 10.7 6.8 2.8
0.1
Terms of trade –0.4 –0.3 –1.3 0.2 –1.4 –0.3 0.5 –0.1
–0.2 –0.1 –0.2 –0.2
Primary products
Value in U.S. dollars
Exports 5.3 7.4 –9.7 2.2 4.6 –5.0 2.6 18.4 37.3 16.5
14.9 0.1
Imports 5.8 5.9 –6.7 –12.1 5.1 –0.8 2.1 14.2 26.1 20.5
10.6 5.9
Volume
Exports 6.0 4.4 1.8 5.8 2.2 3.8 0.8 4.3 14.2 1.8 2.4
7.3
Imports 4.8 5.1 2.9 –8.8 3.4 4.2 3.4 6.1 12.6 12.5 9.7
6.2
Unit value in U.S. dollars
Exports 0.9 3.0 –11.1 –3.3 2.3 –8.3 1.9 13.5 19.7 14.8
12.1 –6.4
Imports 1.5 1.2 –9.3 –3.5 2.3 –4.7 –1.3 9.6 12.2 7.4
1.0 –0.2
Terms of trade –0.6 1.8 –2.0 0.2 — –3.8 3.3 3.5 6.6
6.8 11.0 –6.2
213
CURRENT ACCOUNT: SUMMARY
Table 25. Summary of Payments Balances on Current
Account
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Advanced economies 18.1 –116.5 –268.4 –219.8 –237.4
–217.2 –283.9 –510.7 –602.7 –615.7
United States –214.1 –300.1 –416.0 –389.5 –475.2
–519.7 –668.1 –805.0 –864.2 –899.4
Euro area1 50.3 25.6 –41.9 0.2 37.5 31.2 75.2 2.5
–23.8 –1.4
Japan 119.1 114.5 119.6 87.8 112.6 136.2 172.1 163.9
140.2 133.6
Other advanced economies2 62.8 43.5 69.9 81.6 87.7
135.1 136.9 127.8 145.1 151.4
Memorandum
Newly industrialized Asian economies 64.6 57.5 38.8
47.8 55.3 80.0 88.8 85.5 88.6 93.9
Other emerging market and
developing countries –113.1 –13.0 91.1 44.2 84.5 148.5
219.8 423.3 486.7 473.2
Regional groups
Africa –19.4 –15.0 7.2 0.5 –7.5 –2.5 0.9 15.2 23.5
25.9
Central and eastern Europe –19.3 –26.4 –32.4 –16.2
–24.0 –37.1 –59.2 –63.1 –72.2 –77.0
Commonwealth of Independent States3 –7.4 23.7 48.3
33.1 30.2 35.8 62.4 90.3 112.4 109.4
Developing Asia 49.3 48.4 46.1 40.6 72.2 86.3 94.7
155.4 159.5 171.9
Middle East –25.7 12.9 70.0 39.8 29.5 59.0 103.4 196.0
240.9 235.6
Western Hemisphere –90.6 –56.7 –48.1 –53.6 –16.0 7.1
17.7 29.6 22.7 7.5
Memorandum
European Union 35.8 –21.6 –87.0 –32.5 11.3 12.4 26.9
–54.0 –91.2 –76.8
Analytical groups
By source of export earnings
Fuel –36.4 37.0 148.8 84.3 63.8 109.2 188.8 347.4
423.7 423.8
Nonfuel –76.7 –50.0 –57.7 –40.0 20.7 39.4 31.1 75.9
63.1 49.5
of which, primary products –7.4 –2.5 –2.7 –3.7 –3.7
–3.1 0.6 –2.1 0.1 –2.7
By external financing source
Net debtor countries –129.0 –85.0 –76.4 –65.0 –32.7
–26.1 –57.4 –88.8 –103.3 –120.1
of which, official financing –32.9 –17.7 –11.6 –6.9
9.2 9.6 –4.6 –11.5 –17.3 –21.9
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 –35.2 –22.3 –1.7 –6.0
2.4 5.6 –2.2 –0.9 3.5 4.1
Total1 –95.0 –129.5 –177.3 –175.6 –152.9 –68.6 –64.1
–87.5 –116.0 –142.5
Memorandum
In percent of total world current
account transactions –0.7 –0.9 –1.1 –1.1 –1.0 –0.4
–0.3 –0.3 –0.4 –0.5
In percent of world GDP –0.3 –0.4 –0.6 –0.6 –0.5 –0.2
–0.2 –0.2 –0.2 –0.3
1Reflects errors, omissions, and asymmetries in
balance of payments statistics on current account, as
well as the exclusion of data for international
organizations and a limited
number of countries. Calculated as the sum of the
balance of individual euro area countries. See
“Classification of Countries” in the introduction to
this Statistical Appendix.
2In this table, “other advanced economies” means
advanced economies excluding the United States, euro
area countries, and Japan.
3Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
214
Table 26. Advanced Economies: Balance of Payments on
Current Account
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Billions of U.S. dollars
Advanced economies 18.1 –116.5 –268.4 –219.8 –237.4
–217.2 –283.9 –510.7 –602.7 –615.7
United States –214.1 –300.1 –416.0 –389.5 –475.2
–519.7 –668.1 –805.0 –864.2 –899.4
Euro area1 50.3 25.6 –41.9 0.2 37.5 31.2 75.2 2.5
–23.8 –1.4
Germany –17.5 –26.8 –32.5 0.4 40.8 45.5 101.7 114.8
98.3 122.7
France 38.6 42.0 18.0 21.5 14.5 7.9 –8.4 –27.6 –40.6
–44.8
Italy 20.0 8.1 –5.8 –0.7 –9.4 –19.4 –15.1 –26.6 –18.5
–11.9
Spain –7.0 –18.1 –23.2 –23.6 –22.5 –31.6 –55.3 –85.9
–93.7 –104.3
Netherlands 13.0 15.6 7.2 9.8 10.9 29.4 54.2 40.0 43.1
51.4
Belgium 13.3 20.1 9.4 7.9 11.7 12.7 11.8 16.6 17.9
18.6
Austria –5.2 –6.8 –4.9 –3.7 0.7 –0.5 0.7 2.0 2.9 3.0
Finland 7.3 7.8 9.2 8.6 8.9 7.0 9.4 4.7 5.4 5.4
Greece –5.9 –8.6 –9.9 –9.5 –9.7 –12.5 –13.0 –17.5
–17.9 –19.1
Portugal –8.5 –10.4 –11.7 –11.7 –9.9 –9.2 –13.0 –16.8
–17.2 –17.7
Ireland 0.8 0.3 –0.3 –0.6 –1.2 — –1.5 –3.8 –6.0 –7.4
Luxembourg 1.6 2.3 2.7 1.8 2.5 1.9 3.5 2.7 2.6 2.7
Japan 119.1 114.5 119.6 87.8 112.6 136.2 172.1 163.9
140.2 133.6
United Kingdom –6.6 –39.3 –37.0 –31.9 –24.8 –26.1
–43.2 –58.1 –61.3 –66.2
Canada –7.7 1.7 19.7 16.2 13.5 13.2 22.2 25.0 39.3
38.3
Korea 40.4 24.5 12.3 8.0 5.4 11.9 28.2 16.6 16.4 16.2
Australia –18.4 –22.4 –15.2 –7.8 –16.2 –29.5 –40.2
–42.2 –40.8 –41.8
Taiwan Province of China 3.4 8.4 8.9 18.2 25.6 29.3
18.5 16.4 18.8 20.7
Sweden 9.7 10.6 9.9 9.8 12.5 22.4 24.0 21.8 18.2 16.7
Switzerland 26.1 29.4 30.7 20.0 23.0 43.0 52.4 50.7
49.4 48.0
Hong Kong SAR 2.5 10.3 7.0 9.8 12.4 16.5 15.9 19.0
18.9 20.0
Denmark –1.4 3.3 2.3 5.1 4.1 6.7 5.1 6.1 6.4 7.3
Norway 0.1 8.5 26.1 26.2 24.4 28.9 34.6 49.7 56.9 63.2
Israel –1.1 –1.6 –1.2 –1.6 –1.3 0.8 1.8 2.4 1.2 2.7
Singapore 18.3 14.4 10.7 11.8 11.9 22.3 26.3 33.6 34.5
37.0
New Zealand –2.1 –3.5 –2.7 –1.4 –2.4 –3.4 –6.5 –9.6
–9.5 –8.4
Cyprus 0.3 –0.2 –0.5 –0.3 –0.5 –0.3 –0.9 –0.8 –1.0
–0.8
Iceland –0.6 –0.6 –0.9 –0.4 0.1 –0.5 –1.2 –2.6 –2.3
–1.5
Memorandum
Major advanced economies –68.3 –199.7 –334.0 –296.1
–328.0 –362.3 –438.8 –613.6 –706.9 –727.7
Euro area2 23.0 –34.6 –90.2 –17.7 54.3 38.2 56.8 –34.6
–4.0 19.3
Newly industrialized Asian economies 64.6 57.5 38.8
47.8 55.3 80.0 88.8 85.5 88.6 93.9
215
CURRENT ACCOUNT: ADVANCED ECONOMIES
Table 26 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Percent of GDP
Advanced economies 0.1 –0.5 –1.1 –0.9 –0.9 –0.7 –0.9
–1.5 –1.7 –1.7
United States –2.4 –3.2 –4.2 –3.8 –4.5 –4.7 –5.7 –6.4
–6.5 –6.5
Euro area1 0.7 0.4 –0.7 — 0.5 0.4 0.8 — –0.2 —
Germany –0.8 –1.2 –1.7 — 2.0 1.9 3.7 4.1 3.6 4.3
France 2.6 2.9 1.3 1.6 1.0 0.4 –0.4 –1.3 –1.9 –2.1
Italy 1.7 0.7 –0.5 –0.1 –0.8 –1.3 –0.9 –1.5 –1.1 –0.7
Spain –1.2 –2.9 –4.0 –3.9 –3.3 –3.6 –5.3 –7.6 –8.1
–8.5
Netherlands 3.3 3.9 2.0 2.4 2.5 5.5 8.9 6.4 6.9 7.9
Belgium 5.2 7.9 4.0 3.4 4.6 4.1 3.3 4.5 4.8 4.8
Austria –2.4 –3.2 –2.5 –1.9 0.3 –0.2 0.2 0.7 0.9 0.9
Finland 5.6 6.0 7.6 7.0 6.7 4.3 5.0 2.4 2.8 2.7
Greece –4.9 –6.9 –8.7 –8.0 –7.2 –7.2 –6.3 –7.9 –7.9
–7.9
Portugal –7.2 –8.6 –10.4 –10.1 –7.8 –5.9 –7.3 –9.2
–9.5 –9.4
Ireland 0.9 0.3 –0.4 –0.6 –1.0 — –0.8 –1.9 –2.9 –3.3
Luxembourg 8.7 11.4 13.7 9.0 11.6 6.8 11.1 7.9 7.3 7.3
Japan 3.1 2.6 2.6 2.1 2.9 3.2 3.8 3.6 3.2 2.9
United Kingdom –0.5 –2.7 –2.6 –2.2 –1.6 –1.4 –2.0 –2.6
–2.7 –2.8
Canada –1.2 0.3 2.7 2.3 1.8 1.5 2.2 2.2 3.1 2.9
Korea 11.7 5.5 2.4 1.7 1.0 2.0 4.1 2.1 1.8 1.7
Australia –4.9 –5.6 –3.9 –2.1 –3.9 –5.6 –6.3 –6.0 –5.6
–5.5
Taiwan Province of China 1.2 2.8 2.8 6.2 8.7 9.8 5.7
4.7 5.4 5.5
Sweden 3.9 4.2 4.1 4.4 5.1 7.3 6.8 6.1 5.1 4.5
Switzerland 9.7 11.1 12.4 8.0 8.3 13.3 14.6 13.8 13.7
13.1
Hong Kong SAR 1.5 6.3 4.1 5.9 7.6 10.4 9.6 10.7 10.1
10.1
Denmark –0.8 1.9 1.4 3.2 2.3 3.1 2.1 2.4 2.4 2.6
Norway — 5.4 15.6 15.4 12.8 13.0 13.6 16.8 18.6 19.9
Israel –1.1 –1.5 –1.1 –1.4 –1.2 0.7 1.6 1.9 1.0 2.1
Singapore 22.2 17.4 11.6 13.8 13.4 24.1 24.5 28.5 26.7
26.3
New Zealand –3.9 –6.2 –5.2 –2.8 –4.0 –4.3 –6.6 –8.8
–8.9 –7.6
Cyprus 3.1 –1.8 –5.3 –3.3 –4.5 –2.5 –5.7 –5.1 –5.6
–4.6
Iceland –6.9 –6.9 –10.3 –4.4 1.5 –5.0 –9.4 –16.6 –13.8
–8.6
Memorandum
Major advanced economies –0.4 –1.0 –1.6 –1.4 –1.5 –1.5
–1.7 –2.3 –2.5 –2.5
Euro area2 0.3 –0.5 –1.5 –0.3 0.8 0.5 0.6 –0.3 — 0.2
Newly industrialized Asian economies 7.4 5.8 3.5 4.7
5.1 6.9 7.0 6.0 5.7 5.6
1Calculated as the sum of the balances of individual
euro area countries.
2Corrected for reporting discrepancies in intra-area
transactions.
STATISTICAL APPENDIX
216
Table 27. Advanced Economies: Current Account
Transactions
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Exports 4,187.1 4,296.2 4,679.8 4,448.9 4,584.3
5,267.2 6,234.8 6,783.8 7,198.7 7,690.1
Imports 4,130.6 4,377.3 4,913.4 4,645.1 4,771.7
5,479.6 6,542.8 7,299.6 7,784.3 8,246.6
Trade balance 56.6 –81.1 –233.6 –196.1 –187.4 –212.4
–308.0 –515.9 –585.6 –556.5
Services, credits 1,137.3 1,200.5 1,253.8 1,249.7
1,327.6 1,523.2 1,791.9 1,929.5 2,008.5 2,143.9
Services, debits 1,060.1 1,121.1 1,179.5 1,188.2
1,250.1 1,427.9 1,667.1 1,776.6 1,860.0 1,983.9
Balance on services 77.2 79.3 74.3 61.5 77.5 95.4
124.8 152.8 148.6 160.0
Balance on goods and services 133.7 –1.7 –159.3 –134.6
–109.9 –117.0 –183.2 –363.0 –437.1 –396.5
Income, net 15.1 15.9 30.1 43.3 18.6 78.7 107.0 74.2
37.1 –7.1
Current transfers, net –130.8 –130.7 –139.2 –128.5
–146.1 –178.8 –207.6 –221.9 –202.8 –212.2
Current account balance 18.1 –116.5 –268.4 –219.8
–237.4 –217.2 –283.9 –510.7 –602.7 –615.7
Balance on goods and services
Advanced economies 133.7 –1.7 –159.3 –134.6 –109.9
–117.0 –183.2 –363.0 –437.1 –396.5
United States –165.0 –263.4 –378.3 –362.7 –421.2
–494.8 –617.6 –723.6 –786.2 –771.3
Euro area1 139.8 99.2 35.4 89.2 155.4 175.7 203.3
147.7 125.9 154.1
Germany 24.4 11.7 1.0 34.2 83.7 95.4 136.1 140.1 130.9
156.1
France 42.3 36.3 16.5 21.4 24.7 19.1 4.9 –18.1 –30.2
–33.9
Italy 39.8 24.5 10.5 15.5 10.7 8.9 12.6 0.4 6.3 11.6
Spain –1.7 –11.5 –17.7 –14.0 –13.1 –18.7 –38.2 –60.7
–70.1 –79.7
Japan 73.2 69.2 69.0 26.5 51.7 72.5 94.2 69.0 44.8
33.2
United Kingdom –13.2 –24.9 –29.2 –38.8 –47.4 –50.6
–71.5 –85.4 –83.8 –88.4
Canada 11.8 23.8 41.3 40.6 31.6 33.1 41.1 44.0 60.6
58.8
Other advanced economies 87.1 94.4 102.5 110.7 119.9
147.2 167.3 185.3 201.6 217.1
Memorandum
Major advanced economies 13.3 –122.9 –269.1 –263.4
–266.2 –316.5 –400.1 –573.6 –657.6 –633.9
Newly industrialized Asian economies 63.6 57.9 41.3
45.7 56.2 77.7 84.1 87.7 90.3 96.5
Income, net
Advanced economies 15.1 15.9 30.1 43.3 18.6 78.7 107.0
74.2 37.1 –7.1
United States 4.3 13.9 21.1 25.2 10.0 46.3 30.4 1.6
–18.5 –65.4
Euro area1 –39.1 –26.0 –30.4 –40.1 –67.7 –76.8 –49.9
–60.1 –62.1 –64.2
Germany –11.8 –12.2 –7.8 –9.8 –17.0 –18.0 0.8 10.8 3.2
3.6
France 8.7 19.0 15.5 15.0 4.0 8.0 8.5 10.5 10.5 10.9
Italy –12.3 –11.1 –12.0 –10.3 –14.6 –20.2 –18.2 –17.0
–14.9 –13.2
Spain –8.6 –9.6 –6.8 –11.2 –11.6 –13.1 –17.0 –22.6
–19.7 –20.8
Japan 54.7 57.4 60.4 69.2 65.8 71.2 85.7 103.3 104.2
109.2
United Kingdom 20.4 –2.4 6.9 16.4 35.5 40.9 48.4 49.9
45.2 46.3
Canada –20.0 –22.6 –22.3 –25.4 –18.7 –20.0 –19.2 –18.8
–21.2 –20.4
Other advanced economies –5.1 –4.4 –5.6 –2.0 –6.3 17.1
11.5 –1.6 –10.4 –12.6
Memorandum
Major advanced economies 43.9 42.0 61.7 80.2 65.0
108.1 136.4 140.3 108.5 70.9
Newly industrialized Asian economies 2.0 2.6 2.4 8.2
6.3 10.9 14.1 8.7 10.4 10.0
1Calculated as the sum of the individual euro area
countries.
217
CURRENT ACCOUNT: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 28. Other Emerging Market and Developing
Countries: Payments Balances on Current Account
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Billions of U.S. dollars
Other emerging market and
developing countries –113.1 –13.0 91.1 44.2 84.5 148.5
219.8 423.3 486.7 473.2
Regional groups
Africa –19.4 –15.0 7.2 0.5 –7.5 –2.5 0.9 15.2 23.5
25.9
Sub-Sahara –17.7 –14.4 –0.7 –7.4 –12.6 –12.2 –10.8
–6.6 2.2 5.9
Excluding Nigeria and South Africa –12.4 –10.6 –5.8
–9.7 –7.9 –8.4 –6.7 –9.0 –4.4 –4.0
Central and eastern Europe –19.3 –26.4 –32.4 –16.2
–24.0 –37.1 –59.2 –63.1 –72.2 –77.0
Commonwealth of Independent States1 –7.4 23.7 48.3
33.1 30.2 35.8 62.4 90.3 112.4 109.4
Russia 0.2 24.6 46.8 33.9 29.1 35.4 58.6 86.6 106.0
99.0
Excluding Russia –7.6 –0.9 1.4 –0.8 1.1 0.4 3.8 3.7
6.4 10.4
Developing Asia 49.3 48.4 46.1 40.6 72.2 86.3 94.7
155.4 159.5 171.9
China 31.6 15.7 20.5 17.4 35.4 45.9 68.7 158.6 173.3
189.6
India –6.9 –3.2 –4.6 1.4 7.1 8.8 1.4 –19.0 –26.1 –28.7
Excluding China and India 24.6 36.0 30.2 21.8 29.7
31.6 24.6 15.8 12.3 11.0
Middle East –25.7 12.9 70.0 39.8 29.5 59.0 103.4 196.0
240.9 235.6
Western Hemisphere –90.6 –56.7 –48.1 –53.6 –16.0 7.1
17.7 29.6 22.7 7.5
Brazil –33.4 –25.3 –24.2 –23.2 –7.6 4.2 11.7 14.2 10.5
2.6
Mexico –16.0 –13.9 –18.6 –17.6 –13.5 –8.6 –7.2 –5.7
–5.5 –6.8
Analytical groups
By source of export earnings
Fuel –36.4 37.0 148.8 84.3 63.8 109.2 188.8 347.4
423.7 423.8
Nonfuel –76.7 –50.0 –57.7 –40.0 20.7 39.4 31.1 75.9
63.1 49.5
of which, primary products –7.4 –2.5 –2.7 –3.7 –3.7
–3.1 0.6 –2.1 0.1 –2.7
By external financing source
Net debtor countries –129.0 –85.0 –76.4 –65.0 –32.7
–26.1 –57.4 –88.8 –103.3 –120.1
of which, official financing –32.9 –17.7 –11.6 –6.9
9.2 9.6 –4.6 –11.5 –17.3 –21.9
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 –35.2 –22.3 –1.7 –6.0
2.4 5.6 –2.2 –0.9 3.5 4.1
Other groups
Heavily indebted poor countries –7.8 –9.2 –7.1 –7.2
–8.7 –7.3 –7.6 –8.2 –8.6 –8.9
Middle East and north Africa –29.2 10.6 75.8 45.5 33.1
67.1 113.1 214.1 259.8 253.3
STATISTICAL APPENDIX
218
Table 28 (concluded)
___T_e_n_-Y_e_a_r_ _A_v_e_ra_g_e_s___
1988–97 1998–2007 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007
Percent of exports of goods and services
Other emerging market and
developing countries –7.5 4.7 –7.7 –0.8 4.8 2.4 4.2
6.0 6.9 10.8 10.8 9.5
Regional groups
Africa –8.1 –1.1 –16.2 –11.7 4.6 0.3 –4.9 –1.3 0.3 4.9
6.6 6.6
Sub-Sahara –9.4 –6.8 –19.6 –15.0 –0.6 –6.7 –11.2 –8.5
–5.9 –2.9 0.8 2.0
Excluding Nigeria and South Africa –20.9 –12.7 –27.6
–22.0 –10.8 –18.2 –13.8 –12.3 –7.6 –8.4 –3.3 –2.7
Central and eastern Europe –2.4 –10.6 –8.5 –12.4 –13.3
–6.2 –8.3 –10.1 –12.5 –11.4 –11.9 –11.6
Commonwealth of Independent States1 . . . 18.8 –5.8
19.2 29.3 20.0 16.9 16.0 20.6 23.4 25.3 23.3
Russia . . . 27.4 0.3 29.1 40.9 29.9 24.1 23.3 28.8
32.3 34.3 30.9
Excluding Russia . . . 0.1 –19.0 –2.3 2.8 –1.6 1.9 0.6
3.8 3.2 4.7 6.9
Developing Asia –7.3 8.3 9.2 8.4 6.6 5.9 9.2 9.1 7.6
10.2 8.8 8.2
China 4.6 11.6 15.2 7.1 7.3 5.8 9.7 9.5 10.5 18.8 16.9
15.4
India –19.4 –4.3 –15.1 –6.3 –7.7 2.3 10.0 10.3 1.2
–12.0 –13.2 –12.2
Excluding China and India –11.3 6.4 8.6 11.7 8.5 6.6
8.5 8.3 5.3 3.0 2.1 1.8
Middle East –7.5 18.4 –16.2 6.4 24.9 15.2 10.6 17.3
23.8 33.6 35.5 32.8
Western Hemisphere –14.5 –6.8 –30.9 –18.7 –13.4 –15.5
–4.6 1.8 3.8 5.2 3.6 1.1
Brazil –12.2 –15.0 –56.6 –45.9 –37.5 –34.4 –10.9 5.0
10.7 10.6 7.1 1.7
Mexico –26.7 –9.9 –18.5 –14.3 –15.8 –15.5 –11.8 –7.3
–5.4 –3.7 –3.2 –3.6
Analytical groups
By source of export earnings
Fuel –2.8 20.5 –12.9 11.0 30.7 18.8 13.5 18.6 24.6
33.2 34.5 32.5
Nonfuel –9.1 –0.7 –6.5 –4.1 –4.1 –2.8 1.3 2.1 1.3 2.6
1.9 1.3
of which, primary products –12.2 –5.1 –15.8 –5.3 –5.5
–7.7 –7.5 –5.4 0.8 –2.4 0.1 –2.6
By external financing source
Net debtor countries –12.1 –6.0 –14.4 –9.3 –7.2 –6.1
–2.9 –2.0 –3.5 –4.5 –4.7 –5.0
of which, official financing –16.4 –4.1 –17.1 –9.3
–5.3 –3.3 4.2 4.0 –1.5 –3.3 –4.5 –5.3
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 –16.4 –2.8 –17.9 –10.8
–0.7 –2.5 0.9 1.9 –0.6 –0.2 0.7 0.7
Other groups
Heavily indebted poor countries –29.6 –25.1 –32.7
–39.5 –28.1 –27.4 –32.0 –22.9 –18.7 –17.4 –16.3 –16.1
Middle East and north Africa –7.9 17.3 –15.4 4.5 23.3
14.9 10.3 16.9 22.5 32.0 33.3 30.5
Memorandum
Median
Other emerging market and
developing countries –12.6 –10.1 –15.7 –10.8 –9.8
–10.3 –9.5 –7.9 –7.9 –10.1 –9.4 –9.5
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
219
CURRENT ACCOUNT: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 29. Other Emerging Market and Developing
Countries—by Region: Current Account Transactions
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other emerging market and
developing countries
Exports 1,194.1 1,287.4 1,614.8 1,581.8 1,720.1
2,107.7 2,717.0 3,387.5 3,904.5 4,299.8
Imports 1,213.2 1,193.1 1,404.6 1,423.0 1,530.6
1,862.7 2,394.0 2,855.3 3,304.0 3,713.8
Trade balance –19.1 94.3 210.3 158.8 189.5 245.1 323.0
532.1 600.6 586.0
Services, net –46.5 –48.2 –59.7 –64.3 –63.9 –69.3
–71.5 –87.0 –101.3 –100.7
Balance on goods and services –65.6 46.1 150.6 94.5
125.6 175.7 251.5 445.1 499.3 485.2
Income, net –97.0 –113.0 –118.3 –117.9 –125.0 –145.8
–170.6 –185.4 –186.0 –183.2
Current transfers, net 49.6 53.9 58.8 67.6 83.9 118.7
138.9 163.5 173.4 171.2
Current account balance –113.1 –13.0 91.1 44.2 84.5
148.5 219.8 423.3 486.7 473.2
Memorandum
Exports of goods and services 1,464.3 1,548.9 1,901.0
1,873.6 2,032.2 2,463.1 3,169.4 3,927.4 4,523.5
4,995.5
Interest payments 134.6 134.7 130.4 126.8 119.5 132.8
141.3 166.8 183.3 196.0
Oil trade balance 102.5 153.2 240.6 201.7 208.3 257.9
327.3 455.4 515.1 518.5
Regional groups
Africa
Exports 98.1 105.7 135.3 126.7 130.1 163.5 210.9 268.3
312.4 341.8
Imports 100.9 101.4 105.0 106.6 116.9 143.2 181.1
211.9 235.8 255.3
Trade balance –2.8 4.3 30.3 20.1 13.2 20.3 29.8 56.4
76.7 86.5
Services, net –11.6 –11.1 –11.3 –11.8 –12.2 –13.2
–16.8 –24.9 –31.6 –37.1
Balance on goods and services –14.4 –6.8 19.0 8.3 1.1
7.1 13.0 31.6 45.1 49.4
Income, net –16.2 –18.2 –23.3 –20.8 –22.7 –27.9 –34.8
–41.5 –47.1 –49.7
Current transfers, net 11.1 10.0 11.5 13.0 14.1 18.3
22.7 25.1 25.5 26.1
Current account balance –19.4 –15.0 7.2 0.5 –7.5 –2.5
0.9 15.2 23.5 25.9
Memorandum
Exports of goods and services 119.6 128.0 157.5 149.9
154.4 194.2 247.7 309.3 357.6 389.3
Interest payments 14.8 14.3 13.6 11.9 10.7 11.4 11.8
13.0 12.8 13.2
Oil trade balance 18.4 25.7 45.8 38.7 38.1 53.8 74.2
110.7 139.0 155.8
Central and eastern Europe
Exports 161.5 157.7 178.5 197.9 225.0 290.1 381.1
443.9 487.4 536.6
Imports 208.8 200.1 232.2 231.3 262.6 340.3 447.8
518.3 572.3 627.1
Trade balance –47.4 –42.4 –53.7 –33.5 –37.6 –50.3
–66.7 –74.4 –84.9 –90.6
Services, net 21.6 11.3 16.6 14.1 12.4 15.0 19.2 22.6
24.5 25.9
Balance on goods and services –25.8 –31.1 –37.1 –19.4
–25.2 –35.2 –47.4 –51.9 –60.4 –64.7
Income, net –6.4 –6.6 –7.1 –8.0 –11.0 –15.4 –28.0
–31.4 –36.1 –38.3
Current transfers, net 12.9 11.3 11.8 11.2 12.3 13.5
16.3 20.2 24.3 26.0
Current account balance –19.3 –26.4 –32.4 –16.2 –24.0
–37.1 –59.2 –63.1 –72.2 –77.0
Memorandum
Exports of goods and services 227.6 213.8 242.7 259.9
288.5 367.8 474.5 553.1 605.9 664.9
Interest payments 11.5 11.8 12.7 13.8 13.8 16.6 25.9
28.6 34.7 37.4
Oil trade balance –12.9 –14.4 –22.6 –21.0 –21.6 –26.7
–33.4 –46.4 –53.5 –55.9
STATISTICAL APPENDIX
220
Table 29 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Commonwealth of Independent States1
Exports 107.5 107.5 147.3 145.9 155.1 196.7 268.7
346.5 401.8 424.8
Imports 99.4 73.8 84.6 97.3 106.7 135.0 174.8 216.0
249.6 276.9
Trade balance 8.0 33.7 62.7 48.6 48.4 61.7 94.0 130.5
152.2 147.8
Services, net –3.8 –3.9 –7.0 –10.8 –11.8 –13.1 –17.6
–22.2 –23.3 –24.7
Balance on goods and services 4.2 29.8 55.7 37.8 36.7
48.6 76.3 108.4 128.9 123.1
Income, net –13.1 –8.5 –9.8 –6.9 –9.1 –16.1 –17.5
–22.6 –21.7 –20.0
Current transfers, net 1.4 2.4 2.4 2.1 2.6 3.4 3.6 4.5
5.2 6.3
Current account balance –7.4 23.7 48.3 33.1 30.2 35.8
62.4 90.3 112.4 109.4
Memorandum
Exports of goods and services 127.2 123.6 164.7 165.9
178.6 224.0 302.3 385.0 444.6 470.6
Interest payments 17.4 13.1 13.3 12.4 13.4 25.1 23.8
35.5 35.3 38.5
Oil trade balance 13.6 19.7 38.5 36.8 43.3 57.4 84.9
129.5 157.7 174.3
Developing Asia
Exports 455.3 493.8 604.1 593.6 676.7 834.1 1,067.5
1,307.6 1,531.1 1,764.8
Imports 388.2 423.3 537.2 533.8 602.3 764.0 1,004.3
1,205.7 1,437.2 1,667.3
Trade balance 67.1 70.5 66.9 59.8 74.4 70.1 63.2 101.9
93.9 97.5
Services, net –12.3 –8.1 –14.1 –13.8 –10.1 –15.6 –8.9
–4.0 5.6 23.0
Balance on goods and services 54.8 62.4 52.8 46.0 64.3
54.5 54.3 97.9 99.5 120.5
Income, net –27.3 –39.6 –36.6 –39.3 –34.7 –32.6 –29.6
–24.1 –23.6 –23.6
Current transfers, net 21.8 25.7 29.9 33.9 42.6 64.4
70.0 81.6 83.5 75.0
Current account balance 49.3 48.4 46.1 40.6 72.2 86.3
94.7 155.4 159.5 171.9
Memorandum
Exports of goods and services 538.2 578.9 696.9 689.9
786.2 953.2 1,240.3 1,528.8 1,802.5 2,088.1
Interest payments 33.2 33.2 25.1 25.6 23.7 23.7 23.7
31.2 36.8 41.3
Oil trade balance –13.7 –23.7 –49.5 –43.1 –49.8 –68.5
–114.4 –190.4 –255.1 –304.2
Middle East
Exports 130.8 172.1 250.0 229.3 243.2 300.7 387.4
531.2 622.6 659.5
Imports 132.8 130.7 142.9 155.4 169.3 195.5 236.1
285.9 333.6 372.2
Trade balance –2.0 41.4 107.1 73.9 73.9 105.2 151.3
245.2 289.0 287.3
Services, net –25.0 –24.6 –31.4 –27.5 –32.7 –33.9
–38.6 –44.1 –55.4 –63.8
Balance on goods and services –27.0 16.9 75.7 46.4
41.2 71.2 112.7 201.1 233.6 223.5
Income, net 17.0 12.3 13.1 12.5 6.3 5.3 7.7 12.8 25.6
31.6
Current transfers, net –15.7 –16.3 –18.9 –19.0 –17.9
–17.6 –16.9 –17.9 –18.3 –19.5
Current account balance –25.7 12.9 70.0 39.8 29.5 59.0
103.4 196.0 240.9 235.6
Memorandum
Exports of goods and services 158.7 201.8 281.1 262.3
278.5 341.6 435.1 583.1 678.3 719.2
Interest payments 6.7 6.4 6.9 6.6 6.9 5.3 5.4 6.3 7.5
8.1
Oil trade balance 81.1 121.1 188.8 160.5 165.9 205.8
268.2 381.1 444.1 464.9
Western Hemisphere
Exports 241.0 250.6 299.5 288.4 289.9 322.7 401.3
490.0 549.2 572.3
Imports 283.2 263.8 302.7 298.5 272.8 284.7 349.9
417.6 475.5 514.9
Trade balance –42.2 –13.2 –3.1 –10.1 17.1 38.0 51.4
72.4 73.7 57.4
Services, net –15.4 –11.8 –12.5 –14.5 –9.5 –8.5 –8.8
–14.3 –21.0 –24.0
Balance on goods and services –57.5 –25.0 –15.6 –24.7
7.6 29.5 42.6 58.1 52.7 33.4
Income, net –51.2 –52.3 –54.6 –55.4 –53.8 –59.1 –68.2
–78.5 –83.1 –83.2
Current transfers, net 18.1 20.6 22.1 26.4 30.3 36.7
43.3 50.0 53.1 57.3
Current account balance –90.6 –56.7 –48.1 –53.6 –16.0
7.1 17.7 29.6 22.7 7.5
Memorandum
Exports of goods and services 293.0 302.8 358.1 345.6
346.0 382.2 469.4 568.1 634.5 663.4
Interest payments 51.1 56.0 58.7 56.5 51.0 50.7 50.8
52.4 56.2 57.4
Oil trade balance 16.1 24.8 39.6 29.7 32.4 36.1 47.9
70.8 83.0 83.7
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
221
CURRENT ACCOUNT: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 30. Other Emerging Market and Developing
Countries—by Analytical Criteria: Current Account
Transactions
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
By source of export earnings
Fuel
Exports 251.1 307.1 455.3 414.7 434.0 540.9 714.4
986.9 1,160.9 1,235.3
Imports 214.2 192.7 212.9 240.8 265.8 312.9 386.8
481.5 566.3 630.6
Trade balance 36.9 114.4 242.4 174.0 168.2 228.0 327.5
505.4 594.6 604.7
Services, net –45.7 –47.9 –57.5 –57.2 –62.7 –68.7
–84.1 –101.4 –120.8 –137.0
Balance on goods and services –8.8 66.5 184.9 116.8
105.5 159.3 243.4 404.0 473.9 467.7
Income, net –8.1 –9.4 –12.9 –8.3 –19.0 –29.3 –35.3
–37.2 –29.6 –22.7
Current transfers, net –19.5 –20.1 –23.2 –24.1 –22.7
–20.8 –19.3 –19.3 –20.6 –21.2
Current account balance –36.4 37.0 148.8 84.3 63.8
109.2 188.8 347.4 423.7 423.8
Memorandum
Exports of goods and services 282.3 335.1 485.1 448.1
472.3 586.3 767.4 1,046.2 1,227.1 1,305.8
Interest payments 31.0 26.8 27.4 25.0 25.3 35.6 34.6
47.6 49.3 52.5
Oil trade balance 133.6 193.4 315.0 271.4 281.8 353.2
476.6 690.2 816.2 871.6
Nonfuel exports
Exports 943.0 980.4 1,159.5 1,167.1 1,286.1 1,566.8
2,002.6 2,400.5 2,743.6 3,064.5
Imports 999.0 1,000.4 1,191.6 1,182.2 1,264.8 1,549.7
2,007.1 2,373.8 2,737.7 3,083.2
Trade balance –56.0 –20.1 –32.1 –15.1 21.3 17.1 –4.5
26.7 5.9 –18.7
Services, net –0.8 –0.3 –2.2 –7.1 –1.2 –0.6 12.6 14.5
19.5 36.3
Balance on goods and services –56.8 –20.4 –34.3 –22.2
20.0 16.4 8.1 41.2 25.4 17.6
Income, net –88.9 –103.6 –105.4 –109.5 –106.0 –116.5
–135.3 –148.1 –156.4 –160.6
Current transfers, net 69.1 73.9 82.0 91.7 106.7 139.4
158.2 182.8 194.0 192.5
Current account balance –76.7 –50.0 –57.7 –40.0 20.7
39.4 31.1 75.9 63.1 49.5
Memorandum
Exports of goods and services 1,182.0 1,213.8 1,415.9
1,425.4 1,559.9 1,876.8 2,402.0 2,881.1 3,296.4
3,689.7
Interest payments 103.6 107.9 102.9 101.8 94.2 97.2
106.7 119.3 134.0 143.4
Oil trade balance –31.1 –40.1 –74.4 –69.6 –73.5 –95.3
–149.3 –234.8 –301.1 –353.1
Nonfuel primary products
Exports 39.3 40.2 42.0 39.9 40.9 48.5 66.5 77.5 89.1
89.2
Imports 40.9 35.9 37.8 37.5 38.3 43.7 55.1 66.4 73.4
77.8
Trade balance –1.6 4.2 4.2 2.4 2.7 4.8 11.4 11.2 15.7
11.4
Services, net –4.0 –4.0 –3.8 –3.7 –4.2 –4.4 –5.2 –5.6
–7.0 –5.6
Balance on goods and services –5.6 0.2 0.4 –1.3 –1.6
0.4 6.3 5.6 8.6 5.8
Income, net –4.9 –5.7 –6.4 –6.0 –6.4 –8.8 –12.9 –16.5
–17.2 –17.5
Current transfers, net 3.1 3.0 3.2 3.7 4.3 5.2 7.3 8.7
8.7 8.9
Current account balance –7.4 –2.5 –2.7 –3.7 –3.7 –3.1
0.6 –2.1 0.1 –2.7
Memorandum
Exports of goods and services 47.1 47.8 49.6 47.8 49.2
58.1 77.9 90.1 102.5 104.3
Interest payments 4.0 3.8 4.1 3.8 3.5 3.2 3.3 3.4 4.1
4.0
Oil trade balance –1.7 –2.0 –3.1 –3.2 –4.2 –3.9 –3.7
–4.5 –3.8 –3.9
STATISTICAL APPENDIX
222
Table 30 (continued)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
By external financing source
Net debtor countries
Exports 693.7 723.0 856.6 850.1 901.8 1,065.6 1,333.5
1,588.1 1,784.3 1,933.7
Imports 808.7 788.5 909.9 895.3 928.4 1,095.0 1,388.8
1,664.7 1,872.1 2,044.3
Trade balance –115.0 –65.4 –53.4 –45.2 –26.6 –29.4
–55.3 –76.5 –87.7 –110.6
Services, net –5.7 –1.7 –2.9 –9.3 –5.4 –3.4 6.4 — –4.3
–1.1
Balance on goods and services –120.7 –67.1 –56.2 –54.5
–32.0 –32.8 –48.9 –76.5 –92.0 –111.7
Income, net –75.4 –86.5 –94.6 –92.8 –95.5 –116.4
–147.2 –174.4 –188.2 –196.0
Current transfers, net 67.1 68.5 74.5 82.3 94.7 123.1
138.7 162.1 176.9 187.5
Current account balance –129.0 –85.0 –76.4 –65.0 –32.7
–26.1 –57.4 –88.8 –103.3 –120.1
Memorandum
Exports of goods and services 893.7 915.6 1,066.0
1,057.8 1,117.2 1,310.5 1,646.8 1,961.4 2,207.3
2,401.4
Interest payments 99.0 103.6 98.9 95.4 86.9 89.9 98.0
107.4 117.2 123.7
Oil trade balance –0.1 10.1 18.2 12.7 13.4 19.3 18.0
22.5 38.3 53.5
Official financing
Exports 156.7 154.8 182.0 172.1 176.6 200.4 237.2
279.7 313.0 333.6
Imports 168.4 154.9 171.7 162.2 155.7 179.6 227.3
277.4 313.8 339.3
Trade balance –11.7 –0.1 10.3 9.8 21.0 20.8 9.9 2.3
–0.9 –5.7
Services, net –22.2 –12.7 –17.6 –16.6 –14.7 –17.3
–18.9 –22.6 –28.4 –29.7
Balance on goods and services –33.9 –12.8 –7.3 –6.8
6.3 3.6 –9.0 –20.4 –29.3 –35.4
Income, net –17.6 –26.0 –28.4 –27.3 –28.4 –30.5 –37.1
–38.2 –38.8 –40.2
Current transfers, net 18.7 21.1 24.1 27.2 31.3 36.5
41.5 47.1 50.7 53.8
Current account balance –32.9 –17.7 –11.6 –6.9 9.2 9.6
–4.6 –11.5 –17.3 –21.9
Memorandum
Exports of goods and services 192.3 190.4 219.5 211.3
216.4 242.6 298.2 346.4 384.3 409.0
Interest payments 29.5 30.5 24.3 23.7 21.2 21.0 21.3
22.3 23.0 23.5
Oil trade balance 3.3 4.2 5.2 1.8 0.7 1.3 –0.5 –4.1
–4.1 –5.7
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003
Exports 163.2 173.4 221.5 209.2 215.9 249.6 302.9
372.7 428.9 468.2
Imports 166.2 161.7 180.8 177.5 181.3 210.8 262.3
323.5 363.9 394.9
Trade balance –2.9 11.7 40.7 31.7 34.5 38.9 40.6 49.2
65.0 73.3
Services, net –26.7 –17.9 –23.2 –24.4 –21.9 –25.9
–29.8 –40.8 –52.0 –57.9
Balance on goods and services –29.6 –6.2 17.6 7.4 12.7
13.0 10.8 8.4 12.9 15.4
Income, net –22.2 –31.9 –37.4 –33.9 –36.5 –40.1 –50.8
–53.1 –56.6 –60.6
Current transfers, net 16.7 15.8 18.2 20.5 26.2 32.7
37.8 43.9 47.2 49.2
Current account balance –35.2 –22.3 –1.7 –6.0 2.4 5.6
–2.2 –0.9 3.5 4.1
Memorandum
Exports of goods and services 196.9 206.1 256.7 244.9
253.6 289.5 360.9 437.1 499.4 543.0
Interest payments 32.7 34.0 27.5 26.0 22.6 22.5 22.6
23.7 23.2 23.7
Oil trade balance 20.3 32.0 52.5 47.1 46.1 57.1 72.8
94.6 117.3 134.3
223
CURRENT ACCOUNT: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 30 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other groups
Heavily indebted poor countries
Exports 18.2 17.2 18.9 19.7 20.2 24.0 31.1 36.3 41.2
43.1
Imports 24.1 24.9 25.2 26.3 29.1 32.4 39.9 46.4 51.3
54.1
Trade balance –5.9 –7.7 –6.2 –6.6 –8.9 –8.4 –8.8 –10.1
–10.1 –10.9
Services, net –3.9 –3.4 –3.2 –3.5 –3.6 –4.1 –4.6 –5.1
–6.1 –6.0
Balance on goods and services –9.8 –11.2 –9.4 –10.0
–12.5 –12.5 –13.4 –15.2 –16.2 –16.9
Income, net –2.8 –3.0 –3.5 –4.0 –3.6 –3.9 –5.2 –6.1
–6.2 –6.4
Current transfers, net 4.9 5.1 5.9 6.9 7.4 9.1 11.0
13.1 13.8 14.4
Current account balance –7.8 –9.2 –7.1 –7.2 –8.7 –7.3
–7.6 –8.2 –8.6 –8.9
Memorandum
Exports of goods and services 23.7 23.2 25.2 26.2 27.1
31.9 40.7 46.8 52.6 55.3
Interest payments 3.6 3.2 3.1 2.9 2.8 2.8 2.9 3.0 3.0
3.0
Oil trade balance –0.2 –0.4 — –0.9 –1.7 –0.9 0.4 1.0
1.4 0.9
Middle East and north Africa
Exports 154.8 198.9 287.2 264.3 278.9 344.8 443.5
603.9 710.4 755.0
Imports 161.0 159.6 173.2 186.7 204.0 235.6 287.4
343.8 401.1 447.2
Trade balance –6.2 39.3 113.9 77.6 74.9 109.3 156.1
260.0 309.3 307.8
Services, net –24.1 –23.8 –30.7 –26.3 –31.4 –32.2
–36.8 –42.1 –54.8 –64.0
Balance on goods and services –30.3 15.5 83.2 51.3
43.5 77.1 119.3 217.9 254.5 243.9
Income, net 11.9 6.8 6.8 7.4 1.1 –0.6 0.5 3.2 12.8
17.7
Current transfers, net –10.7 –11.7 –14.2 –13.2 –11.5
–9.4 –6.7 –7.1 –7.5 –8.2
Current account balance –29.2 10.6 75.8 45.5 33.1 67.1
113.1 214.1 259.8 253.3
Memorandum
Exports of goods and services 189.2 235.6 325.1 305.3
322.7 395.9 503.4 670.0 781.3 830.9
Interest payments –11.4 –11.0 –11.4 –10.4 –10.1 –8.3
–8.6 –9.3 –10.5 –11.2
Oil trade balance 89.7 131.8 209.1 178.3 183.4 229.2
299.4 425.7 501.1 527.4
STATISTICAL APPENDIX
224
Table 31. Other Emerging Market and Developing
Countries—by Country: Balance of Payments on Current
Account
(Percent of GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Africa –4.5 –3.5 1.6 0.1 –1.6 –0.4 0.1 1.9 2.6 2.7
Algeria –1.9 — 16.7 12.8 7.6 13.0 13.1 21.3 18.9 16.5
Angola –28.8 –27.5 8.7 –14.8 –2.9 –5.2 4.2 8.2 11.3
12.0
Benin –5.4 –7.3 –7.7 –6.4 –8.4 –8.3 –7.2 –6.4 –8.8
–6.1
Botswana 4.1 12.3 10.4 11.5 3.6 6.0 9.5 8.9 4.8 3.5
Burkina Faso –8.4 –10.6 –12.2 –11.0 –10.0 –8.6 –7.8
–9.2 –9.2 –10.2
Burundi –7.5 –6.1 –9.9 –5.8 –5.2 –4.8 –7.2 –4.4 –8.1
–11.2
Cameroon –2.2 –3.8 –1.5 –3.6 –6.1 –2.1 –3.4 –1.5 –1.6
–1.8
Cape Verde –11.0 –12.4 –11.2 –10.1 –11.4 –9.5 –6.7
–4.3 –10.7 –11.9
Central African Republic –6.1 –1.6 –3.0 –2.5 –3.4 –4.7
–4.5 –4.1 –3.9 –3.7
Chad –8.1 –11.3 –15.4 –33.9 –101.0 –48.4 –6.6 2.2 8.2
7.2
Comoros –8.4 –6.8 1.7 3.0 –0.6 –4.3 –2.6 –4.3 –3.8
–1.9
Congo, Dem. Rep. of –9.0 –2.6 –4.6 –4.9 –3.2 –1.8 –5.7
–4.8 –2.6 –2.1
Congo, Rep. of –20.6 –17.1 7.9 –3.2 –0.3 1.0 2.2 13.9
13.6 10.3
Côte d’Ivoire –2.7 –1.4 –2.8 –1.1 6.4 1.8 2.7 0.7 1.9
1.9
Djibouti –1.3 2.0 –3.4 2.7 4.5 5.5 –0.8 –4.2 –3.6 –5.4
Equatorial Guinea –89.3 –29.9 –16.4 –49.0 –13.5 –43.8
–24.2 –13.3 –5.8 –4.8
Eritrea –23.8 –18.0 0.5 4.2 3.6 5.2 5.8 — –1.1 –1.2
Ethiopia –1.4 –6.7 –4.3 –3.0 –4.7 –2.2 –5.1 –9.1 –7.5
–4.3
Gabon –13.8 8.4 19.7 11.0 6.8 12.0 9.9 15.7 19.6 20.3
Gambia, The –2.4 –2.8 –3.1 –2.6 –2.8 –5.1 –11.8 –13.1
–11.5 –7.1
Ghana –5.0 –11.6 –8.4 –5.3 0.5 1.7 –2.7 –6.6 –7.8 –5.3
Guinea –8.5 –6.9 –6.4 –2.7 –4.3 –3.4 –5.6 –3.4 –3.4
–4.7
Guinea-Bissau –14.3 –13.3 –5.6 –22.1 –10.7 –2.8 0.7
–1.5 –19.6 –17.7
Kenya –4.0 –1.8 –2.3 –3.1 2.2 –0.2 –2.5 –7.6 –4.4 –5.9
Lesotho –25.0 –22.7 –18.8 –14.1 –17.9 –10.7 –2.8 –14.7
–15.9 –15.6
Madagascar –7.5 –5.6 –5.6 –1.3 –6.0 –4.9 –10.8 –12.8
–10.4 –9.9
Malawi –0.4 –8.3 –5.3 –6.8 –11.2 –7.6 –9.3 –7.7 –4.6
–6.0
Mali –6.6 –8.5 –10.0 –10.4 –3.1 –6.2 –7.9 –9.2 –7.5
–7.5
Mauritania –2.7 –0.2 –13.7 –10.7 –3.7 –18.3 –36.8
–35.5 3.3 2.3
Mauritius –2.8 –1.6 –1.5 3.4 5.5 2.4 0.8 –3.5 –2.5
–2.8
Morocco –0.4 –0.5 –1.4 4.8 4.1 3.6 2.2 0.9 –0.8 –0.9
Mozambique, Rep. of –14.4 –21.9 –17.6 –19.2 –18.9
–14.8 –8.4 –11.6 –10.4 –13.5
Namibia 2.8 7.3 10.9 3.2 5.4 5.1 10.2 5.7 6.6 5.4
Niger –6.9 –6.5 –6.2 –4.8 –6.5 –5.6 –6.5 –6.1 –7.2
–5.0
Nigeria –8.9 –8.4 11.7 4.5 –11.7 –2.7 4.6 12.6 14.2
15.3
Rwanda –9.6 –7.7 –5.0 –5.9 –6.7 –7.8 –3.1 –3.9 –9.9
–7.0
São Tomé and Príncipe –30.8 –32.8 –31.4 –22.3 –24.1
–22.3 –20.1 –33.1 –28.4 –29.4
Senegal –4.1 –5.1 –6.8 –4.7 –6.0 –6.6 –6.7 –7.9 –8.2
–7.9
Seychelles –16.5 –19.8 –7.3 –23.5 –16.3 6.4 5.3 –14.6
–1.8 –5.0
Sierra Leone –2.6 –11.1 –15.2 –16.2 –4.8 –7.6 –4.9
–8.5 –6.4 –6.7
South Africa –1.8 –0.5 –0.1 0.1 0.6 –1.3 –3.4 –4.2
–3.9 –3.6
Sudan –15.3 –15.9 –14.9 –15.8 –9.8 –7.7 –6.3 –10.7
–6.9 –5.4
Swaziland –6.9 –2.6 –5.4 –4.5 4.8 1.9 1.7 –1.4 –1.3
–1.8
Tanzania –11.0 –9.9 –5.3 –4.7 –3.8 –2.4 –1.6 –2.6 –7.6
–8.7
Togo –8.8 –8.1 –11.8 –12.7 –9.5 –9.4 –8.3 –11.6 –10.3
–8.7
Tunisia –3.4 –2.2 –4.2 –4.2 –3.5 –2.9 –2.0 –1.3 –1.4
–1.1
Uganda –7.5 –9.4 –7.0 –3.8 –4.9 –5.8 –1.7 –1.2 –3.9
–4.2
Zambia –16.7 –13.7 –18.2 –20.0 –15.4 –15.2 –10.3 –10.2
–9.3 –7.6
Zimbabwe –4.7 2.5 0.4 –0.3 –0.6 –2.9 –8.3 –11.1 1.7
–15.0
225
CURRENT ACCOUNT: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 31 (continued)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Central and eastern Europe –3.1 –4.4 –5.3 –2.7 –3.5
–4.3 –5.7 –5.2 –5.5 –5.4
Albania –3.6 2.3 –3.6 –2.8 –7.1 –5.5 –3.8 –5.6 –6.7
–5.9
Bosnia and Herzegovina –8.4 –9.1 –17.5 –20.0 –26.5
–22.4 –24.4 –26.4 –23.0 –23.0
Bulgaria –0.5 –5.0 –5.6 –7.3 –5.6 –9.2 –5.8 –11.8
–10.2 –9.1
Croatia –6.7 –7.0 –2.6 –3.7 –8.4 –6.3 –5.6 –6.0 –5.9
–5.9
Czech Republic –2.0 –2.5 –4.9 –5.4 –5.6 –6.3 –6.0 –2.1
–2.3 –2.3
Estonia –8.7 –4.4 –5.5 –5.6 –10.2 –12.1 –12.7 –10.5
–10.1 –9.6
Hungary –7.2 –7.9 –8.5 –6.2 –7.1 –8.7 –8.8 –7.9 –8.2
–7.5
Latvia –9.0 –9.0 –4.8 –7.6 –6.6 –8.1 –12.9 –12.5 –12.8
–12.0
Lithuania –11.7 –11.0 –5.9 –4.7 –5.2 –6.9 –7.7 –7.5
–7.5 –7.3
Macedonia, FYR –7.5 –0.9 –2.0 –5.7 –8.4 –3.4 –7.6 –0.8
–3.7 –4.3
Malta –6.2 –3.4 –12.6 –4.4 0.3 –5.8 –10.4 –6.7 –6.5
–6.3
Poland –4.0 –7.4 –5.8 –2.8 –2.5 –2.1 –4.1 –1.6 –2.5
–3.1
Romania –7.1 –4.1 –3.7 –5.5 –3.3 –5.8 –8.4 –8.7 –8.3
–8.1
Serbia and Montenegro –4.8 –7.5 –3.9 –4.6 –8.9 –9.7
–12.5 –8.8 –9.5 –8.3
Slovak Republic –9.6 –4.8 –3.5 –8.4 –8.0 –0.9 –3.5
–7.2 –6.4 –5.5
Slovenia –0.5 –3.2 –2.8 0.2 1.4 –0.4 –2.1 –0.9 –0.3
0.1
Turkey 1.0 –0.7 –5.0 2.4 –0.8 –3.3 –5.2 –6.3 –6.5 –6.1
Commonwealth of Independent States1 –1.9 8.2 13.6 8.0
6.5 6.3 8.1 9.1 9.6 8.1
Russia 0.1 12.6 18.0 11.1 8.4 8.2 9.9 11.3 11.8 9.5
Excluding Russia –6.8 –0.9 1.5 –0.8 1.0 0.3 2.1 1.6
2.4 3.4
Armenia –22.1 –16.6 –14.6 –9.5 –6.2 –6.8 –4.6 –3.3
–3.9 –4.3
Azerbaijan –30.7 –13.1 –3.5 –0.9 –12.3 –27.8 –30.0
–5.2 17.7 40.0
Belarus –6.7 –1.7 –2.6 –3.2 –2.1 –2.4 –5.3 1.2 –0.8
–2.0
Georgia –12.8 –10.0 –6.0 –6.5 –5.9 –7.3 –8.3 –7.4 –7.1
–5.5
Kazakhstan –5.5 –0.2 3.0 –5.4 –4.1 –0.9 1.2 1.8 2.3
2.4
Kyrgyz Republic –22.3 –14.8 –4.3 –1.5 –5.0 –4.1 –3.4
–8.1 –6.8 –5.6
Moldova –19.7 –6.7 –8.4 –2.5 –4.4 –6.8 –2.7 –5.5 –5.2
–5.3
Mongolia –7.8 –6.7 –5.7 –7.6 –9.6 –7.7 1.1 4.5 2.9
–1.7
Tajikistan –7.3 –5.6 –6.0 –4.9 –3.5 –1.3 –4.0 –3.4
–4.2 –4.8
Turkmenistan –32.7 –14.8 8.2 1.7 6.7 2.7 0.6 2.8 1.4
1.1
Ukraine –3.1 5.3 4.7 3.7 7.5 5.8 10.5 2.7 1.2 –2.1
Uzbekistan –0.7 –1.0 1.7 –1.0 1.2 8.7 10.0 10.8 9.6
9.2
STATISTICAL APPENDIX
226
Table 31 (continued)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Developing Asia 2.5 2.3 2.0 1.7 2.7 2.9 2.7 3.9 3.6
3.5
Afghanistan, I.S. of . . . . . . . . . . . . –3.5 3.1
1.8 0.6 –1.3 –2.4
Bangladesh –1.1 –0.9 –1.4 –0.8 0.3 0.2 –0.3 –0.9 –1.0
–1.1
Bhutan 9.8 2.2 –9.4 –5.3 –9.1 –11.3 –7.9 –23.1 –9.6
2.2
Brunei Darussalam 44.7 34.9 68.2 69.7 59.3 68.0 68.2
72.8 67.0 64.0
Cambodia –5.9 –5.2 –3.0 –1.2 –1.0 –3.1 –3.4 –3.9 –5.5
–5.0
China 3.1 1.4 1.7 1.3 2.4 2.8 3.6 7.1 6.9 6.7
Fiji –0.3 –3.8 –5.8 –3.3 –1.6 –4.7 –5.0 –4.5 –4.2 –3.4
India –1.7 –0.7 –1.0 0.3 1.4 1.5 0.2 –2.5 –3.1 –3.1
Indonesia 3.8 3.7 4.8 4.2 3.9 3.4 1.2 1.1 0.4 —
Kiribati 35.2 13.3 12.6 1.9 –1.8 6.5 –11.1 –21.1 –16.5
–15.5
Lao PDR –4.6 –4.0 –10.5 –8.3 –7.2 –8.1 –14.4 –16.4
–12.7 –14.7
Malaysia 13.2 15.9 9.4 8.3 8.4 12.7 12.6 15.6 14.9
14.7
Maldives –4.1 –13.4 –8.2 –9.4 –5.6 –4.6 –16.1 –36.5
–38.5 –21.6
Myanmar –11.7 –6.8 4.6 –4.4 2.3 0.3 2.9 4.8 5.1 4.5
Nepal –1.0 4.3 3.2 4.8 4.5 2.6 3.0 5.5 4.0 3.7
Pakistan –2.6 –2.3 –1.6 0.3 3.7 3.4 0.2 –2.4 –3.2 –3.0
Papua New Guinea 0.6 2.8 8.5 6.5 –1.0 4.4 2.1 4.2 4.6
–2.0
Philippines 2.3 9.5 8.2 1.9 5.7 1.8 2.7 3.0 2.1 1.6
Samoa 9.5 2.0 1.0 0.1 –1.1 5.8 8.3 14.1 –3.8 –3.4
Solomon Islands –1.6 3.1 –10.6 –12.5 –7.2 1.3 12.5
–7.9 –10.5 –7.5
Sri Lanka –1.4 –3.6 –6.5 –1.1 –1.4 –0.4 –3.0 –2.4 –5.3
–4.4
Thailand 12.8 10.2 7.6 5.4 5.5 5.6 4.2 –2.3 –2.0 –2.1
Timor-Leste, Dem. Rep. of . . . 2.1 11.8 12.5 7.6 5.0
38.0 77.8 101.0 156.6
Tonga –10.5 –0.6 –5.9 –9.2 4.9 –3.0 4.0 –2.2 –1.1 –1.2
Vanuatu 2.5 –4.9 2.0 2.0 –9.0 –10.2 –9.5 –7.1 –8.8
–7.7
Vietnam –3.9 4.5 2.1 2.1 –1.2 –4.9 –3.8 –4.4 –4.0 –4.0
Middle East –5.0 2.3 11.1 6.2 4.6 8.1 12.4 19.1 20.4
18.1
Bahrain –12.6 –0.3 10.6 3.0 –0.4 2.3 4.0 5.8 7.3 5.3
Egypt –2.9 –1.9 –1.2 — 0.7 2.4 4.3 2.8 1.3 –0.4
Iran, I.R. of –2.2 6.3 13.0 5.2 3.1 0.6 2.5 7.5 7.6
6.2
Iraq . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
Jordan 0.3 5.0 0.7 –0.1 5.6 11.6 –0.2 –17.8 –16.0
–14.4
Kuwait 8.5 16.8 38.9 23.9 11.2 20.4 31.1 43.3 49.9
48.7
Lebanon –29.5 –18.8 –17.1 –19.2 –15.4 –15.2 –18.2
–12.7 –12.9 –12.1
Libya –1.2 9.2 22.5 13.8 2.9 21.5 24.2 40.2 43.3 44.6
Oman –22.3 –2.9 15.5 9.3 6.6 4.0 1.7 7.0 8.5 9.4
Qatar –21.5 6.8 18.0 19.9 16.5 25.9 37.9 45.6 51.7
51.8
Saudi Arabia –9.0 0.3 7.6 5.1 6.3 13.1 20.5 28.3 28.3
23.9
Syrian Arab Republic 0.5 1.6 5.3 4.0 4.6 3.2 –2.0 –5.5
–7.3 –8.6
United Arab Emirates 1.8 1.6 17.2 9.4 5.0 8.7 11.8
22.0 27.0 26.1
Yemen –2.8 2.7 13.2 5.3 5.4 –0.1 1.9 2.6 –5.2 –9.6
227
CURRENT ACCOUNT: OTHER EMERGING MARKET AND DEVELOPING
COUNTRIES
Table 31 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Western Hemisphere –4.5 –3.2 –2.4 –2.8 –0.9 0.4 0.9
1.2 0.8 0.2
Antigua and Barbuda –7.5 –8.9 –9.7 –8.9 –15.7 –14.2
–10.8 –11.6 –13.7 –13.0
Argentina –4.8 –4.2 –3.2 –1.2 8.9 6.3 2.2 1.8 1.2 0.5
Bahamas, The –23.2 –5.1 –10.4 –11.4 –6.3 –8.0 –5.3
–12.3 –14.6 –14.2
Barbados –2.3 –5.9 –5.6 –3.7 –7.5 –6.9 –11.9 –12.2
–11.7 –10.4
Belize –6.0 –9.7 –18.7 –18.0 –20.2 –22.3 –17.7 –13.1
–8.6 –8.1
Bolivia –7.8 –5.9 –5.3 –3.4 –4.1 0.6 3.2 2.6 1.7 1.0
Brazil –4.2 –4.7 –4.0 –4.5 –1.7 0.8 1.9 1.8 1.0 0.2
Chile –5.0 0.1 –1.2 –1.6 –0.9 –1.5 1.5 –0.4 0.5 –1.2
Colombia –4.9 0.8 0.9 –1.3 –1.7 –1.2 –1.0 –1.7 –1.6
–2.7
Costa Rica –3.5 –3.8 –4.3 –4.4 –5.6 –5.5 –4.3 –4.8
–4.6 –4.2
Dominica –9.1 –13.0 –19.7 –18.7 –13.8 –13.0 –17.2
–26.3 –23.8 –23.1
Dominican Republic –2.1 –2.4 –5.1 –3.4 –3.7 6.0 5.8
–1.0 –2.4 –3.0
Ecuador –9.3 4.6 5.3 –3.3 –4.9 –1.7 –1.1 –0.9 0.2 0.4
El Salvador –0.8 –1.6 –2.9 –0.9 –2.5 –4.3 –4.4 –4.0
–4.0 –4.0
Grenada –23.5 –14.6 –21.5 –26.6 –32.0 –33.2 –13.5
–33.7 –33.2 –28.3
Guatemala –5.3 –5.5 –5.4 –6.0 –5.3 –4.2 –4.4 –4.5 –4.2
–4.3
Guyana –13.7 –11.4 –15.3 –19.2 –15.2 –11.8 –9.5 –24.2
–27.9 –20.8
Haiti 0.5 –1.0 –1.0 –2.0 –1.0 –0.1 0.4 0.4 –0.6 –0.4
Honduras –2.5 –4.5 –3.9 –4.8 –3.6 –4.2 –5.6 –0.5 –3.4
–3.3
Jamaica –2.0 –3.4 –4.9 –9.6 –15.2 –6.8 –6.1 –8.2 –12.8
–10.8
Mexico –3.8 –2.9 –3.2 –2.8 –2.1 –1.3 –1.1 –0.7 –0.6
–0.8
Netherlands Antilles –3.9 –5.1 — –5.7 –1.8 –0.3 –3.2
–2.4 –2.3 –2.9
Nicaragua –22.3 –28.2 –23.4 –19.4 –19.1 –18.1 –16.9
–16.9 –16.7 –16.0
Panama –9.3 –10.1 –5.9 –1.5 –0.8 –3.9 –7.9 –5.4 –4.7
–4.6
Paraguay –2.0 –2.3 –2.3 –4.1 1.8 2.4 0.2 –2.7 –1.7
–1.8
Peru –6.4 –3.4 –2.8 –2.4 –2.0 –1.6 — 1.3 1.4 0.3
St. Kitts and Nevis –16.5 –22.5 –21.0 –32.8 –37.9
–33.6 –23.7 –20.1 –18.3 –14.2
St. Lucia –9.5 –16.6 –14.1 –16.2 –15.2 –20.3 –13.3
–16.7 –20.7 –8.0
St. Vincent and the Grenadines –29.1 –20.9 –6.8 –10.5
–11.3 –19.9 –25.5 –27.6 –25.4 –23.1
Suriname –14.3 –19.0 –3.8 –15.2 –6.3 –13.8 –5.1 –15.8
–11.9 –10.0
Trinidad and Tobago –9.4 0.4 6.2 4.7 0.8 8.3 13.5 16.6
21.0 16.0
Uruguay –2.1 –2.4 –2.8 –2.9 3.2 –0.5 –0.7 –2.4 –5.8
–2.5
Venezuela –4.9 2.2 10.1 1.6 8.2 13.7 12.5 19.1 14.1
13.4
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
228
Table 32. Summary of Balance of Payments, Capital
Flows, and External Financing
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other emerging market and developing countries
Balance of payments1
Balance on current account –113.1 –13.0 91.1 44.2 84.5
148.5 219.8 423.3 486.7 473.2
Balance on goods and services –65.6 46.1 150.6 94.5
125.6 175.7 251.5 445.1 499.3 485.2
Income, net –97.0 –113.0 –118.3 –117.9 –125.0 –145.8
–170.6 –185.4 –186.0 –183.2
Current transfers, net 49.6 53.9 58.8 67.6 83.9 118.7
138.9 163.5 173.4 171.2
Balance on capital and financial account 154.0 68.5
–38.0 1.2 –26.8 –154.2 –245.7 –363.2 –456.5 –455.8
Balance on capital account2 6.4 9.5 22.8 4.1 1.6 10.8
17.6 16.0 23.3 22.1
Balance on financial account 147.6 59.0 –60.8 –2.9
–28.3 –164.9 –263.4 –379.2 –479.8 –477.9
Direct investment, net 158.4 158.0 150.1 169.7 155.1
145.4 192.0 206.2 216.1 213.6
Portfolio investment, net 28.8 25.5 –38.8 –45.9 –25.0
–31.0 0.5 –17.7 –121.8 –119.2
Other investment, net –44.0 –80.1 –87.8 –27.1 –7.3 0.5
–21.4 –42.3 –40.8 –64.8
Reserve assets 4.4 –44.4 –84.2 –99.6 –151.1 –279.9
–434.4 –525.4 –533.3 –507.5
Errors and omissions, net –40.9 –55.5 –53.1 –45.5
–57.7 5.6 25.9 –60.0 –30.2 –17.4
Capital flows
Total capital flows, net3 143.2 103.4 23.5 96.7 122.8
115.0 171.0 146.2 53.4 29.6
Net official flows 50.8 44.4 –37.9 11.7 13.2 –47.2
–67.5 –123.5 –143.0 –143.8
Net private flows4 93.0 58.9 60.5 84.8 109.1 162.6
237.8 269.7 196.7 173.3
Direct investment, net 158.4 158.0 150.1 169.7 155.1
145.4 192.0 206.2 216.1 213.6
Private portfolio investment, net 23.0 11.7 –11.9
–36.1 –26.9 18.1 69.7 78.2 32.0 35.0
Other private flows, net –88.4 –110.8 –77.7 –48.9
–19.1 –1.0 –23.9 –14.7 –51.4 –75.4
External financing5
Net external financing6 285.4 247.8 247.9 188.6 195.0
281.1 449.5 512.1 518.5 489.6
Non-debt-creating flows 185.4 188.8 200.8 178.4 165.2
184.3 274.0 296.7 311.4 315.0
Capital transfers7 6.4 9.5 22.8 4.1 1.6 10.8 17.6 16.0
23.3 22.1
Foreign direct investment and equity
security liabilities8 179.0 179.2 178.1 174.3 163.7
173.6 256.4 280.7 288.1 293.0
Net external borrowing9 100.0 59.0 47.1 10.2 29.8 96.8
175.5 215.3 207.1 174.5
Borrowing from official creditors10 44.7 30.6 –10.5
21.6 11.5 1.7 2.1 –27.6 10.7 10.5
of which, credit and loans from IMF11 14.0 –2.4 –10.9
19.0 13.4 1.7 –14.5 –39.9 . . . . . .
Borrowing from banks10 8.5 –12.1 –10.8 –13.3 –13.6 9.1
34.6 36.7 43.4 30.8
Borrowing from other private creditors10 46.8 40.5
68.4 1.8 31.9 86.0 138.8 206.3 153.0 133.1
Memorandum
Balance on goods and services in percent of GDP12 –1.1
0.8 2.4 1.5 1.9 2.3 2.9 4.3 4.2 3.7
Scheduled amortization of external debt 255.1 297.8
344.9 321.8 341.1 369.8 373.2 395.6 377.4 377.1
Gross external financing13 540.5 545.5 592.8 510.4
536.0 650.9 822.7 907.7 895.9 866.6
Gross external borrowing14 355.0 356.7 392.0 332.0
370.8 466.6 548.6 611.0 584.5 551.6
Exceptional external financing, net 42.0 28.4 9.7 30.3
58.7 35.1 20.4 –36.3 10.1 11.1
Of which,
Arrears on debt service 21.8 8.2 –30.3 0.2 15.0 18.4
9.7 –24.1 . . . . . .
Debt forgiveness 1.5 2.2 1.7 2.6 1.8 1.7 3.0 3.5 . . .
. . .
Rescheduling of debt service 7.8 14.6 3.1 7.7 10.4 5.9
8.7 3.7 . . . . . .
1Standard presentation in accordance with the 5th
edition of the International Monetary Fund’s Balance
of Payments Manual (1993).
2Comprises capital transfers—including debt
forgiveness—and acquisition/disposal of nonproduced,
nonfinancial assets.
3Comprise net direct investment, net portfolio
investment, and other long- and short-term net
investment flows, including official and private
borrowing. In the standard balance
of payments presentation above, total net capital
flows are equal to the balance on financial account
minus the change in reserve assets.
4Because of limitations on the data coverage for net
official flows, the residually derived data for net
private flows may include some official flows.
5As defined in the World Economic Outlook (see
footnote 6). It should be noted that there is no
generally accepted standard definition of external
financing.
6Defined as the sum of—with opposite sign—the goods
and services balance, net income and current
transfers, direct investment abroad, the change in
reserve assets, the
net acquisition of other assets (such as recorded
private portfolio assets, export credit, and the
collateral for debt-reduction operations), and the net
errors and omissions. Thus,
net external financing, according to the definition
adopted in the World Economic Outlook, measures the
total amount required to finance the current account,
direct investment
outflows, net reserve transactions (often at the
discretion of the monetary authorities), the net
acquisition of nonreserve external assets, and the net
transactions underlying the
errors and omissions (not infrequently reflecting
capital flight).
7Including other transactions on capital account.
8Debt-creating foreign direct investment liabilities
are not included.
9Net disbursement of long- and short-term credits,
including exceptional financing, by both official and
private creditors.
10Changes in liabilities.
11Comprise use of IMF resources under the General
Resources Account, Trust Fund, and Poverty Reduction
and Growth Facility (PRGF). For further detail, see
Table 36.
12This is often referred to as the “resource balance”
and, with opposite sign, the “net resource transfer.”
13Net external financing plus amortization due on
external debt.
14Net external borrowing plus amortization due on
external debt.
229
BALANCE OF PAYMENTS AND EXTERNAL FINANCING: BY REGION
Table 33. Other Emerging Market and Developing
Countries—by Region: Balance of Payments and External
Financing1
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Africa
Balance of payments
Balance on current account –19.4 –15.0 7.2 0.5 –7.5
–2.5 0.9 15.2 23.5 25.9
Balance on capital account 4.1 4.6 3.5 4.4 4.8 4.1 5.3
3.9 4.1 4.5
Balance on financial account 16.5 12.4 –10.0 –4.5 3.5
–3.2 –18.2 –18.3 –26.5 –29.4
Change in reserves (– = increase) 3.6 –0.4 –12.8 –9.8
–5.7 –11.4 –33.0 –42.1 –46.3 –54.7
Other official flows, net 5.3 3.8 2.7 –0.5 4.3 3.7 1.8
–6.6 3.2 4.2
Private flows, net 7.6 9.0 — 5.7 4.9 4.6 13.0 30.4
16.6 21.1
External financing
Net external financing 27.5 30.1 15.1 19.5 19.4 22.9
28.7 29.1 33.3 35.2
Non-debt-creating inflows 20.1 23.0 15.6 23.4 17.1
21.5 30.1 35.1 33.9 34.6
Net external borrowing 7.4 7.1 –0.6 –3.9 2.2 1.4 –1.4
–5.9 –0.7 0.6
From official creditors 5.3 3.8 2.8 –0.4 4.3 3.6 1.8
–6.6 3.3 4.3
of which, credit and loans from IMF –0.4 –0.2 –0.2
–0.4 –0.1 –0.8 –0.7 –1.0 . . . . . .
From banks –1.0 1.1 –1.0 –0.1 0.5 0.9 1.3 –1.4 0.7
–0.1
From other private creditors 3.0 2.2 –2.4 –3.4 –2.6
–3.1 –4.4 2.1 –4.6 –3.6
Memorandum
Exceptional financing 8.8 8.5 6.4 5.2 18.5 6.7 6.5
–0.6 3.9 3.8
Sub-Sahara
Balance of payments
Balance on current account –17.7 –14.4 –0.7 –7.4 –12.6
–12.2 –10.8 –6.6 2.2 5.9
Balance on capital account 4.0 4.2 3.4 4.2 4.6 4.0 5.2
3.8 4.0 4.4
Balance on financial account 15.5 10.8 –2.2 3.9 9.1
6.5 –6.1 2.9 –5.9 –10.2
Change in reserves (– = increase) 2.5 –0.8 –6.1 0.4
–1.4 –2.1 –21.1 –23.3 –25.3 –33.8
Other official flows, net 5.8 4.4 3.6 0.6 5.6 4.8 2.9
–6.2 3.7 4.6
Private flows, net 7.2 7.2 0.3 2.9 4.9 3.8 12.1 32.3
15.7 19.0
External financing
Net external financing 26.0 27.4 14.0 15.9 18.2 21.8
27.2 29.8 30.9 31.6
Non-debt-creating inflows 18.5 21.0 14.0 18.8 14.7
18.0 27.2 31.3 30.7 31.3
Net external borrowing 7.6 6.4 –0.1 –2.9 3.5 3.9 —
–1.5 0.2 0.3
From official creditors 5.8 4.4 3.7 0.7 5.6 4.8 2.9
–6.1 3.7 4.7
of which, credit and loans from IMF –0.3 –0.1 — –0.2
0.2 –0.4 –0.3 –0.4 . . . . . .
From banks –1.0 –0.3 –1.3 –0.6 –0.3 0.1 0.9 –1.2 0.4
–0.3
From other private creditors 2.8 2.3 –2.4 –3.0 –1.8
–1.1 –3.9 5.9 –3.9 –4.0
Memorandum
Exceptional financing 7.8 7.8 6.4 5.1 18.4 6.7 6.5
–0.6 3.9 3.8
Central and eastern Europe
Balance of payments
Balance on current account –19.3 –26.4 –32.4 –16.2
–24.0 –37.1 –59.2 –63.1 –72.2 –77.0
Balance on capital account 0.4 0.4 3.0 4.2 5.2 5.3
13.0 18.7 20.9 19.4
Balance on financial account 18.8 22.4 34.9 13.0 25.4
34.6 50.0 58.7 66.5 69.1
Change in reserves (– = increase) –9.3 –11.9 –6.6 –4.4
–20.3 –12.4 –14.3 –41.0 –25.5 –12.7
Other official flows, net 1.0 –2.6 1.8 5.9 –7.7 –5.3
–6.8 –8.5 –2.7 –2.6
Private flows, net 27.2 37.0 39.7 11.6 53.5 52.3 71.0
108.2 94.7 84.4
External financing
Net external financing 34.0 47.1 54.8 31.1 49.6 60.9
108.6 132.8 127.9 115.4
Non-debt-creating inflows 21.2 21.5 26.9 28.7 30.8
24.4 52.1 70.5 70.1 65.7
Net external borrowing 12.8 25.6 27.8 2.4 18.8 36.5
56.5 62.3 57.8 49.8
From official creditors 1.0 –2.6 1.9 6.0 –7.6 –5.4
–6.7 –8.4 –2.7 –2.6
of which, credit and loans from IMF –0.5 0.5 3.3 9.9
6.1 — –3.8 –5.9 . . . . . .
From banks 2.6 2.1 4.0 –7.5 3.1 11.3 13.9 16.6 15.7
15.2
From other private creditors 9.2 26.2 22.0 3.9 23.3
30.6 49.3 54.1 44.8 37.2
Memorandum
Exceptional financing 0.2 1.1 4.8 11.0 7.0 –0.3 –3.6
–4.9 –2.9 –2.0
STATISTICAL APPENDIX
230
Table 33 (continued)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Commonwealth of Independent States2
Balance of payments
Balance on current account –7.4 23.7 48.3 33.1 30.2
35.8 62.4 90.3 112.4 109.4
Balance on capital account –0.3 –0.4 10.7 –9.6 –12.5
–1.0 –1.6 –12.2 –6.7 –6.8
Balance on financial account 12.2 –21.3 –53.1 –11.6
–10.3 –24.0 –54.9 –65.7 –105.7 –102.5
Change in reserves (– = increase) 12.7 –6.2 –20.4
–12.9 –16.2 –31.7 –56.0 –75.2 –88.0 –76.8
Other official flows, net 1.7 –2.1 –6.3 –5.2 –10.7
–8.6 –7.7 –15.5 –3.7 –4.6
Private flows, net –1.5 –13.1 –27.3 6.3 16.1 16.7 8.0
24.9 –13.7 –21.3
External financing
Net external financing 15.8 1.1 –0.4 –3.7 0.3 38.6
55.0 72.1 62.2 67.0
Non-debt-creating inflows 5.6 4.6 14.2 –5.5 –7.7 8.6
15.4 8.4 10.7 12.9
Net external borrowing 10.3 –3.5 –14.6 1.9 8.0 30.1
39.6 63.7 51.5 54.0
From official creditors 1.4 –2.0 –5.9 –3.9 –10.4 –3.4
–2.7 –12.9 –1.2 –1.8
of which, credit and loans from IMF 5.8 –3.6 –4.1 –4.0
–1.8 –2.3 –2.1 –3.8 . . . . . .
From banks –2.1 2.7 1.2 1.9 –0.4 — –1.1 –5.3 –2.9 –2.6
From other private creditors 10.9 –4.2 –10.0 3.8 18.8
33.4 43.4 81.9 55.6 58.4
Memorandum
Exceptional financing 7.9 7.4 2.3 –0.1 –0.3 0.8 0.4
0.1 0.1 0.1
Developing Asia
Balance of payments
Balance on current account 49.3 48.4 46.1 40.6 72.2
86.3 94.7 155.4 159.5 171.9
Balance on capital account 1.0 0.8 0.9 0.9 0.9 1.2 1.0
1.6 2.1 1.8
Balance on financial account –28.1 –27.2 –19.0 –32.2
–65.1 –95.2 –119.0 –135.3 –161.5 –173.7
Change in reserves (– = increase) –21.1 –32.3 –10.6
–61.5 –104.4 –155.8 –259.5 –229.0 –253.7 –255.1
Other official flows, net 18.9 19.8 –3.8 –1.0 9.1 –1.2
17.1 23.9 20.8 12.1
Private flows, net –25.9 –14.7 –4.6 30.3 30.2 61.8
123.4 69.8 71.4 69.3
External financing
Net external financing 56.1 67.2 70.4 51.4 75.3 100.0
168.2 186.7 188.5 171.9
Non-debt-creating inflows 68.1 66.1 70.6 57.5 69.8
83.4 106.6 93.1 102.1 109.2
Net external borrowing –12.0 1.1 –0.2 –6.0 5.5 16.7
61.6 93.6 86.4 62.7
From official creditors 18.9 19.8 –3.8 –1.0 9.1 –1.2
17.1 23.9 20.8 12.1
of which, credit and loans from IMF 6.6 1.7 0.9 –2.2
–2.7 –0.6 –1.9 –1.6 . . . . . .
From banks –12.4 –11.8 –13.2 –7.2 –3.2 2.2 23.7 24.7
23.8 16.3
From other private creditors –18.5 –6.9 16.8 2.2 –0.4
15.7 20.9 45.0 41.8 34.3
Memorandum
Exceptional financing 14.5 7.2 6.6 6.3 7.2 5.6 3.2 8.0
4.4 4.7
Excluding China and India
Balance of payments
Balance on current account 24.6 36.0 30.2 21.8 29.7
31.6 24.6 15.8 12.3 11.0
Balance on capital account 1.0 0.8 1.0 1.0 0.9 1.3 1.1
1.7 2.1 1.8
Balance on financial account –20.0 –30.0 –14.7 –19.0
–15.1 –21.7 –21.4 –4.2 –14.4 –12.9
Change in reserves (– = increase) –12.0 –17.7 6.0 –5.5
–10.0 –13.1 –29.5 –11.1 –27.6 –28.3
Other official flows, net 13.3 12.7 –3.3 –1.9 7.8 3.5
–0.7 1.1 0.9 –0.8
Private flows, net –21.3 –25.0 –17.3 –11.6 –12.8 –12.1
8.8 5.8 12.3 16.3
External financing
Net external financing 13.6 13.1 1.6 0.5 11.7 14.2
40.6 33.7 42.0 45.4
Non-debt-creating inflows 25.2 25.2 14.8 6.9 17.1 22.1
36.2 23.6 31.8 35.8
Net external borrowing –11.6 –12.1 –13.2 –6.4 –5.5
–7.9 4.4 10.0 10.1 9.6
From official creditors 13.3 12.7 –3.3 –1.9 7.8 3.5
–0.7 1.1 0.9 –0.8
of which, credit and loans from IMF 7.0 2.1 0.9 –2.2
–2.7 –0.6 –1.9 –1.6 . . . . . .
From banks –15.4 –9.9 –6.9 –7.2 –5.3 –4.8 2.4 0.5 1.7
1.0
From other private creditors –9.5 –14.9 –3.0 2.7 –8.0
–6.5 2.6 8.4 7.6 9.5
Memorandum
Exceptional financing 14.5 7.2 6.6 6.3 7.2 5.6 3.2 8.0
4.4 4.7
BALANCE OF PAYMENTS AND EXTERNAL FINANCING: BY REGION
231
Table 33 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Middle East
Balance of payments
Balance on current account –25.7 12.9 70.0 39.8 29.5
59.0 103.4 196.0 240.9 235.6
Balance on capital account –0.5 0.9 1.9 1.8 1.3 0.3
–1.1 2.4 2.3 2.4
Balance on financial account 34.4 13.7 –55.6 –19.0 4.0
–63.2 –95.8 –187.0 –228.7 –233.3
Change in reserves (– = increase) 10.2 –1.5 –31.2
–12.8 –2.2 –33.0 –47.4 –106.6 –70.5 –73.6
Other official flows, net 9.8 19.1 –27.2 –13.8 –0.2
–41.8 –64.7 –91.7 –151.4 –151.5
Private flows, net 14.4 –3.9 2.8 7.7 6.4 11.7 16.3
11.2 –6.9 –8.3
External financing
Net external financing 30.0 5.6 32.8 4.6 19.5 15.9
49.1 48.3 41.7 29.7
Non-debt-creating inflows 6.7 6.1 2.3 6.6 6.9 8.5 14.8
20.9 31.0 30.2
Net external borrowing 23.3 –0.5 30.5 –2.0 12.6 7.5
34.3 27.4 10.7 –0.5
From official creditors 3.8 4.3 0.1 –3.0 –0.4 0.7 –0.1
–0.1 –0.5 –1.6
of which, credit and loans from IMF 0.1 0.1 –0.1 0.1 —
–0.1 0.3 –0.1 . . . . . .
From banks 2.4 1.1 –0.1 — –0.4 — 4.3 5.5 2.8 0.6
From other private creditors 17.1 –5.9 30.4 1.1 13.3
6.7 30.2 22.0 8.4 0.5
Memorandum
Exceptional financing 0.4 0.2 0.3 0.3 0.6 2.5 0.3 0.4
0.3 0.2
Western Hemisphere
Balance of payments
Balance on current account –90.6 –56.7 –48.1 –53.6
–16.0 7.1 17.7 29.6 22.7 7.5
Balance on capital account 1.7 3.4 2.9 2.4 1.9 0.9 1.1
1.5 0.7 0.8
Balance on financial account 93.7 59.0 42.0 51.4 14.2
–13.9 –25.4 –31.6 –23.9 –8.1
Change in reserves (– = increase) 8.4 7.9 –2.8 1.9
–2.2 –35.5 –24.3 –31.6 –49.2 –34.7
Other official flows, net 14.2 6.4 –5.2 26.3 18.5 6.1
–7.1 –25.2 –9.2 –1.5
Private flows, net 71.2 44.7 49.9 23.1 –2.1 15.5 6.0
25.2 34.6 28.1
External financing
Net external financing 121.9 96.6 75.2 85.7 30.9 42.7
40.0 43.0 64.9 70.4
Non-debt-creating inflows 63.7 67.4 71.1 67.9 48.3
38.0 55.0 68.7 63.5 62.4
Net external borrowing 58.3 29.2 4.1 17.8 –17.4 4.7
–15.0 –25.7 1.4 8.0
From official creditors 14.4 7.4 –5.6 24.0 16.5 7.2
–7.2 –23.5 –8.9 0.1
of which, credit and loans from IMF 2.5 –0.9 –10.7
15.6 11.9 5.6 –6.3 –27.6 . . . . . .
From banks 18.9 –7.2 –1.8 –0.3 –13.4 –5.2 –7.3 –3.5
3.3 1.5
From other private creditors 24.9 29.0 11.5 –5.8 –20.5
2.7 –0.5 1.3 7.0 6.4
Memorandum
Exceptional financing 10.2 3.9 –10.8 7.7 25.7 19.8
13.5 –39.2 4.3 4.3
1For definitions, see footnotes to Table 32.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
232
Table 34. Other Emerging Market and Developing
Countries—by Analytical Criteria:
Balance of Payments and External Financing1
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
By source of export earnings
Fuel
Balance of payments
Balance on current account –36.4 37.0 148.8 84.3 63.8
109.2 188.8 347.4 423.7 423.8
Balance on capital account 0.3 1.1 13.6 –6.1 –10.6 0.5
0.2 –12.3 –6.9 –7.1
Balance on financial account 49.9 –7.6 –139.4 –43.4
–13.6 –100.6 –184.6 –313.1 –401.6 –411.2
Change in reserves (– = increase) 28.8 –0.8 –67.6
–28.3 –16.1 –70.1 –121.5 –207.8 –197.0 –199.9
Other official flows, net 12.1 16.3 –29.8 –14.0 –8.6
–42.9 –69.3 –110.2 –151.5 –150.8
Private flows, net 9.7 –23.2 –42.9 –1.3 10.7 12.9 5.4
4.9 –52.8 –60.6
External financing
Net external financing 54.7 12.4 34.2 3.3 14.3 46.2
75.8 73.0 82.0 77.6
Non-debt-creating inflows 18.2 13.6 23.6 10.5 6.9 27.2
41.5 37.3 47.5 50.3
Net external borrowing 36.6 –1.2 10.6 –7.2 7.4 19.1
34.3 35.7 34.5 27.3
From official creditors 5.4 1.0 –1.5 –3.2 –7.8 –0.1
–3.9 –18.6 –0.6 –0.9
of which, credit and loans from IMF 4.7 –4.1 –3.5 –4.1
–1.8 –2.4 –1.8 –4.3 . . . . . .
From banks –3.0 2.5 –0.8 0.1 –2.3 –1.4 –0.1 –3.1 –1.5
–3.3
From other private creditors 34.1 –4.7 13.0 –4.1 17.4
20.5 38.3 57.4 36.7 31.5
Memorandum
Exceptional financing 14.8 12.7 4.6 2.2 2.6 3.3 2.7
–4.2 0.9 0.5
Nonfuel
Balance of payments
Balance on current account –76.7 –50.0 –57.7 –40.0
20.7 39.4 31.1 75.9 63.1 49.5
Balance on capital account 6.1 8.5 9.1 10.2 12.1 10.3
17.5 28.3 30.2 29.2
Balance on financial account 97.7 66.6 78.6 40.5 –14.8
–64.3 –78.8 –66.1 –78.2 –66.7
Change in reserves (– = increase) –24.4 –43.6 –16.7
–71.4 –135.0 –209.7 –313.0 –317.6 –336.3 –307.7
Other official flows, net 38.8 28.1 –8.1 25.7 21.8
–4.2 1.9 –13.3 8.5 7.0
Private flows, net 83.3 82.1 103.4 86.1 98.4 149.6
232.3 264.8 249.5 233.9
External financing
Net external financing 230.7 235.3 213.7 185.3 180.7
234.9 373.7 439.1 436.5 411.9
Non-debt-creating inflows 167.3 175.2 177.3 167.9
158.3 157.2 232.6 259.4 263.9 264.8
Net external borrowing 63.4 60.2 36.4 17.4 22.4 77.7
141.2 179.7 172.5 147.2
From official creditors 39.3 29.5 –9.0 24.8 19.3 1.7
6.0 –9.0 11.4 11.4
of which, credit and loans from IMF 9.3 1.7 –7.4 23.1
15.2 4.1 –12.7 –35.6 . . . . . .
From banks 11.5 –14.6 –10.0 –13.4 –11.4 10.6 34.8 39.8
44.9 34.2
From other private creditors 12.7 45.2 55.5 5.9 14.5
65.4 100.4 148.9 116.3 101.6
Memorandum
Exceptional financing 27.2 15.7 5.1 28.1 56.1 31.8
17.7 –32.1 9.2 10.6
By external financing source
Net debtor countries
Balance of payments
Balance on current account –129.0 –85.0 –76.4 –65.0
–32.7 –26.1 –57.4 –88.8 –103.3 –120.1
Balance on capital account 6.7 9.2 9.4 10.5 12.6 10.6
19.3 27.8 30.0 28.7
Balance on financial account 127.4 86.5 87.4 61.4 43.1
23.2 34.1 86.9 86.7 101.6
Change in reserves (– = increase) –13.0 –28.5 –14.0
–23.5 –52.6 –81.3 –94.5 –113.0 –120.2 –99.9
Other official flows, net 37.7 24.8 –2.7 25.4 21.1 3.3
–13.7 –40.9 –10.0 –4.1
Private flows, net 102.7 90.2 104.1 59.4 74.5 101.3
142.3 240.8 216.9 205.5
External financing
Net external financing 213.4 196.5 152.6 140.7 121.2
160.1 237.5 300.6 301.5 297.8
Non-debt-creating inflows 119.4 137.4 119.1 130.0
109.2 105.3 163.6 208.5 208.7 207.6
Net external borrowing 94.1 59.1 33.4 10.7 12.0 54.8
73.9 92.2 92.8 90.2
From official creditors 38.2 26.2 –3.6 24.6 18.6 5.2
–12.6 –36.6 –7.2 0.3
of which, credit and loans from IMF 8.8 1.4 –6.9 23.3
15.5 4.3 –12.0 –35.1 . . . . . .
From banks 6.3 –13.0 –3.7 –14.8 –13.5 3.9 13.1 14.7
25.5 21.6
From other private creditors 49.5 45.9 40.7 0.9 6.8
45.6 73.3 114.0 74.4 68.3
Memorandum
Exceptional financing 32.9 20.6 7.1 30.5 59.1 34.5
20.0 –36.4 10.1 11.1
233
BALANCE OF PAYMENTS AND EXTERNAL FINANCING: BY
ANALYTICAL CRITERIA
Table 34 (continued)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Official financing
Balance of payments
Balance on current account –32.9 –17.7 –11.6 –6.9 9.2
9.6 –4.6 –11.5 –17.3 –21.9
Balance on capital account 4.6 5.8 5.6 6.9 5.7 4.5 5.8
5.1 4.9 5.2
Balance on financial account 27.2 13.4 10.0 2.1 –1.5
1.9 3.3 14.9 12.4 17.3
Change in reserves (– = increase) –6.1 –6.7 4.6 7.4
3.2 –12.9 –13.3 –16.2 –13.5 –17.8
Other official flows, net 12.6 20.6 4.2 13.9 17.6 15.0
2.5 2.3 –7.1 1.1
Private flows, net 20.7 –0.5 1.3 –19.3 –22.3 –0.2 14.2
28.8 33.0 33.9
External financing
Net external financing 44.5 39.0 19.3 9.1 10.3 27.0
30.9 45.1 33.2 44.2
Non-debt-creating inflows 19.1 17.1 9.0 12.7 14.0 13.3
20.1 25.7 28.0 27.6
Net external borrowing 25.4 21.9 10.3 –3.6 –3.7 13.6
10.8 19.4 5.2 16.6
From official creditors 12.4 21.2 4.6 15.6 16.0 15.6
3.6 3.9 –6.8 2.8
of which, credit and loans from IMF 5.4 0.8 1.7 8.2 —
0.5 –3.3 –4.8 . . . . . .
From banks 1.0 0.9 1.1 –3.9 –5.7 –1.3 1.5 –0.2 3.3 4.0
From other private creditors 12.0 –0.2 4.6 –15.2 –14.0
–0.6 5.7 15.8 8.7 9.8
Memorandum
Exceptional financing 16.9 9.9 8.6 7.9 34.6 25.2 22.0
–6.9 10.6 10.9
Net debtor countries by debt-servicing experience
Countries with arrears and/or rescheduling
during 1999–2003
Balance of payments
Balance on current account –35.2 –22.3 –1.7 –6.0 2.4
5.6 –2.2 –0.9 3.5 4.1
Balance on capital account 3.9 6.7 4.9 4.5 5.5 2.6 3.6
5.4 5.0 5.5
Balance on financial account 31.6 19.2 5.5 5.1 9.7 7.0
–0.3 2.0 –9.1 –9.7
Change in reserves (– = increase) –5.5 –4.9 –3.0 5.3
3.5 –8.6 –23.8 –32.3 –32.4 –46.0
Other official flows, net 13.8 21.1 4.2 11.9 12.9 13.0
1.5 –7.5 –7.0 1.4
Private flows, net 23.2 3.1 4.3 –12.1 –6.7 2.6 22.0
41.8 30.3 34.8
External financing
Net external financing 51.9 47.5 22.5 11.9 21.5 26.2
32.6 44.3 36.8 45.5
Non-debt-creating inflows 22.6 20.9 15.8 17.8 21.4
22.8 31.4 36.6 39.7 40.7
Net external borrowing 29.3 26.5 6.7 –5.9 0.1 3.4 1.2
7.7 –2.9 4.8
From official creditors 13.9 21.1 4.3 11.9 13.0 13.0
1.5 –7.5 –6.9 1.5
of which, credit and loans from IMF 5.3 1.1 1.9 8.1
–1.5 –0.2 –3.4 –5.4 . . . . . .
From banks –1.2 — –0.2 –4.2 –5.1 –1.9 1.2 –0.8 4.3 3.5
From other private creditors 16.7 5.5 2.6 –13.7 –7.8
–7.8 –1.5 16.0 –0.2 –0.1
Memorandum
Exceptional financing 23.3 16.2 12.1 12.4 40.1 27.8
27.0 –8.9 12.5 12.5
Other groups
Heavily indebted poor countries
Balance of payments
Balance on current account –7.8 –9.2 –7.1 –7.2 –8.7
–7.3 –7.6 –8.2 –8.6 –8.9
Balance on capital account 4.3 5.1 3.6 4.3 3.3 3.5 5.0
4.3 4.0 4.4
Balance on financial account 4.3 3.5 2.7 3.1 6.2 4.0
0.9 4.1 6.2 5.5
Change in reserves (– = increase) 0.5 –0.3 –0.4 –0.3
–2.1 –2.4 –2.9 –2.0 –0.6 –1.8
Other official flows, net 1.9 1.7 1.5 –0.3 4.1 4.4 2.7
–0.1 3.2 3.8
Private flows, net 2.0 2.1 1.7 3.7 4.2 1.9 1.1 6.2 3.6
3.5
External financing
Net external financing 8.8 9.2 6.8 7.6 11.3 10.4 8.7
10.4 10.6 11.9
Non-debt-creating inflows 6.5 8.5 6.5 7.2 7.5 7.7 9.4
8.8 8.8 9.4
Net external borrowing 2.3 0.6 0.4 0.4 3.8 2.7 –0.7
1.6 1.8 2.6
From official creditors 1.9 1.7 1.6 –0.2 4.1 4.4 2.7 —
3.3 3.9
of which, credit and loans from IMF 0.2 0.3 0.2 — 0.2
–0.2 –0.1 –0.2 . . . . . .
From banks –0.1 — –0.5 0.2 0.4 0.3 0.8 0.6 0.3 0.2
From other private creditors 0.5 –1.1 –0.7 0.5 –0.7
–2.0 –4.2 1.0 –1.8 –1.5
Memorandum
Exceptional financing 2.1 2.8 2.7 2.8 13.6 3.5 4.9 4.3
2.6 2.3
STATISTICAL APPENDIX
234
Table 34 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Middle East and north Africa
Balance of payments
Balance on current account –29.2 10.6 75.8 45.5 33.1
67.1 113.1 214.1 259.8 253.3
Balance on capital account –0.4 1.1 1.9 1.9 1.4 0.3
–1.0 2.6 2.5 2.6
Balance on financial account 37.3 16.7 –62.0 –25.8
–0.6 –71.2 –106.4 –204.8 –246.2 –250.0
Change in reserves (– = increase) 11.2 –1.2 –37.8
–22.9 –6.7 –42.5 –59.9 –126.0 –92.1 –95.2
Other official flows, net 10.4 19.7 –26.9 –14.2 –0.9
–42.4 –65.2 –91.2 –150.9 –150.9
Private flows, net 15.6 –1.8 2.8 11.3 7.0 13.7 18.7
12.3 –3.2 –3.9
External financing
Net external financing 33.2 9.7 35.3 9.6 21.8 18.7
53.0 51.3 47.7 36.4
Non-debt-creating inflows 9.1 8.3 4.2 11.8 10.0 13.2
19.5 27.5 37.0 36.1
Net external borrowing 24.2 1.4 31.1 –2.2 11.8 5.5
33.5 23.7 10.7 0.3
From official creditors 4.4 4.9 0.4 –3.4 –1.1 0.2 –0.6
0.4 — –1.0
of which, credit and loans from IMF –0.1 — –0.3 –0.2
–0.3 –0.6 –0.1 –0.8 . . . . . .
From banks 2.4 2.5 0.2 0.5 0.4 0.8 4.8 5.2 2.9 0.5
From other private creditors 17.3 –6.0 30.5 0.7 12.5
4.6 29.4 18.1 7.8 0.8
Memorandum
Exceptional financing 2.8 2.3 1.8 1.4 1.5 3.2 1.0 1.1
1.0 0.6
1For definitions, see footnotes to Table 32.
235
EXTERNAL FINANCING: RESERVES
Table 35. Other Emerging Market and Developing
Countries: Reserves1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Billions of U.S. dollars
Other emerging market and
developing countries 700.6 726.7 817.2 913.9 1,092.7
1,418.2 1,871.0 2,396.4 2,929.7 3,437.2
Regional groups
Africa 41.3 42.1 54.3 64.4 72.2 90.5 126.5 168.6 215.0
269.6
Sub-Sahara 27.9 29.3 35.3 35.6 36.2 40.3 62.6 85.9
111.1 144.9
Excluding Nigeria and South Africa 16.2 17.2 19.0 18.8
22.7 26.4 32.2 38.3 44.0 50.7
Central and eastern Europe 89.7 93.7 95.9 97.4 130.9
160.3 183.5 224.5 250.0 262.8
Commonwealth of Independent States2 15.1 16.5 33.2
44.2 58.3 92.8 149.0 224.2 312.2 389.0
Russia 8.5 9.1 24.8 33.1 44.6 73.8 121.5 186.4 266.2
338.9
Excluding Russia 6.6 7.4 8.4 11.0 13.7 19.0 27.6 37.8
46.0 50.2
Developing Asia 274.6 307.7 321.9 380.5 497.1 670.4
934.4 1163.4 1417.1 1672.1
China 149.8 158.3 168.9 216.3 292.0 409.2 615.5 824.0
1044.0 1264.0
India 27.9 33.2 38.4 46.4 68.2 99.5 127.2 136.7 142.8
149.5
Excluding China and India 96.8 116.2 114.6 117.8 136.9
161.8 191.7 202.7 230.3 258.6
Middle East 126.5 123.2 155.8 168.1 172.9 207.9 256.1
362.6 433.1 506.7
Western Hemisphere 153.4 143.4 156.1 159.2 161.3 196.2
221.4 253.0 302.3 336.9
Brazil 34.4 23.9 31.5 35.8 37.7 49.1 52.8 53.6 77.3
86.2
Mexico 31.8 31.8 35.5 44.8 50.6 59.0 64.1 71.3 77.4
84.7
Analytical groups
By source of export earnings
Fuel 139.2 135.4 200.1 225.0 239.3 315.8 437.8 645.5
842.5 1042.4
Nonfuel 561.3 591.3 617.0 688.9 853.4 1,102.5 1,433.2
1,750.9 2,087.2 2,394.8
of which, primary products 27.4 26.3 27.0 26.5 28.9
30.6 33.1 35.5 46.0 53.4
By external financing source
Net debtor countries 404.3 420.9 444.4 468.9 548.5
666.5 777.3 890.2 1010.4 1110.3
of which, official financing 85.6 94.0 94.3 87.1 95.2
118.9 130.7 146.9 160.4 178.2
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 84.7 92.6 100.5 93.7
99.1 115.2 137.5 169.7 202.2 248.2
Other groups
Heavily indebted poor countries 8.4 9.3 9.9 10.7 13.2
15.9 18.9 20.9 21.5 23.3
Middle East and north Africa 140.3 136.5 175.3 197.4
209.7 259.6 322.0 447.9 540.0 635.2
STATISTICAL APPENDIX
236
Table 35 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Ratio of reserves to imports of goods and services3
Other emerging market and
developing countries 45.8 48.4 46.7 51.4 57.3 62.0
64.1 68.8 72.8 76.2
Regional groups
Africa 30.8 31.2 39.2 45.5 47.1 48.4 53.9 60.7 68.8
79.3
Sub-Sahara 27.2 28.6 33.6 33.2 31.4 28.1 34.9 39.5
45.9 55.3
Excluding Nigeria and South Africa 28.3 30.1 33.3 31.0
35.6 34.7 34.4 33.4 33.8 35.6
Central and eastern Europe 35.4 38.3 34.3 34.9 41.7
39.8 35.2 37.1 37.5 36.0
Commonwealth of Independent States2 12.3 17.6 30.5
34.5 41.1 52.9 65.9 81.0 98.9 111.9
Russia 11.5 17.2 40.6 44.6 52.9 71.5 92.7 112.7 142.1
162.2
Excluding Russia 13.5 18.2 17.5 20.6 23.8 26.3 29.0
34.0 35.8 36.2
Developing Asia 56.8 59.6 50.0 59.1 68.9 74.6 78.8
81.3 83.2 85.0
China 91.6 83.3 67.4 79.7 89.0 91.1 101.5 115.2 118.0
118.8
India 47.0 52.9 52.6 65.0 90.0 107.1 95.8 69.6 58.1
52.4
Excluding China and India 37.2 44.1 35.8 39.1 43.0
45.3 42.9 39.1 40.2 41.9
Middle East 68.1 66.6 75.9 77.9 72.8 76.9 79.4 94.9
97.4 102.2
Western Hemisphere 43.8 43.8 41.8 43.0 47.7 55.6 51.9
49.6 51.9 53.5
Brazil 45.4 37.6 43.5 49.2 61.1 77.2 65.9 54.8 68.3
68.6
Mexico 33.4 30.3 27.6 35.2 40.1 45.8 43.5 42.7 41.4
41.2
Analytical groups
By source of export earnings
Fuel 47.8 50.4 66.7 67.9 65.2 73.9 83.5 100.5 111.8
124.4
Nonfuel 45.3 47.9 42.5 47.6 55.4 59.3 59.9 61.7 63.8
65.2
of which, primary products 52.0 55.3 54.9 54.0 56.9
53.1 46.2 41.9 49.0 54.2
By external financing source
Net debtor countries 39.9 42.8 39.6 42.2 47.7 49.6
45.8 43.7 43.9 44.2
of which, official financing 37.8 46.3 41.6 39.9 45.3
49.7 42.6 40.1 38.8 40.1
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 37.4 43.6 42.0 39.4 41.1
41.7 39.3 39.6 41.6 47.0
Other groups
Heavily indebted poor countries 25.1 27.0 28.7 29.4
33.2 35.8 35.0 33.7 31.3 32.3
Middle East and north Africa 63.9 62.0 72.5 77.7 75.1
81.4 83.8 99.1 102.5 108.2
1In this table, official holdings of gold are valued
at SDR 35 an ounce. This convention results in a
marked underestimate of reserves for countries that
have substantial gold
holdings.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
3Reserves at year-end in percent of imports of goods
and services for the year indicated.
237
Table 36. Net Credit and Loans from IMF1
(Billions of U.S. dollars)
1997 1998 1999 2000 2001 2002 2003 2004 2005
Advanced economies 11.3 5.2 –10.3 — –5.7 — — — —
Newly industrialized Asian economies 11.3 5.2 –10.3 —
–5.7 — — — —
Other emerging market and developing countries 3.3
14.0 –2.4 –10.9 19.0 13.4 1.7 –14.5 –39.9
Regional groups
Africa –0.5 –0.4 –0.2 –0.2 –0.4 –0.1 –0.8 –0.7 –1.0
Sub-Sahara –0.5 –0.3 –0.1 — –0.2 0.2 –0.4 –0.3 –0.4
Excluding Nigeria and South Africa –0.1 0.1 –0.1 —
–0.2 0.2 –0.4 –0.3 –0.4
Central and eastern Europe 0.4 –0.5 0.5 3.3 9.9 6.1 —
–3.8 –5.9
Commonwealth of Independent States2 2.1 5.8 –3.6 –4.1
–4.0 –1.8 –2.3 –2.1 –3.8
Russia 1.5 5.3 –3.6 –2.9 –3.8 –1.5 –1.9 –1.7 –3.4
Excluding Russia 0.5 0.5 — –1.2 –0.2 –0.3 –0.4 –0.5
–0.4
Developing Asia 5.0 6.6 1.7 0.9 –2.2 –2.7 –0.6 –1.9
–1.6
China — — — — — — — — —
India –0.7 –0.4 –0.3 –0.1 — — — — —
Excluding China and India 5.7 7.0 2.1 0.9 –2.2 –2.7
–0.6 –1.9 –1.6
Middle East 0.2 0.1 0.1 –0.1 0.1 — –0.1 0.3 –0.1
Western Hemisphere –4.0 2.5 –0.9 –10.7 15.6 11.9 5.6
–6.3 –27.6
Brazil — 4.6 4.1 –6.7 6.7 11.2 5.2 –4.4 –23.8
Mexico –3.4 –1.1 –3.7 –4.3 — — — — —
Analytical groups
By source of export earnings
Fuel 1.4 4.7 –4.1 –3.5 –4.1 –1.8 –2.4 –1.8 –4.3
Nonfuel 1.9 9.3 1.7 –7.4 23.1 15.2 4.1 –12.7 –35.6
of which, primary products –0.1 0.2 –0.1 –0.2 –0.2 0.1
–0.3 –0.3 –0.3
By external financing source
Net debtor countries 1.3 8.8 1.4 –6.9 23.3 15.5 4.3
–12.0 –35.1
of which, official financing 2.6 5.4 0.8 1.7 8.2 — 0.5
–3.3 –4.8
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 3.1 5.3 1.1 1.9 8.1 –1.5
–0.2 –3.4 –5.4
Other groups
Heavily indebted poor countries — 0.2 0.3 0.1 — 0.2
–0.2 –0.1 –0.2
Middle East and north Africa 0.3 –0.1 — –0.3 –0.2 –0.3
–0.6 –0.1 –0.8
Memorandum
Total
Net credit provided under:
General Resources Account 14.355 18.811 –12.856
–10.741 13.213 12.832 1.741 –14.276 –39.737
PRGF 0.179 0.374 0.194 –0.148 0.106 0.567 0.009 –0.179
–0.170
Disbursements at year-end under3
General Resources Account 62.301 84.541 69.504 55.368
66.448 85.357 95.323 84.992 39.913
PRGF 8.037 8.775 8.749 8.159 7.974 9.222 10.108 10.421
9.516
1Includes net disbursements from programs under the
General Resources Account and Poverty Reduction and
Growth Facility (formerly ESAF-Enhanced Structural
Adjustment
Facility). The data are on a transactions basis, with
conversion to U.S. dollar values at annual average
exchange rates.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
3Data refer to disbursements at year-end correspond to
the stock of outstanding credit, converted to U.S.
dollar values at end-of-period exchange rates.
EXTERNAL FINANCING: IMF CREDIT
STATISTICAL APPENDIX
238
Table 37. Summary of External Debt and Debt Service
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Billions of U.S. dollars
External debt
Other emerging market and
developing countries 2,550.5 2,597.0 2,523.6 2,519.5
2,612.6 2,852.5 3,083.9 3,224.3 3,410.1 3,575.2
Regional groups
Africa 282.7 281.3 269.9 258.5 271.1 294.6 305.8 282.1
265.4 265.3
Central and eastern Europe 269.8 286.7 309.9 316.0
368.2 460.5 553.8 604.6 656.5 706.2
Commonwealth of Independent States1 222.8 219.0 199.2
194.4 199.8 239.9 281.0 331.4 374.7 419.4
Developing Asia 695.0 693.1 656.5 661.2 665.2 697.7
751.0 828.0 909.6 967.5
Middle East 290.9 302.5 304.6 306.4 313.1 324.9 347.4
370.0 381.7 386.6
Western Hemisphere 789.4 814.5 783.4 782.9 795.3 834.7
844.7 808.4 822.3 830.4
Analytical groups
By external financing source
Net debtor countries 1,966.8 2,013.7 1,975.8 1,958.2
2,048.4 2,221.5 2,365.3 2,375.9 2,449.8 2,531.5
of which, official financing 587.3 594.9 583.2 578.8
599.9 651.4 680.6 663.4 676.9 693.8
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 710.0 720.8 705.5 697.5
713.9 743.4 767.3 727.0 717.0 719.1
Debt-service payments2
Other emerging market and
developing countries 377.8 408.6 462.4 443.1 427.3
488.1 488.3 581.1 540.1 564.1
Regional groups
Africa 25.5 25.3 26.3 26.2 21.3 25.6 28.4 34.6 25.0
26.1
Central and eastern Europe 55.0 58.0 64.2 74.1 77.2
96.4 104.2 123.0 138.5 145.6
Commonwealth of Independent States1 29.7 27.0 60.6
38.8 46.7 63.2 72.3 72.6 60.9 67.7
Developing Asia 99.4 94.0 97.6 105.3 115.1 113.6 98.4
107.6 119.1 127.0
Middle East 23.9 24.0 24.2 26.7 18.3 25.8 28.8 41.0
44.1 46.1
Western Hemisphere 144.3 180.3 189.3 172.0 148.6 163.6
156.2 202.3 152.6 151.4
Analytical groups
By external financing source
Net debtor countries 291.5 324.2 346.0 344.1 327.9
364.3 351.0 422.6 388.8 397.6
of which, official financing 82.0 77.1 87.7 94.7 76.6
81.9 69.3 88.4 73.6 63.4
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 80.7 75.4 86.8 94.9 72.4
80.6 73.1 97.7 78.0 69.6
239
EXTERNAL DEBT: SUMMARY
Table 37 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Percent of exports of goods and services
External debt3
Other emerging market and
developing countries 174.2 167.7 132.8 134.5 128.6
115.8 97.3 82.1 75.4 71.6
Regional groups
Africa 236.3 219.7 171.4 172.5 175.6 151.7 123.5 91.2
74.2 68.1
Central and eastern Europe 118.6 134.1 127.7 121.6
127.6 125.2 116.7 109.3 108.4 106.2
Commonwealth of Independent States1 175.2 177.2 120.9
117.2 111.9 107.1 93.0 86.1 84.3 89.1
Developing Asia 129.1 119.7 94.2 95.8 84.6 73.2 60.6
54.2 50.5 46.3
Middle East 183.3 149.8 108.4 116.8 112.4 95.1 79.8
63.4 56.3 53.7
Western Hemisphere 269.4 269.0 218.8 226.5 229.9 218.4
179.9 142.3 129.6 125.2
Analytical groups
By external financing source
Net debtor countries 220.1 219.9 185.3 185.1 183.4
169.5 143.6 121.1 111.0 105.4
of which, official financing 305.4 312.4 265.6 274.0
277.3 268.5 228.3 191.5 176.1 169.6
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 360.7 349.8 274.8 284.8
281.4 256.8 212.6 166.3 143.6 132.4
Debt-service payments
Other emerging market and
developing countries 25.8 26.4 24.3 23.6 21.0 19.8
15.4 14.8 11.9 11.3
Regional groups
Africa 21.3 19.8 16.7 17.5 13.8 13.2 11.5 11.2 7.0 6.7
Central and eastern Europe 24.2 27.1 26.5 28.5 26.8
26.2 22.0 22.2 22.9 21.9
Commonwealth of Independent States1 23.3 21.9 36.8
23.4 26.2 28.2 23.9 18.9 13.7 14.4
Developing Asia 18.5 16.2 14.0 15.3 14.6 11.9 7.9 7.0
6.6 6.1
Middle East 15.0 11.9 8.6 10.2 6.6 7.6 6.6 7.0 6.5 6.4
Western Hemisphere 49.2 59.5 52.9 49.8 42.9 42.8 33.3
35.6 24.1 22.8
Analytical groups
By external financing source
Net debtor countries 32.6 35.4 32.5 32.5 29.4 27.8
21.3 21.5 17.6 16.6
of which, official financing 42.6 40.5 40.0 44.8 35.4
33.8 23.2 25.5 19.2 15.5
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 41.0 36.6 33.8 38.7 28.5
27.9 20.2 22.4 15.6 12.8
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
2Debt-service payments refer to actual payments of
interest on total debt plus actual amortization
payments on long-term debt. The projections
incorporate the impact of
exceptional financing items.
3Total debt at year-end in percent of exports of goods
and services in year indicated.
STATISTICAL APPENDIX
240
Table 38. Other Emerging Market and Developing
Countries—by Region: External Debt, by Maturity and
Type of Creditor
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other emerging market and
developing countries
Total debt 2,550.5 2,597.0 2,523.6 2,519.5 2,612.6
2,852.5 3,083.9 3,224.3 3,410.1 3,575.2
By maturity
Short-term 357.4 332.8 311.9 333.4 323.0 399.7 482.0
564.3 629.3 672.8
Long-term 2,193.0 2,264.2 2,211.7 2,186.1 2,289.6
2,452.7 2,601.9 2,660.0 2,780.8 2,902.4
By type of creditor
Official 1,020.4 1,023.4 987.7 999.0 1,033.7 1,088.3
1,093.4 1,046.0 1,036.4 1,042.6
Banks 718.7 717.3 669.0 644.5 650.2 676.0 757.7 799.8
866.3 944.1
Other private 811.4 856.3 866.9 876.0 928.7 1,088.2
1,232.8 1,378.5 1,507.5 1,588.5
Regional groups
Africa
Total debt 282.7 281.3 269.9 258.5 271.1 294.6 305.8
282.1 265.4 265.3
By maturity
Short-term 34.9 36.3 15.8 13.9 17.5 18.5 20.4 17.2
16.0 14.8
Long-term 247.7 245.0 254.0 244.6 253.6 276.1 285.5
264.9 249.4 250.4
By type of creditor
Official 207.5 204.6 201.4 199.1 213.1 229.6 235.0
211.8 192.4 192.0
Banks 47.7 46.8 41.8 38.7 36.9 41.6 44.1 41.5 42.9
43.7
Other private 27.4 29.9 26.7 20.7 21.1 23.4 26.7 28.7
30.1 29.6
Sub-Sahara
Total debt 220.0 221.4 215.1 208.3 218.9 238.2 251.1
233.8 218.1 219.2
By maturity
Short-term 33.1 34.5 14.0 12.1 15.1 16.2 17.6 13.0
12.7 11.8
Long-term 186.9 186.9 201.1 196.2 203.8 222.1 233.5
220.8 205.5 207.4
By type of creditor
Official 161.0 160.7 160.8 161.6 172.8 185.6 192.2
174.6 156.0 157.1
Banks 36.7 34.7 30.4 27.8 25.9 29.3 32.2 30.5 31.9
32.6
Other private 22.3 26.1 23.9 18.9 20.3 23.4 26.7 28.7
30.1 29.6
Central and eastern Europe
Total debt 269.8 286.7 309.9 316.0 368.2 460.5 553.8
604.6 656.5 706.2
By maturity
Short-term 56.5 60.4 65.9 57.0 63.8 92.6 121.2 135.8
149.6 161.6
Long-term 213.3 226.3 244.1 259.1 304.4 367.9 432.6
468.8 506.9 544.6
By type of creditor
Official 79.5 75.8 77.6 83.1 76.6 74.1 69.4 61.0 58.9
56.2
Banks 101.6 109.6 122.7 108.6 139.7 175.1 211.6 226.7
251.2 272.5
Other private 88.7 101.2 109.7 124.3 151.9 211.3 272.8
316.9 346.3 377.5
Commonwealth of Independent States1
Total debt 222.8 219.0 199.2 194.4 199.8 239.9 281.0
331.4 374.7 419.4
By maturity
Short-term 23.8 14.4 13.9 20.2 19.8 30.9 32.4 35.7
36.6 38.2
Long-term 199.1 204.6 185.3 174.2 179.9 209.0 248.6
295.7 338.0 381.1
By type of creditor
Official 113.9 113.4 105.9 101.0 85.2 86.4 84.9 57.6
54.8 51.6
Banks 49.9 49.8 18.2 22.4 21.2 23.2 29.8 49.0 64.0
102.0
Other private 59.1 55.8 75.1 71.1 93.3 130.3 166.3
224.8 255.8 265.7
241
EXTERNAL DEBT: BY REGION
Table 38 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Developing Asia
Total debt 695.0 693.1 656.5 661.2 665.2 697.7 751.0
828.0 909.6 967.5
By maturity
Short-term 87.7 69.2 57.9 87.6 85.9 111.3 142.9 193.1
234.8 258.0
Long-term 607.3 623.9 598.6 573.6 579.3 586.5 608.1
634.9 674.8 709.5
By type of creditor
Official 289.8 295.8 279.1 273.5 280.3 285.9 300.8
324.3 345.9 359.0
Banks 200.5 195.0 180.1 173.5 167.0 159.4 183.1 205.7
229.9 246.5
Other private 204.7 202.2 197.3 214.1 217.9 252.5
267.1 298.0 333.7 362.0
Middle East
Total debt 290.9 302.5 304.6 306.4 313.1 324.9 347.4
370.0 381.7 386.6
By maturity
Short-term 55.7 57.4 55.3 58.8 58.5 70.1 85.1 97.3
101.2 106.5
Long-term 235.1 245.0 249.3 247.6 254.6 254.8 262.3
272.7 280.5 280.0
By type of creditor
Official 135.3 137.2 137.1 138.0 145.4 149.1 148.8
147.1 145.4 141.9
Banks 86.0 88.8 90.1 90.6 91.7 93.3 104.7 112.6 115.6
115.8
Other private 69.6 76.4 77.4 77.8 76.0 82.5 94.0 110.3
120.7 128.8
Western Hemisphere
Total debt 789.4 814.5 783.4 782.9 795.3 834.7 844.7
808.4 822.3 830.4
By maturity
Short-term 98.9 95.1 103.1 95.9 77.5 76.4 80.0 85.4
91.1 93.7
Long-term 690.4 719.5 680.4 687.0 717.8 758.3 764.7
723.0 731.2 736.7
By type of creditor
Official 194.5 196.5 186.7 204.3 233.1 263.1 254.4
244.2 238.8 241.8
Banks 232.9 227.3 216.0 210.6 193.7 183.4 184.4 164.3
162.6 163.6
Other private 361.9 390.8 380.7 368.0 368.5 388.2
405.8 399.9 420.8 424.9
1Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
STATISTICAL APPENDIX
242
Table 39. Other Emerging Market and Developing
Countries—by Analytical Criteria: External Debt, by
Maturity and Type of Creditor
(Billions of U.S. dollars)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
By source of export earnings
Fuel
Total debt 584.0 587.3 560.3 552.8 560.8 605.5 653.6
700.7 733.8 777.4
By maturity
Short-term 83.7 75.7 53.9 62.0 60.5 78.9 93.1 102.8
106.0 108.5
Long-term 500.4 511.6 506.4 490.8 500.2 526.6 560.5
597.9 627.9 668.9
By type of creditor
Official 287.4 286.7 282.0 279.0 276.3 285.1 284.1
237.9 219.1 214.2
Banks 141.4 142.7 110.8 113.8 111.0 113.8 128.5 152.2
168.7 205.9
Other private 155.3 157.8 167.5 160.0 173.5 206.6
240.9 310.6 346.0 357.3
Nonfuel
Total debt 1,966.4 2,009.7 1,963.3 1,966.6 2,051.9
2,247.0 2,430.3 2,523.6 2,676.3 2,797.8
By maturity
Short-term 273.8 257.1 258.0 271.4 262.5 320.9 388.9
461.5 523.3 564.3
Long-term 1,692.7 1,752.7 1,705.3 1,695.3 1,789.4
1,926.1 2,041.4 2,062.1 2,153.0 2,233.5
By type of creditor
Official 733.0 736.7 705.7 720.0 757.5 803.2 809.2
808.0 817.2 828.3
Banks 577.3 574.6 558.2 530.7 539.2 562.1 629.3 647.7
697.6 738.3
Other private 656.2 698.5 699.4 716.0 755.2 881.6
991.8 1,067.9 1,161.5 1,231.2
Nonfuel primary products
Total debt 97.5 101.8 102.5 105.1 112.8 119.0 123.5
122.3 118.4 116.8
By maturity
Short-term 6.8 5.9 7.9 6.7 7.4 9.6 10.2 9.9 12.4 11.6
Long-term 90.7 96.0 94.7 98.4 105.3 109.4 113.3 112.4
106.0 105.2
By type of creditor
Official 63.3 63.2 61.4 62.4 69.5 73.3 74.8 69.5 63.8
61.6
Banks 21.5 22.6 23.4 23.3 23.1 24.8 23.4 4.2 4.0 3.9
Other private 12.8 16.1 17.8 19.5 20.2 21.0 25.3 48.6
50.6 51.3
By external financing source
Net debtor countries
Total debt 1,966.8 2,013.7 1,975.8 1,958.2 2,048.4
2,221.5 2,365.3 2,375.9 2,449.8 2,531.5
By maturity
Short-term 265.1 255.3 240.9 222.5 208.8 240.0 282.5
302.0 323.5 344.7
Long-term 1,701.7 1,758.3 1,735.0 1,735.7 1,839.5
1,981.5 2,082.8 2,073.9 2,126.3 2,186.8
By type of creditor
Official 809.0 818.5 802.1 819.3 863.0 907.9 897.3
861.6 835.8 835.6
Banks 585.9 578.1 564.0 537.7 545.8 568.9 618.0 613.8
646.1 675.6
Other private 571.8 617.0 609.7 601.1 639.5 744.7
849.9 900.5 967.9 1020.3
Official financing
Total debt 587.3 594.9 583.2 578.8 599.9 651.4 680.6
663.4 676.9 693.8
By maturity
Short-term 69.4 66.4 69.0 65.4 51.8 58.5 68.9 72.9
75.2 79.1
Long-term 518.0 528.5 514.2 513.4 548.1 592.9 611.7
590.4 601.7 614.7
By type of creditor
Official 280.3 290.0 284.7 296.4 321.4 359.5 360.6
358.6 349.9 356.8
Banks 97.9 95.7 89.9 88.6 82.3 82.2 87.7 86.0 89.9
93.6
Other private 209.2 209.2 208.5 193.9 196.2 209.6
232.4 218.8 237.0 243.4
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003
Total debt 710.0 720.8 705.5 697.5 713.9 743.4 767.3
727.0 717.0 719.1
By maturity
Short-term 64.2 62.0 41.8 34.8 26.8 29.6 34.3 30.4
30.1 29.5
Long-term 645.8 658.9 663.7 662.7 687.1 713.8 732.9
696.6 687.0 689.5
By type of creditor
Official 404.3 418.6 415.5 420.8 434.0 456.0 458.0
437.7 409.7 409.6
Banks 139.3 138.5 131.3 134.1 128.3 127.6 132.4 126.9
132.1 135.3
Other private 166.5 163.7 158.7 142.6 151.5 159.8
176.9 162.5 175.2 174.1
243
EXTERNAL DEBT: BY ANALYTICAL CRITERIA
Table 39 (concluded)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other groups
Heavily indebted poor countries
Total debt 106.6 106.3 104.8 104.5 109.0 115.0 116.3
111.4 107.6 108.0
By maturity
Short-term 2.8 2.9 3.0 2.8 2.9 2.8 2.9 2.8 2.8 2.9
Long-term 103.8 103.4 101.8 101.6 106.0 112.2 113.4
108.6 104.8 105.1
By type of creditor
Official 101.2 99.9 98.7 96.4 102.7 108.6 109.2 107.4
103.6 103.9
Banks 4.2 4.3 3.5 6.5 5.1 5.3 5.5 2.4 2.3 2.3
Other private 1.2 2.1 2.6 1.5 1.1 1.0 1.5 1.6 1.7 1.9
Middle East and north Africa
Total debt 378.2 387.4 381.7 379.9 391.0 409.4 430.6
447.8 460.4 466.0
By maturity
Short-term 57.7 59.2 57.1 60.7 60.8 72.4 87.9 101.4
104.5 109.5
Long-term 320.5 328.2 324.5 319.2 330.2 337.0 342.7
346.3 355.9 356.4
By type of creditor
Official 201.0 200.9 196.6 195.2 207.6 217.1 215.8
209.6 208.6 205.4
Banks 101.3 105.0 104.1 104.3 105.6 109.1 120.0 127.0
130.1 130.7
Other private 75.9 81.5 80.9 80.4 77.7 83.2 94.7 111.3
121.7 129.9
STATISTICAL APPENDIX
244
Table 40. Other Emerging Market and Developing
Countries: Ratio of External Debt to GDP1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Other emerging market and
developing countries 43.0 44.7 39.8 39.1 39.5 38.1
34.9 30.9 28.8 27.5
Regional groups
Africa 65.5 64.9 60.5 58.3 57.7 51.6 44.3 35.2 29.9
27.6
Sub-Sahara 67.2 67.3 63.6 62.3 61.6 54.9 47.7 37.8
31.9 29.6
Central and eastern Europe 42.7 47.6 50.3 52.8 53.1
53.9 53.4 49.8 49.6 49.1
Commonwealth of Independent States2 58.2 75.2 56.0
47.0 43.2 42.0 36.4 33.3 32.1 30.9
Developing Asia 35.2 32.3 28.4 27.2 25.1 23.2 21.6
20.9 20.5 19.7
Middle East 57.1 54.1 48.1 47.5 48.3 44.8 41.5 36.1
32.3 29.8
Western Hemisphere 39.3 45.7 39.7 40.9 47.0 47.5 41.9
33.3 29.1 27.2
Analytical groups
By source of export earnings
Fuel 64.5 66.7 53.2 48.9 48.4 44.7 38.3 32.5 29.1 27.5
Nonfuel 39.1 40.7 37.2 37.0 37.6 36.6 34.1 30.5 28.7
27.5
of which, primary products 58.9 64.2 66.7 69.6 66.3
71.2 63.0 53.8 49.5 46.5
By external financing source
Net debtor countries 49.5 52.8 48.6 49.2 51.4 49.6
45.8 39.2 35.9 34.1
of which, official financing 67.9 67.0 64.7 65.5 78.9
75.6 69.9 59.6 54.6 51.1
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 90.7 88.2 82.5 80.9 92.4
84.9 77.6 63.4 55.4 50.5
Other groups
Heavily indebted poor countries 103.0 102.8 104.3
101.2 99.9 92.5 82.2 69.7 62.6 58.5
Middle East and north Africa 60.4 57.3 50.6 49.4 50.1
46.5 42.1 36.2 32.3 29.8
1Debt at year-end in percent of GDP in year indicated.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
245
Table 41. Other Emerging Market and Developing
Countries: Debt-Service Ratios1
(Percent of exports of goods and services)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Interest payments2
Other emerging market and
developing countries 9.5 8.8 7.5 7.5 6.2 5.7 4.6 4.4
4.1 4.0
Regional groups
Africa 8.1 7.6 5.9 6.2 4.2 4.0 3.4 3.0 2.2 2.2
Sub-Sahara 6.8 6.6 5.3 5.8 3.5 3.7 3.2 3.0 2.1 2.2
Central and eastern Europe 10.2 10.2 9.8 9.9 9.0 8.5
7.3 7.1 7.0 6.8
Commonwealth of Independent States3 13.3 10.3 8.2 7.5
7.5 11.2 7.9 9.2 7.9 8.1
Developing Asia 6.2 5.5 4.7 4.6 3.7 3.0 2.4 2.3 2.3
2.2
Middle East 3.9 3.2 2.5 2.3 1.9 1.6 1.2 1.3 1.4 1.4
Western Hemisphere 17.1 17.7 15.8 16.1 13.2 11.2 9.2
8.3 8.0 7.8
Analytical groups
By source of export earnings
Fuel 9.7 7.1 5.1 5.3 4.5 5.8 4.2 4.4 3.9 4.0
Nonfuel 9.5 9.2 8.4 8.2 6.7 5.7 4.7 4.4 4.2 4.0
of which, primary products 4.9 5.1 7.0 6.1 4.6 3.8 3.0
2.6 2.3 2.1
By external financing source
Net debtor countries 11.6 11.3 10.3 10.3 8.4 7.4 6.1
5.7 5.4 5.2
of which, official financing 14.1 13.6 13.3 13.2 9.2
7.3 6.0 5.7 5.2 5.1
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 13.7 12.6 11.4 11.9 7.3
6.0 4.9 4.7 4.0 3.8
Other groups
Heavily indebted poor countries 7.4 6.6 7.7 6.5 4.5
4.3 4.7 3.9 3.0 3.1
Middle East and north Africa 5.2 4.2 3.1 2.9 2.5 2.0
1.6 1.5 1.5 1.5
Amortization2
Other emerging market and
developing countries 16.3 17.6 16.8 16.1 14.8 14.1
10.8 10.4 7.8 7.3
Regional groups
Africa 13.2 12.2 10.8 11.3 9.6 9.2 8.1 8.2 4.7 4.5
Sub-Sahara 10.7 9.6 8.9 10.2 7.5 7.4 6.2 7.3 3.8 3.6
Central and eastern Europe 14.0 17.0 16.7 18.6 17.8
17.7 14.6 15.2 15.9 15.1
Commonwealth of Independent States3 10.0 11.6 28.6
15.9 18.7 17.0 16.1 9.7 5.8 6.3
Developing Asia 12.3 10.8 9.3 10.6 11.0 8.9 5.6 4.7
4.3 3.9
Middle East 11.1 8.7 6.2 7.9 4.7 5.9 5.4 5.7 5.1 5.0
Western Hemisphere 32.2 41.8 37.1 33.7 29.8 31.6 24.1
27.3 16.1 15.0
Analytical groups
By source of export earnings
Fuel 13.1 11.4 14.6 11.7 10.7 10.9 10.0 7.7 4.9 5.0
Nonfuel 17.0 19.3 17.6 17.5 16.1 15.0 11.1 11.3 8.9
8.1
of which, primary products 9.9 12.1 14.6 14.8 16.7
14.2 13.1 10.5 9.9 6.6
By external financing source
Net debtor countries 21.0 24.1 22.1 22.2 21.0 20.4
15.2 15.8 12.2 11.4
of which, official financing 28.5 26.9 26.7 31.6 26.2
26.5 17.3 19.8 13.9 10.5
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 27.3 24.0 22.4 26.8 21.2
21.9 15.4 17.6 11.6 9.0
Other groups
Heavily indebted poor countries 15.6 11.8 13.2 14.7
9.7 7.5 6.8 5.8 5.7 5.0
Middle East and north Africa 12.6 10.3 7.4 8.7 6.1 7.0
6.4 6.3 5.4 5.2
1Excludes service payments to the International
Monetary Fund.
2Interest payments on total debt and amortization on
long-term debt. Estimates through 2005 reflect
debt-service payments actually made. The estimates for
2006 and 2007
take into account projected exceptional financing
items, including accumulation of arrears and
rescheduling agreements. In some cases, amortization
on account of debtreduction
operations is included.
3Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
EXTERNAL DEBT: SERVICING
STATISTICAL APPENDIX
246
Table 42. IMF Charges and Repurchases to the IMF1
(Percent of exports of goods and services)
1998 1999 2000 2001 2002 2003 2004 2005
Other emerging market and developing countries 0.6 1.2
1.2 0.7 1.1 1.2 0.7 0.5
Regional groups
Africa 1.1 0.5 0.2 0.3 0.4 0.3 0.2 0.2
Sub-Sahara 0.8 0.2 0.1 0.1 0.2 — 0.1 —
Excluding Nigeria and South Africa 0.5 0.4 0.3 0.3 0.4
0.1 0.1 —
Central and eastern Europe 0.4 0.4 0.3 0.8 2.7 0.8 1.3
1.7
Commonwealth of Independent States2 1.7 4.9 3.2 3.1
1.2 1.1 0.7 0.9
Russia 1.9 5.9 3.1 3.8 1.4 1.3 0.9 1.3
Excluding Russia 1.2 2.9 3.4 1.4 0.7 0.6 0.5 —
Developing Asia 0.2 0.2 0.2 0.6 0.6 0.3 0.2 —
Excluding China and India 0.2 0.3 0.4 1.2 1.4 0.8 0.5
0.1
Middle East — 0.1 0.1 0.1 — — — —
Western Hemisphere 1.1 3.2 4.2 0.6 2.0 5.3 2.6 0.9
Analytical groups
By source of export earnings
Fuel 1.0 1.8 0.9 1.1 0.5 0.5 0.3 0.4
Nonfuel 0.5 1.0 1.3 0.6 1.3 1.4 0.9 0.5
By external financing source
Net debtor countries 0.6 1.3 1.6 0.8 1.8 2.0 1.3 0.7
of which, official financing 0.7 0.9 1.1 1.9 2.2 3.6
2.9 1.4
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003 0.9 1.0 1.0 1.8 1.9 3.0
2.3 1.0
Other groups
Heavily indebted poor countries 0.4 0.2 0.1 0.3 0.9
0.1 — 0.1
Middle East and north Africa 0.4 0.3 0.1 0.1 0.2 0.2
0.1 0.1
Memorandum
Total, billions of U.S. dollars
General Resources Account 8.809 18.531 22.863 13.849
22.352 29.425 23.578 18.983
Charges 2.510 2.829 2.846 2.638 2.806 3.020 3.384
3.216
Repurchases 6.300 15.702 20.017 11.211 19.546 26.405
20.193 17.225
PRGF3 0.881 0.855 0.835 1.042 1.214 1.225 1.432 0.520
Interest 0.040 0.042 0.038 0.038 0.040 0.046 0.050
0.048
Repayments 0.842 0.813 0.798 1.005 1.174 1.179 1.382
0.493
1Excludes advanced economies. Charges on, and
repurchases (or repayments of principal) for, use of
IMF credit.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
3Poverty Reduction and Growth Facility (formerly
ESAF—Enhanced Structural Adjustment Facility).
247
FLOW OF FUNDS: SUMMARY
Table 43. Summary of Sources and Uses of World Saving
(Percent of GDP)
______A_v_e_r_a_g_e_s______ Average
1984–91 1992–99 2000 2001 2002 2003 2004 2005 2006
2007 2008–11
World
Saving 22.9 22.0 22.3 21.2 20.4 20.7 21.4 22.0 22.5
22.8 23.2
Investment 23.7 22.5 22.4 21.4 20.7 21.0 21.7 22.2
22.8 23.1 23.6
Advanced economies
Saving 22.4 21.6 21.6 20.4 19.1 19.1 19.4 19.4 19.6
19.8 20.2
Investment 22.9 21.8 22.1 20.8 19.8 19.9 20.5 20.9
21.3 21.5 21.9
Net lending –0.5 –0.2 –0.5 –0.4 –0.7 –0.8 –1.0 –1.5
–1.7 –1.7 –1.6
Current transfers –0.4 –0.5 –0.6 –0.5 –0.6 –0.6 –0.6
–0.7 –0.6 –0.6 –0.6
Factor income –0.1 –0.2 0.7 0.6 0.3 0.2 0.2 0.2 0.1 —
–0.2
Resource balance –0.1 0.5 –0.6 –0.5 –0.4 –0.4 –0.6
–1.1 –1.3 –1.1 –0.9
United States
Saving 17.3 16.4 18.0 16.4 14.2 13.4 13.4 13.6 14.1
14.4 15.0
Investment 19.9 19.0 20.8 19.1 18.4 18.5 19.6 20.0
20.6 20.8 21.3
Net lending –2.6 –2.6 –2.7 –2.8 –4.2 –5.0 –6.2 –6.5
–6.5 –6.5 –6.3
Current transfers –0.4 –0.6 –0.6 –0.5 –0.6 –0.6 –0.7
–0.7 –0.4 –0.4 –0.5
Factor income — –0.6 1.7 1.3 0.5 0.1 –0.3 — –0.1 –0.5
–1.0
Resource balance –2.2 –1.5 –3.9 –3.6 –4.0 –4.5 –5.3
–5.8 –5.9 –5.5 –4.9
Euro area
Saving . . . 21.1 21.1 21.2 20.7 20.5 21.2 20.9 21.1
21.5 22.0
Investment . . . 19.8 21.5 21.0 20.0 20.1 20.5 20.9
21.4 21.5 21.9
Net lending . . . 1.3 –0.4 0.1 0.7 0.4 0.7 — –0.3 —
0.1
Current transfers1 –0.5 –0.7 –0.8 –0.8 –0.7 –0.8 –0.8
–0.9 –0.9 –0.9 –0.9
Factor income1 –0.3 –0.4 –0.4 –0.5 –0.8 –0.9 –0.5 –0.6
–0.6 –0.6 –0.5
Resource balance1 1.2 1.6 0.6 1.4 2.3 2.1 2.1 1.5 1.3
1.5 1.5
Germany
Saving 24.0 21.0 20.1 19.5 19.2 19.1 20.9 21.3 21.3
22.1 22.7
Investment 21.2 21.9 21.8 19.5 17.2 17.2 17.2 17.2
17.8 17.8 18.4
Net lending 2.8 –1.0 –1.7 — 2.0 1.9 3.7 4.1 3.6 4.3
4.3
Current transfers –1.6 –1.5 –1.3 –1.3 –1.3 –1.3 –1.3
–1.3 –1.3 –1.3 –1.3
Factor income 0.8 — –0.4 –0.5 –0.8 –0.7 — 0.4 0.1 0.1
0.1
Resource balance 3.5 0.5 0.1 1.8 4.1 3.9 4.9 5.0 4.8
5.5 5.5
France
Saving 20.9 19.9 21.7 21.7 20.0 19.5 19.2 19.2 18.9
18.8 19.0
Investment 21.2 18.5 20.4 20.1 19.0 19.1 19.6 20.6
20.8 20.8 20.7
Net lending –0.3 1.5 1.3 1.6 1.0 0.4 –0.4 –1.3 –1.9
–2.1 –1.7
Current transfers –0.6 –0.7 –1.1 –1.1 –1.0 –1.1 –1.1
–1.0 –1.0 –1.0 –1.0
Factor income –0.3 — 1.2 1.1 0.3 0.4 0.4 0.5 0.5 0.5
0.5
Resource balance 0.6 2.2 1.2 1.6 1.7 1.1 0.2 –0.9 –1.4
–1.6 –1.2
Italy
Saving 21.0 20.2 19.7 20.5 20.3 19.4 19.8 19.4 20.4
20.7 21.6
Investment 22.5 19.2 20.2 20.6 21.1 20.7 20.7 20.9
21.5 21.4 21.6
Net lending –1.6 1.0 –0.5 –0.1 –0.8 –1.3 –0.9 –1.5
–1.1 –0.7 —
Current transfers –0.3 –0.6 –0.4 –0.5 –0.4 –0.5 –0.6
–0.6 –0.6 –0.6 –0.6
Factor income –1.5 –1.6 –1.1 –0.9 –1.2 –1.3 –1.1 –1.0
–0.8 –0.7 –0.4
Resource balance 0.1 3.2 1.0 1.4 0.9 0.6 0.7 — 0.4 0.6
1.0
Japan
Saving 33.0 30.6 27.8 26.9 25.9 26.2 26.4 26.8 26.9
26.9 26.8
Investment 30.3 28.1 25.2 24.8 23.0 23.0 22.7 23.2
23.7 24.0 23.9
Net lending 2.8 2.5 2.6 2.1 2.9 3.2 3.7 3.6 3.2 3.0
3.0
Current transfers –0.1 –0.2 –0.2 –0.2 –0.1 –0.2 –0.2
–0.2 –0.2 –0.2 –0.2
Factor income 0.6 1.1 1.3 1.7 1.7 1.7 1.8 2.3 2.4 2.5
2.5
Resource balance 2.3 1.6 1.5 0.6 1.3 1.7 2.1 1.5 1.0
0.7 0.6
United Kingdom
Saving 17.1 15.6 15.0 15.0 15.2 14.8 14.8 14.2 14.1
14.4 15.0
Investment 19.4 16.9 17.5 17.2 16.7 16.3 16.8 16.8
16.9 17.2 18.0
Net lending –2.3 –1.3 –2.6 –2.2 –1.6 –1.4 –2.0 –2.6
–2.7 –2.8 –2.9
Current transfers –0.7 –0.8 –1.0 –0.7 –0.8 –0.9 –0.9
–1.0 –1.0 –1.0 –1.0
Factor income — 0.3 0.5 1.1 2.3 2.3 2.3 2.3 2.0 2.0
1.9
Resource balance –1.6 –0.8 –2.0 –2.7 –3.0 –2.8 –3.4
–3.9 –3.8 –3.7 –3.8
Canada
Saving 18.9 17.4 23.6 22.2 21.3 21.7 22.9 23.4 24.5
24.7 25.3
Investment 21.3 19.1 20.2 19.2 19.4 20.2 20.7 21.1
21.3 21.8 22.5
Net lending –2.5 –1.7 3.4 3.0 1.8 1.5 2.2 2.2 3.1 2.9
2.7
Current transfers –0.2 — 0.1 0.1 0.1 — — — — — —
Factor income –3.2 –3.6 –2.4 –2.8 –2.6 –2.3 –1.9 –1.7
–1.7 –1.6 –1.5
Resource balance 0.9 1.9 5.7 5.7 4.3 3.8 4.1 3.9 4.8
4.5 4.2
STATISTICAL APPENDIX
248
Table 43 (continued)
______A_v_e_r_a_g_e_s______ Average
1984–91 1992–99 2000 2001 2002 2003 2004 2005 2006
2007 2008–11
Newly industrialized Asian economies
Saving 35.1 33.8 31.9 29.9 29.6 31.4 33.0 31.8 31.7
31.7 31.3
Investment 28.7 31.1 28.4 25.3 24.6 24.5 26.0 25.7
26.0 26.1 25.9
Net lending 6.5 2.7 3.5 4.6 5.1 6.9 7.0 6.1 5.7 5.6
5.4
Current transfers 0.1 –0.2 –0.4 –0.6 –0.7 –0.7 –0.7
–0.8 –0.8 –0.8 –0.7
Factor income 1.0 0.7 0.2 0.8 0.6 0.9 1.1 0.8 0.7 0.6
0.5
Resource balance 5.3 2.2 3.8 4.5 5.1 6.7 6.6 6.1 5.8
5.8 5.5
Other emerging market and
developing countries
Saving 24.6 23.7 24.9 24.2 25.2 27.2 28.6 30.3 30.9
31.0 30.8
Investment 26.0 25.4 23.7 23.8 24.1 25.4 26.4 26.4
27.0 27.5 28.2
Net lending –1.4 –1.7 1.2 0.4 1.1 1.8 2.3 3.9 3.9 3.5
2.6
Current transfers 0.3 0.8 0.9 1.0 1.3 1.6 1.6 1.6 1.5
1.3 1.2
Factor income –1.7 –1.6 –2.1 –2.1 –2.1 –2.1 –2.2 –2.0
–1.7 –1.5 –1.1
Resource balance –0.1 –0.9 2.4 1.5 1.9 2.3 2.9 4.3 4.2
3.7 2.6
Memorandum
Acquisition of foreign assets 0.5 3.5 5.1 3.4 4.0 5.5
7.1 8.4 8.0 6.9 5.7
Change in reserves — 1.1 1.3 1.5 2.3 3.7 4.9 5.0 4.5
3.9 3.1
Regional groups
Africa
Saving 18.6 17.1 21.0 20.1 18.5 20.5 21.7 23.4 24.5
24.8 24.4
Investment 21.2 20.0 19.3 20.0 19.0 20.6 21.6 21.1
22.0 22.4 22.7
Net lending –2.6 –2.9 1.8 0.1 –0.5 –0.1 0.2 2.3 2.5
2.5 1.7
Current transfers 2.0 2.6 2.6 2.9 3.0 3.2 3.3 3.1 2.9
2.7 2.5
Factor income –5.1 –4.2 –5.1 –4.6 –3.8 –4.5 –5.0 –4.7
–5.4 –5.4 –4.4
Resource balance 0.4 –1.2 4.3 1.9 0.2 1.2 1.9 3.9 5.1
5.1 3.6
Memorandum
Acquisition of foreign assets 0.4 1.1 4.8 5.1 2.5 3.2
3.8 5.2 6.1 6.1 5.5
Change in reserves 0.3 0.4 2.9 2.2 1.2 2.0 4.8 5.3 5.2
5.7 5.2
Central and eastern Europe
Saving 27.3 20.2 19.2 19.0 18.6 18.4 18.5 18.8 19.4
20.5 21.6
Investment 27.4 23.3 25.0 22.0 22.5 22.9 24.3 24.0
24.5 25.0 25.7
Net lending –0.1 –3.1 –5.8 –3.0 –3.9 –4.6 –5.8 –5.2
–5.1 –4.5 –4.1
Current transfers 1.4 1.8 1.9 1.9 1.8 1.6 1.6 1.7 1.8
1.8 1.8
Factor income –1.1 –1.9 –1.7 –1.6 –2.0 –2.0 –2.8 –2.6
–2.4 –1.8 –1.8
Resource balance –0.4 –3.1 –6.0 –3.2 –3.6 –4.1 –4.6
–4.3 –4.6 –4.5 –4.1
Memorandum
Acquisition of foreign assets 0.9 2.7 3.5 2.3 3.5 2.4
4.3 5.2 3.8 2.4 2.2
Change in reserves –0.5 1.9 1.1 0.7 2.9 1.5 1.4 3.4
1.9 0.9 0.7
Commonwealth of Independent States2
Saving . . . 24.0 31.9 29.4 26.4 27.2 28.9 29.6 30.3
29.4 27.3
Investment . . . 22.4 17.9 21.1 19.8 20.9 20.8 20.7
20.7 21.3 22.7
Net lending . . . 1.6 14.0 8.3 6.6 6.2 8.1 8.9 9.6 8.1
4.6
Current transfers . . . 0.8 0.7 0.5 0.6 0.6 0.5 0.5
0.4 0.5 0.4
Factor income . . . –1.1 –2.3 –1.4 –1.8 –2.9 –2.3 –2.5
–1.9 –1.5 –0.9
Resource balance . . . 2.0 15.7 9.1 7.9 8.5 9.9 10.9
11.0 9.1 5.1
Memorandum
Acquisition of foreign assets . . . 4.0 12.6 6.5 5.8
11.4 14.0 14.4 13.3 11.6 7.9
Change in reserves . . . 0.3 5.7 3.1 3.5 5.6 7.3 7.6
7.5 5.7 2.9
249
FLOW OF FUNDS: SUMMARY
Table 43 (continued)
______A_v_e_r_a_g_e_s______ Average
1984–91 1992–99 2000 2001 2002 2003 2004 2005 2006
2007 2008–11
Developing Asia
Saving 26.8 31.8 30.3 30.6 32.3 34.9 36.0 38.2 39.2
39.9 40.4
Investment 29.2 32.3 28.2 28.9 29.7 31.9 33.4 34.3
35.6 36.4 37.1
Net lending –2.4 –0.5 2.1 1.7 2.6 2.9 2.7 3.9 3.6 3.5
3.3
Current transfers 0.7 1.1 1.3 1.4 1.6 2.1 2.0 2.1 1.9
1.5 1.2
Factor income –1.3 –1.3 –1.5 –1.6 –1.4 –1.0 –0.9 –0.6
–0.6 –0.5 –0.6
Resource balance –1.8 –0.4 2.3 1.9 2.4 1.8 1.6 2.5 2.2
2.5 2.7
Memorandum
Acquisition of foreign assets 1.2 6.2 4.8 3.4 5.3 6.1
7.4 8.3 7.6 6.7 5.5
Change in reserves 0.5 1.6 0.5 2.5 3.9 5.2 7.5 5.8 5.7
5.2 4.1
Middle East
Saving 16.2 23.0 29.4 26.0 25.0 28.7 33.5 39.7 40.9
38.7 34.3
Investment 22.2 23.5 20.1 21.6 22.4 22.9 22.8 22.0
21.9 21.9 21.5
Net lending –6.0 –0.6 9.3 4.4 2.5 5.8 10.8 17.7 19.0
16.8 12.8
Current transfers –3.1 –3.1 –3.0 –3.0 –2.8 –2.4 –2.0
–1.8 –1.6 –1.5 –1.3
Factor income 0.1 3.2 0.3 0.2 –1.0 –1.6 –0.7 –0.2 0.8
1.1 2.1
Resource balance –3.0 –0.6 12.0 7.2 6.3 9.8 13.5 19.6
19.8 17.2 12.0
Memorandum
Acquisition of foreign assets –1.6 1.7 16.1 7.0 7.7
11.1 17.8 23.5 23.5 20.0 16.3
Change in reserves –1.0 0.7 4.9 2.0 0.3 4.6 5.7 10.4
6.0 5.7 5.5
Western Hemisphere
Saving 19.8 18.1 18.5 17.1 18.5 20.0 21.3 21.8 21.6
21.2 20.8
Investment 20.6 21.3 21.1 20.1 19.4 19.6 20.6 20.7
21.0 21.1 21.4
Net lending –0.8 –3.2 –2.7 –3.0 –0.9 0.4 0.7 1.1 0.6
0.1 –0.6
Current transfers 0.7 0.9 1.1 1.4 1.8 2.1 2.1 2.1 1.9
1.9 1.9
Factor income –4.0 –2.7 –3.0 –3.1 –3.1 –3.4 –3.6 –3.4
–3.1 –2.8 –2.4
Resource balance 2.5 –1.4 –0.8 –1.3 0.4 1.7 2.1 2.4
1.9 1.1 –0.1
Memorandum
Acquisition of foreign assets 0.7 1.9 1.0 1.5 0.6 2.4
2.2 2.4 2.7 2.2 1.6
Change in reserves 0.3 0.8 0.1 –0.1 0.1 2.0 1.2 1.3
1.7 1.1 0.7
Analytical groups
By source of export earnings
Fuel
Saving 27.6 23.5 33.3 29.0 26.5 29.5 32.5 37.2 37.8
36.1 32.7
Investment 28.7 23.5 20.2 22.6 22.1 22.6 22.3 21.7
21.8 21.9 22.6
Net lending –1.1 — 13.1 6.4 4.3 6.8 10.2 15.5 16.1
14.2 10.1
Current transfers –1.3 –2.2 –2.2 –2.1 –2.0 –1.5 –1.1
–0.9 –0.8 –0.8 –0.6
Factor income –0.4 –0.3 –2.3 –1.8 –2.8 –3.4 –2.9 –2.4
–1.9 –1.6 –0.5
Resource balance 0.6 2.5 17.6 10.3 9.1 11.8 14.3 18.8
18.8 16.5 11.2
Memorandum
Acquisition of foreign assets –0.1 2.4 16.8 7.5 6.3
10.9 14.5 18.2 18.9 16.6 12.9
Change in reserves –0.4 0.1 6.4 2.5 1.4 5.2 7.1 9.6
7.8 7.1 5.4
Nonfuel
Saving 23.1 23.7 23.2 23.2 25.0 26.7 27.7 28.5 29.1
29.6 30.3
Investment 24.7 25.8 24.4 24.1 24.6 26.1 27.4 27.7
28.4 29.0 29.8
Net lending –1.6 –2.1 –1.2 –0.8 0.4 0.7 0.4 0.9 0.7
0.6 0.5
Current transfers 1.0 1.4 1.6 1.7 2.0 2.3 2.2 2.2 2.1
1.9 1.7
Factor income –2.2 –1.8 –2.1 –2.2 –1.9 –1.9 –2.0 –1.8
–1.7 –1.5 –1.3
Resource balance –0.4 –1.6 –0.6 –0.4 0.4 0.3 0.1 0.5
0.3 0.2 0.1
Memorandum
Acquisition of foreign assets 0.7 3.7 2.7 2.5 3.5 4.3
5.3 5.9 5.1 4.3 3.5
Change in reserves 0.2 1.3 0.3 1.3 2.5 3.4 4.4 3.8 3.6
3.0 2.4
STATISTICAL APPENDIX
250
Table 43 (concluded)
______A_v_e_r_a_g_e_s______ Average
1984–91 1992–99 2000 2001 2002 2003 2004 2005 2006
2007 2008–11
By external financing source
Net debtor countries
Saving 20.3 20.0 19.6 18.8 19.9 21.2 21.7 21.4 21.7
22.0 22.5
Investment 22.9 23.0 21.7 20.7 20.7 21.8 22.9 23.0
23.3 23.6 24.2
Net lending –2.6 –2.9 –2.1 –1.8 –0.9 –0.6 –1.2 –1.5
–1.6 –1.6 –1.7
Current transfers 1.3 1.7 1.8 2.1 2.4 2.8 2.7 2.7 2.6
2.5 2.4
Factor income –3.1 –3.1 –2.5 –2.5 –2.4 –2.6 –3.0 –3.0
–2.8 –2.6 –2.3
Resource balance –0.7 –2.5 –1.4 –1.4 –0.8 –0.7 –0.9
–1.3 –1.3 –1.5 –1.8
Memorandum
Acquisition of foreign assets 0.4 2.0 1.6 1.8 2.0 2.7
3.0 3.1 2.7 2.2 1.9
Change in reserves 0.1 1.0 0.3 0.6 1.3 1.8 1.8 1.9 1.8
1.3 1.1
Official financing
Saving 16.6 19.4 17.2 17.3 19.9 21.9 20.5 19.8 19.9
20.2 20.7
Investment 21.1 23.0 18.9 18.5 18.6 20.9 21.1 20.8
21.3 21.8 22.4
Net lending –4.5 –3.5 –1.7 –1.3 1.3 1.1 –0.5 –1.0 –1.4
–1.6 –1.7
Current transfers 1.6 2.0 2.7 3.1 4.1 4.2 4.3 4.2 4.1
4.0 3.6
Factor income –4.3 –4.3 –3.5 –3.6 –3.6 –3.6 –3.9 –3.4
–3.1 –2.9 –2.5
Resource balance –1.8 –3.3 –0.8 –0.8 0.8 0.4 –0.9 –1.8
–2.4 –2.6 –2.8
Memorandum
Acquisition of foreign assets 0.6 2.2 0.7 0.1 2.5 4.4
2.8 2.8 1.5 1.8 1.2
Change in reserves 0.2 0.8 –0.5 –0.8 –0.4 1.5 1.4 1.5
1.1 1.3 0.9
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003
Saving 15.4 19.1 18.3 17.6 19.2 21.7 20.9 20.9 21.4
21.7 21.9
Investment 20.6 23.1 19.4 19.0 18.4 21.0 21.2 20.7
21.2 21.6 22.0
Net lending –5.2 –4.0 –1.1 –1.4 0.8 0.7 –0.3 0.2 0.2
0.2 –0.1
Current transfers 1.0 1.9 2.1 2.4 3.4 3.7 3.8 3.8 3.6
3.5 3.1
Factor income –4.7 –4.7 –5.2 –4.6 –4.3 –4.6 –5.2 –4.3
–4.4 –4.4 –3.5
Resource balance –1.5 –2.6 2.1 0.9 1.6 1.5 1.1 0.7 1.0
1.1 0.3
Memorandum
Acquisition of foreign assets –0.4 1.8 2.1 0.4 3.0 3.6
2.9 3.7 3.0 3.4 2.9
Change in reserves 0.4 0.7 0.3 –0.6 –0.5 1.0 2.4 2.8
2.5 3.2 2.9
Note: The estimates in this table are based on
individual countries’ national accounts and balance of
payments statistics. Country group composites are
calculated as the sum
of the U.S dollar values for the relevant individual
countries. This differs from the calculations in the
April 2005 and earlier World Economic Outlooks, where
the composites were
weighted by GDP valued at purchasing power parities
(PPPs) as a share of total world GDP. For many
countries, the estimates of national saving are built
up from national
accounts data on gross domestic investment and from
balance-of-payments-based data on net foreign
investment. The latter, which is equivalent to the
current account balance,
comprises three components: current transfers, net
factor income, and the resource balance. The mixing of
data source, which is dictated by availability,
implies that the estimates
for national saving that are derived incorporate the
statistical discrepancies. Furthermore, error
omissions and asymmetries in balance of payments
statistics affect the
estimates for net lending; at the global level, net
lending, which in theory would be zero, equals the
world current account discrepancy. Notwithstanding
these statistical shortcomings,
flow of funds estimates, such as those presented in
this tables, provide a useful framework for analyzing
development in saving and investment, both over time
and
across regions and countries.
1Calculated from the data of individual euro area
countries.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
251
MEDIUM-TERM BASELINE SCENARIO: SUMMARY
Table 44. Summary of World Medium-Term Baseline
Scenario
Four-Year Four-Year
_____E_ig_h_t_-_Y_e_a_r _A_v_e_r_ag_e_s_____ Average
Average
1988–95 1996–2003 2004–07 2004 2005 2006 2007 2008–11
Annual percent change unless otherwise noted
World real GDP 3.2 3.7 4.9 5.3 4.8 4.9 4.7 4.6
Advanced economies 2.9 2.6 2.9 3.3 2.7 3.0 2.8 2.8
Other emerging market and
developing countries 3.7 5.1 7.1 7.6 7.2 6.9 6.6 6.3
Memorandum
Potential output
Major advanced economies 2.6 2.6 2.6 2.6 2.6 2.5 2.5
2.5
World trade, volume1 6.6 6.1 8.3 10.4 7.3 8.0 7.5 7.3
Imports
Advanced economies 6.4 5.9 6.6 8.9 5.8 6.2 5.6 5.7
Other emerging market and
developing countries 6.5 6.9 13.2 15.8 12.4 12.9 11.9
11.0
Exports
Advanced economies 6.8 5.3 6.6 8.5 5.3 6.6 6.1 5.8
Other emerging market and
developing countries 6.9 7.9 11.8 14.6 11.5 10.9 10.3
10.1
Terms of trade
Advanced economies — — –0.5 –0.1 –1.3 –0.9 0.2 0.1
Other emerging market and
developing countries –1.2 0.6 2.1 2.2 5.0 1.5 –0.1
–0.5
World prices in U.S. dollars
Manufactures 3.3 –1.6 3.4 9.6 4.5 –1.4 1.2 1.3
Oil –0.7 6.7 21.5 30.7 41.3 14.8 2.9 –1.1
Nonfuel primary commodities 2.2 –2.4 8.0 18.5 10.3
10.2 –5.5 –4.4
Consumer prices
Advanced economies 3.7 1.9 2.2 2.0 2.3 2.3 2.1 2.2
Other emerging market and
developing countries 65.2 9.4 5.3 5.7 5.4 5.4 4.8 4.2
Interest rates (in percent)
Real six-month LIBOR2 3.4 2.7 1.5 –0.8 1.0 2.6 3.1 3.1
World real long-term interest rate3 4.2 2.9 2.0 1.8
1.3 2.1 2.8 3.1
Percent of GDP
Balances on current account
Advanced economies –0.1 –0.4 –1.4 –0.9 –1.5 –1.7 –1.7
–1.7
Other emerging market and
developing countries –1.6 0.1 3.6 2.5 4.1 4.1 3.6 2.7
Total external debt
Other emerging market and
developing countries 34.1 39.9 30.5 34.9 30.9 28.8
27.5 24.7
Debt service
Other emerging market and
developing countries 4.5 6.4 5.0 5.5 5.6 4.6 4.3 3.9
1Data refer to trade in goods and services.
2London interbank offered rate on U.S. dollar deposits
less percent change in U.S. GDP deflator.
3GDP-weighted average of 10-year (or nearest maturity)
government bond rates for the United States, Japan,
Germany, France, Italy, the United Kingdom, and
Canada.
STATISTICAL APPENDIX
252
Table 45. Other Emerging Market and Developing
Countries—Medium-Term Baseline Scenario: Selected
Economic Indicators
Four-Year Four-Year
___E_i_g_h_t-_Y_e_a_r_ A_v_e_r_a_g_e_s___ Average
Average
1988–95 1996–2003 2004–07 2004 2005 2006 2007 2008–11
Annual percent change
Other emerging market and
developing countries
Real GDP 3.7 5.1 7.1 7.6 7.2 6.9 6.6 6.3
Export volume1 6.9 7.9 11.8 14.6 11.5 10.9 10.3 10.1
Terms of trade1 –1.2 0.6 2.1 2.2 5.0 1.5 –0.1 –0.5
Import volume1 6.5 6.9 13.2 15.8 12.4 12.9 11.9 11.0
Regional groups
Africa
Real GDP 1.8 3.7 5.5 5.5 5.2 5.7 5.5 5.0
Export volume1 5.0 5.0 7.5 6.8 5.9 9.3 8.2 4.5
Terms of trade1 –2.6 1.8 5.1 3.8 11.1 5.0 0.9 –0.9
Import volume1 4.0 5.4 10.1 8.8 11.4 11.4 8.7 5.4
Central and eastern Europe
Real GDP — 3.4 5.5 6.5 5.3 5.2 4.8 4.6
Export volume1 5.0 9.1 10.2 14.8 9.2 8.6 8.5 7.8
Terms of trade1 0.7 –0.1 –0.3 0.2 0.2 –1.2 –0.2 0.1
Import volume1 7.3 9.5 10.0 15.3 8.7 7.9 8.1 7.6
Commonwealth of Independent States2
Real GDP . . . 3.3 6.8 8.4 6.5 6.0 6.1 5.5
Export volume1 . . . 4.9 7.0 13.6 2.1 6.1 6.5 5.1
Terms of trade1 . . . 2.5 6.8 7.6 18.4 4.7 –2.5 –2.5
Import volume1 . . . 5.0 12.8 16.6 16.3 10.0 8.6 6.6
Developing Asia
Real GDP 8.0 6.8 8.4 8.8 8.6 8.2 8.0 7.5
Export volume1 13.0 10.9 17.6 20.2 17.7 16.5 15.9 14.7
Terms of trade1 0.1 –1.2 –1.3 –2.3 –1.8 –1.5 0.4 0.4
Import volume1 13.1 7.7 15.9 18.9 13.0 15.7 16.1 15.5
Middle East
Real GDP 3.4 4.3 5.6 5.4 5.9 5.7 5.4 5.3
Export volume1 7.5 5.0 7.4 9.4 8.9 7.3 4.2 5.0
Terms of trade1 –4.0 4.8 9.5 10.1 20.7 7.3 0.8 –2.1
Import volume1 1.0 7.5 13.3 12.0 15.8 15.3 10.1 6.6
Western Hemisphere
Real GDP 2.5 2.3 4.5 5.6 4.3 4.3 3.6 3.5
Export volume1 7.8 5.6 7.7 9.6 8.9 6.0 6.1 6.3
Terms of trade1 –0.6 0.3 2.3 5.6 3.2 2.4 –1.9 –1.4
Import volume1 9.8 4.3 11.0 14.4 11.1 10.9 7.8 7.0
Analytical groups
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003
Real GDP 3.6 3.3 6.3 6.4 6.6 6.2 5.9 5.7
Export volume1 6.3 6.7 8.5 7.1 7.6 10.5 8.7 5.6
Terms of trade1 –0.5 –0.9 1.8 2.0 5.0 0.9 –0.7 –1.1
Import volume1 4.5 3.6 10.8 11.2 14.1 10.5 7.4 5.7
253
MEDIUM-TERM BASELINE SCENARIO: DEVELOPING COUNTRIES
Table 45 (concluded)
1995 1999 2003 2004 2005 2006 2007 2011
Percent of exports of goods and services
Other emerging market and
developing countries
Current account balance –7.3 –0.8 6.0 6.9 10.8 10.8
9.5 5.4
Total external debt 160.8 167.7 115.8 97.3 82.1 75.4
71.6 58.5
Debt-service payments3 20.7 26.4 19.8 15.4 14.8 11.9
11.3 9.0
Interest payments 8.1 8.8 5.7 4.6 4.4 4.1 4.0 3.2
Amortization 12.6 17.6 14.1 10.8 10.4 7.8 7.3 5.8
Regional groups
Africa
Current account balance –13.1 –11.7 –1.3 0.3 4.9 6.6
6.6 3.5
Total external debt 247.3 219.7 151.7 123.5 91.2 74.2
68.1 64.5
Debt-service payments3 22.0 19.8 13.2 11.5 11.2 7.0
6.7 5.8
Interest payments 9.4 7.6 4.0 3.4 3.0 2.2 2.2 2.1
Amortization 12.6 12.2 9.2 8.1 8.2 4.7 4.5 3.7
Central and eastern Europe
Current account balance –3.8 –12.4 –10.1 –12.5 –11.4
–11.9 –11.6 –9.7
Total external debt 113.6 134.1 125.2 116.7 109.3
108.4 106.2 98.5
Debt-service payments3 19.3 27.1 26.2 22.0 22.2 22.9
21.9 20.6
Interest payments 6.0 10.2 8.5 7.3 7.1 7.0 6.8 5.8
Amortization 13.3 17.0 17.7 14.6 15.2 15.9 15.1 14.8
Commonwealth of Independent States
Current account balance 2.9 19.2 16.0 20.6 23.4 25.3
23.3 12.0
Total external debt 118.0 177.2 107.1 93.0 86.1 84.3
89.1 119.2
Debt-service payments3 9.5 21.9 28.2 23.9 18.9 13.7
14.4 18.2
Interest payments 6.1 10.3 11.2 7.9 9.2 7.9 8.1 10.5
Amortization 3.4 11.6 17.0 16.1 9.7 5.8 6.3 7.7
Developing Asia
Current account balance –9.3 8.4 9.1 7.6 10.2 8.8 8.2
6.0
Total external debt 125.8 119.7 73.2 60.6 54.2 50.5
46.3 30.0
Debt-service payments3 16.3 16.2 11.9 7.9 7.0 6.6 6.1
4.0
Interest payments 6.2 5.5 3.0 2.4 2.3 2.3 2.2 1.4
Amortization 10.1 10.8 8.9 5.6 4.7 4.3 3.9 2.6
Middle East
Current account balance 1.9 6.4 17.3 23.8 33.6 35.5
32.8 25.5
Total external debt 144.7 149.8 95.1 79.8 63.4 56.3
53.7 48.5
Debt-service payments3 13.0 11.9 7.6 6.6 7.0 6.5 6.4
5.1
Interest payments 3.3 3.2 1.6 1.2 1.3 1.4 1.4 1.4
Amortization 9.7 8.7 5.9 5.4 5.7 5.1 5.0 3.7
Western Hemisphere
Current account balance –15.0 –18.7 1.8 3.8 5.2 3.6
1.1 –4.2
Total external debt 252.5 269.0 218.4 179.9 142.3
129.6 125.2 107.3
Debt-service payments3 40.8 59.5 42.8 33.3 35.6 24.1
22.8 18.0
Interest payments 17.0 17.7 11.2 9.2 8.3 8.0 7.8 6.1
Amortization 23.8 41.8 31.6 24.1 27.3 16.1 15.0 11.8
Analytical groups
Net debtor countries by debtservicing
experience
Countries with arrears and/or
rescheduling during 1999–2003
Current account balance –17.7 –10.8 1.9 –0.6 –0.2 0.7
0.7 –1.3
Total external debt 342.1 349.8 256.8 212.6 166.3
143.6 132.4 109.0
Debt-service payments3 30.1 36.6 27.9 20.2 22.4 15.6
12.8 10.6
Interest payments 11.8 12.6 6.0 4.9 4.7 4.0 3.8 3.2
Amortization 18.3 24.0 21.9 15.4 17.6 11.6 9.0 7.5
1Data refer to trade in goods and services.
2Mongolia, which is not a member of the Commonwealth
of Independent States, is included in this group for
reasons of geography and similarities in economic
structure.
3Interest payments on total debt plus amortization
payments on long-term debt only. Projections
incorporate the impact of exceptional financing items.
Excludes service payments
to the International Monetary Fund.
254
I. Methodology—Aggregation, Modeling, and Forecasting
World Economic Outlook
The Difficult Art of Forecasting October 1996, Annex I
World Current Account Discrepancy October 1996, Annex
III
Alternative Exchange Rate Assumptions for Japan
October 1997, Box 2
Revised Purchasing Power Parity Based Weights for the
World Economic Outlook May 2000, Box A1
The Global Current Account Discrepancy October 2000,
Chapter I,
Appendix II
How Well Do Forecasters Predict Turning Points? May
2001, Box 1.1
The Information Technology Revolution: Measurement
Issues October 2001, Box 3.1
Measuring Capital Account Liberalization October 2001,
Box 4.1
The Accuracy of World Economic Outlook Growth
Forecasts: 1991–2000 December 2001, Box 3.1
On the Accuracy of Forecasts of Recovery April 2002,
Box 1.2
The Global Current Account Discrepancy and Other
Statistical Problems September 2002, Box 2.1
The Global Economy Model April 2003, Box 4.3
How Should We Measure Global Growth? September 2003,
Box 1.2
Measuring Foreign Reserves September 2003, Box 2.2
The Effects of Tax Cuts in a Global Fiscal Model April
2004, Box 2.2
How Accurate are the Forecasts in the World Economic
Outlook? April 2006, Box 1.3
Drawing the Line Between Personal and Corporate
Savings April 2006, Box 4.1
Staff Studies for the
World Economic Outlook
How Accurate Are the IMF’s Short-Term Forecasts?
Another Examination of the World Economic Outlook
Michael J. Artis December 1997
IMF’s Estimates of Potential Output: Theory and
Practice
Paula R. De Masi December 1997
Multilateral Unit-Labor-Cost-Based Competitiveness
Indicators for Advanced,
Developing, and Transition Countries
Anthony G. Turner and Stephen Golub December 1997
II. Historical Surveys
World Economic Outlook
The Rise and Fall of Inflation—Lessons from Postwar
Experience October 1996, Chapter VI
The World Economy in the Twentieth Century May 2000,
Chapter V
The Monetary System and Growth During the Commercial
Revolution May 2000, Box 5.2
The Great Depression April 2002, Box 3.2
Historical Evidence on Financial Crises April 2002,
Box 3.3
WORLD ECONOMIC OUTLOOK AND STAFF STUDIES
FOR THE WORLD ECONOMIC OUTLOOK,
SELECTED TOPICS, 1995–2006
SELECTED TOPICS, 1995–2006
255
A Historical Perspective on Booms, Busts, and
Recessions April 2003, Box 2.1
Institutional Development: The Influence of History
and Geography April 2003, Box 3.1
Long-Term Interest Rates from a Historical Perspective
April 2006, Box 1.1
Recycling Petrodollars in the 1970s April 2006, Box
2.2
Staff Studies for the
World Economic Outlook
Globalization and Growth in the Twentieth Century
Nicholas Crafts May 2000
The International Monetary System in the (Very) Long
Run
Barry Eichengreen and Nathan Sussman May 2000
External Imbalances Then and Now April 2005, Box 3.1
III. Economic Growth—Sources and Patterns
World Economic Outlook
Saving in a Growing World Economy May 1995, Chapter V
North-South R&D Spillovers May 1995, Box 6
Long-Term Growth Potential in the Countries in
Transition October 1996, Chapter V
Globalization and the Opportunities for Developing
Countries May 1997, Chapter IV
Measuring Productivity Gains in East Asian Economies
May 1997, Box 9
The Business Cycle, International Linkages, and
Exchange Rates May 1998, Chapter III
The Asian Crisis and the Region’s Long-Term Growth
Performance October 1998, Chapter III
Potential Macroeconomic Implications of the Year 2000
Computer Bug May 1999, Box 1.2
Growth Divergences in the United States, Europe, and
Japan:
Long-Run Trend or Cyclical? October 1999, Chapter III
How Can the Poorest Countries Catch Up? May 2000,
Chapter IV
Trends in the Human Development Index May 2000, Box
5.1
Productivity Growth and IT in the Advanced Economies
October 2000, Chapter II
Transition: Experience and Policy Issues October 2000,
Chapter III
Business Linkages in Major Advanced Countries October
2001, Chapter II
How Do Macroeconomic Fluctuations in the Advanced
Countries Affect
the Developing Countries? October 2001, Chapter II
Confidence Spillovers October 2001, Box 2.1
Channels of Business Cycle Transmission to Developing
Countries October 2001, Box 2.2
The Information Technology Revolution October 2001,
Chapter III
Has the IT Revolution Reduced Output Volatility?
October 2001, Box 3.4
The Impact of Capital Account Liberalization on
Economic Performance October 2001, Box 4.2
How Has September 11 Influenced the Global Economy?
December 2001, Chapter II
The Long-Term Impact of September 11 December 2001,
Box 2.1
Is Wealth Increasingly Driving Consumption? April
2002, Chapter II
Recessions and Recoveries April 2002, Chapter III
Was It a Global Recession? April 2002, Box 1.1
How Important Is the Wealth Effect on Consumption?
April 2002, Box 2.1
A Household Perspective on the Wealth Effect April
2002, Box 2.2
Measuring Business Cycles April 2002, Box 3.1
Economic Fluctuations in Developing Countries April
2002, Box 3.4
How Will Recent Falls in Equity Markets Affect
Activity? September 2002, Box 1.1
Reversal of Fortune: Productivity Growth in Europe and
the United States September 2002, Box 1.3
Growth and Institutions April 2003, Chapter III
Is the New Economy Dead? April 2003, Box 1.2
Have External Anchors Accelerated Institutional Reform
in Practice? April 2003, Box 3.2
Institutional Development: The Role of the IMF April
2003, Box 3.4
How Would War in Iraq Affect the Global Economy? April
2003, Appendix 1.2
How Can Economic Growth in the Middle East and North
Africa
Region Be Accelerated? September 2003, Chapter II
Recent Changes in Monetary and Financial Conditions in
the Major
Currency Areas September 2003, Box 1.1
Accounting for Growth in the Middle East and North
Africa September 2003, Box 2.1
Managing Increasing Aid Flows to Developing Countries
September 2003, Box 1.3
Fostering Structural Reforms in Industrial Countries
April 2004, Chapter III
How Will Demographic Change Affect the Global Economy?
September 2004, Chapter III
HIV/AIDS: Demographic, Economic, and Fiscal
Consequences September 2004, Box 3.3
Implications of Demographic Change for Health Care
Systems September 2004, Box 3.4
Workers’ Remittances and Economic Development April
2005, Chapter II
Output Volatility in Emerging Market and Developing
Countries April 2005, Chapter II
How Does Macroeconomic Instability Stifle Sub-Saharan
African Growth? April 2005, Box 1.5
How Should Middle Eastern and Central Asian Oil
Exporters Use Their
Oil Revenues? April 2005, Box 1.6
Why Is Volatility Harmful? April 2005, Box 2.3
Building Institutions September 2005, Chapter III
Return on Investment in Industrial and Developing
Countries September 2005, Box 2.2
The Use of Specific Levers to Reduce Corruption
September 2005, Box 3.2
Examining the Impact of Unrequited Transfers on
Institutions September 2005, Box 3.3
The Impact of Recent Housing Market Adjustments in
Industrial Countries April 2006, Box 1.2
Awash With Cash: Why Are Corporate Savings So High?
April 2006, Chapter IV
The Global Implications of an Avian Flu Pandemic April
2006, Appendix 1.2
Staff Studies for the
World Economic Outlook
How Large Was the Output Collapse in Russia?
Alternative Estimates and
Welfare Implications
Evgeny Gavrilenkov and Vincent Koen September 1995
Deindustrialization: Causes and Implications
Robert Rowthorn and Ramana Ramaswamy December 1997
IV. Inflation and Deflation; Commodity Markets
World Economic Outlook
The Rise and Fall of Inflation—Lessons from Postwar
Experience October 1996, Chapter VI
World Oil Market: Recent Developments and Outlook
October 1996, Annex II
Inflation Targets October 1996, Box 8
Indexed Bonds and Expected Inflation October 1996, Box
9
Effects of High Inflation on Income Distribution
October 1996, Box 10
Central Bank Independence and Inflation October 1996,
Box 11
SELECTED TOPICS, 1995–2006
256
Recent Developments in Primary Commodity Markets May
1998, Annex II
Japan’s Liquidity Trap October 1998, Box 4.1
Safeguarding Macroeconomic Stability at Low Inflation
October 1999, Chapter IV
Global Liquidity October 1999, Box 4.4
Cycles in Nonfuel Commodity Prices May 2000, Box 2.2
Booms and Slumps in the World Oil Market May 2000, Box
2.3
Commodity Prices and Commodity Exporting Countries
October 2000, Chapter II
Developments in the Oil Markets October 2000, Box 2.2
The Decline of Inflation in Emerging Markets: Can It
Be Maintained? May 2001, Chapter IV
The Global Slowdown and Commodity Prices May 2001,
Chapter I,
Appendix 1
Why Emerging Market Countries Should Strive to
Preserve Lower Inflation May 2001, Box 4.1
Is There a Relationship Between Fiscal Deficits and
Inflation? May 2001, Box 4.2
How Much of a Concern Is Higher Headline Inflation?
October 2001, Box 1.2
Primary Commodities and Semiconductor Markets October
2001, Chapter I,
Appendix 1
Can Inflation Be Too Low? April 2002, Box 2.3
Could Deflation Become a Global Problem? April 2003,
Box 1.1
Housing Markets in Industrial Countries April 2004,
Box 1.2
Is Global Inflation Coming Back? September 2004, Box
1.1
What Explains the Recent Run-Up in House Prices?
September 2004, Box 2.1
Will the Oil Market Continue to Be Tight? April 2005,
Chapter IV
Should Countries Worry About Oil Price Fluctuations?
April 2005, Box 4.1
Data Quality in the Oil Market April 2005, Box 4.2
Long-Term Inflation Expectations and Credibility
September 2005, Box 4.2
Staff Studies for the
World Economic Outlook
Prices in the Transition: Ten Stylized Facts
Vincent Koen and Paula R. De Masi December 1997
V. Fiscal Policy
World Economic Outlook
Structural Fiscal Balances in Smaller Industrial
Countries May 1995, Annex III
Can Fiscal Contraction Be Expansionary in the Short
Run? May 1995, Box 2
Pension Reform in Developing Countries May 1995, Box
11
Effects of Increased Government Debt: Illustrative
Calculations May 1995, Box 13
Subsidies and Tax Arrears October 1995, Box 8
Focus on Fiscal Policy May 1996
The Spillover Effects of Government Debt May 1996,
Annex I
Uses and Limitations of Generational Accounting May
1996, Box 5
The European Union’s Stability and Growth Pact October
1997, Box 3
Progress with Fiscal Reform in Countries in Transition
May 1998, Chapter V
Pension Reform in Countries in Transition May 1998,
Box 10
Transparency in Government Operations May 1998, Annex
I
The Asian Crisis: Social Costs and Mitigating Policies
October 1998, Box 2.4
SELECTED TOPICS, 1995–2006
257
SELECTED TOPICS, 1995–2006
258
Fiscal Balances in the Asian Crisis Countries: Effects
of Changes
in the Economic Environment Versus Policy Measures
October 1998, Box 2.5
Aging in the East Asian Economies: Implications for
Government
Budgets and Saving Rates October 1998, Box 3.1
Orienting Fiscal Policy in the Medium Term in Light of
the Stability
and Growth Pact and Longer-Term Fiscal Needs October
1998, Box 5.2
Comparing G-7 Fiscal Positions—Who Has a Debt Problem?
October 1999, Box 1.3
Social Spending, Poverty Reduction, and Debt Relief in
Heavily Indebted
Poor Countries May 2000, Box 4.3
Fiscal Improvement in Advanced Economies: How Long
Will It Last? May 2001, Chapter III
Impact of Fiscal Consolidation on Macroeconomic
Performance May 2001, Box 3.3
Fiscal Frameworks in Advanced and Emerging Market
Economies May 2001, Box 3.4
Data on Public Debt in Emerging Market Economies
September 2003, Box 3.1
Fiscal Risk: Contingent Liabilities and Demographics
September 2003, Box 3.2
Assessing Fiscal Sustainability Under Uncertainty
September 2003, Box 3.3
The Case for Growth-Indexed Bonds September 2003, Box
3.4
Public Debt in Emerging Markets: Is It Too High?
September 2003, Chapter III
Has Fiscal Behavior Changed Under the European
Economic and
Monetary Union? September 2004, Chapter II
Bringing Small Entrepreneurs into the Formal Economy
September 2004, Box 1.5
HIV/AIDS: Demographic, Economic, and Fiscal
Consequences September 2004, Box 3.3
Implications of Demographic Change for Health Care
Systems September 2004, Box 3.4
Impact of Aging on Public Pension Plans September
2004, Box 3.5
How Should Middle Eastern and Central Asian Oil
Exporters Use April 2005, Box 1.6
Their Oil Revenues?
Financial Globalization and the Conduct of
Macroeconomic Policies April 2005, Box 3.3
Is Public Debt in Emerging Markets Still Too High?
September 2005, Box 1.1
VI. Monetary Policy; Financial Markets; Flow of Funds
World Economic Outlook
Saving in a Growing World Economy May 1995, Chapter V
Saving and Real Interest Rates in Developing Countries
May 1995, Box 10
Financial Market Turmoil and Economic Policies in
Industrial Countries October 1995, Chapter III
Financial Liberalization in Africa and Asia October
1995, Box 4
Policy Challenges Facing Industrial Countries in the
Late 1990s October 1996, Chapter III
Using the Slope of the Yield Curve to Estimate Lags in
Monetary
Transmission Mechanism October 1996, Box 2
Financial Repression October 1996, Box 5
Bank-Restructuring Strategies in the Baltic States,
Russia, and Other
Countries of the Former Soviet Union: Main Issues and
Challenges October 1996, Box 7
Monetary and Financial Sector Policies in Transition
Countries October 1997, Chapter V
Dollarization October 1997, Box 6
Interim Assessment (Focus on Crisis in Asia—Regional
and Global Implications) December 1997
Financial Crises: Characteristics and Indicators of
Vulnerability May 1998, Chapter IV
The Role of Hedge Funds in Financial Markets May 1998,
Box 1
International Monetary System: Measures to Reduce the
Risk of Crises May 1998, Box 3
SELECTED TOPICS, 1995–2006
259
Resolving Banking Sector Problems May 1998, Box 6
Effective Banking Prudential Regulations and
Requirements May 1998, Box 7
Strengthening the Architecture of the International
Monetary System
Through International Standards and Principles of Good
Practice October 1998, Box 1.2
The Role of Monetary Policy in Responding to Currency
Crises October 1998, Box 2.3
Summary of Structural Reforms in Crisis Countries
October 1998, Box 3.2
Japan’s Liquidity Trap October 1998, Box 4.1
How Useful Are Taylor Rules as a Guide to ECB Monetary
Policies? October 1998, Box 5.1
The Crisis in Emerging Markets December 1998, Chapter
II
Turbulence in Mature Financial Markets December 1998,
Chapter III
What Is the Implied Future Earnings Growth Rate that
Would
Justify Current Equity Prices in the United States?
December 1998, Box 3.2
Leverage December 1998, Box 3.3
The Near Collapse and Rescue of Long-Term Capital
Management December 1998, Box 3.4
Risk Management: Progress and Problems December 1998,
Box 3.5
Supervisory Reforms Relating to Risk Management
December 1998, Box 3.6
Emerging Market Banking Systems December 1998, Annex
International Financial Contagion May 1999, Chapter
III
From Crisis to Recovery in the Emerging Market
Economies October 1999, Chapter II
Safeguarding Macroeconomic Stability at Low Inflation
October 1999, Chapter IV
The Effects of a Zero Floor for Nominal Interest Rates
on Real
Output: Selected Simulation Results October 1999, Box
4.2
Asset Prices and Business Cycle May 2000, Chapter III
Global Liquidity and Asset Prices May 2000, Box 3.2
International Capital Flows to Emerging Markets
October 2000, Chapter II
Developments in Global Equity Markets October 2000,
Chapter II
U.S. Monetary Policy and Sovereign Spreads in Emerging
Markets October 2000, Box 2.1
Impact of the Global Technology Correction on the Real
Economy May 2001, Chapter II
Inflation Targeting in Emerging Market Economies:
Implementation
and Challenges May 2001, Box 4.3
Financial Market Dislocations and Policy Responses
After the
September 11 Attacks December 2001, Box 2.2
Investor Risk Appetite December 2001, Box 2.3
Monetary Policy in a Low Inflation Era April 2002,
Chapter II
The Introduction of Euro Notes and Coins April 2002,
Box 1.3
Cross-Country Determinants of Capital Structure
September 2002, Box 2.3
When Bubbles Burst April 2003, Chapter II
How Do Balance Sheet Vulnerabilities Affect
Investment? April 2003, Box 2.3
Identifying Asset Price Booms and Busts April 2003,
Appendix 2.1
Are Foreign Exchange Reserves in Asia Too High?
September 2003, Chapter II
Reserves and Short-Term Debt September 2003, Box 2.3
Are Credit Booms in Emerging Markets a Concern? April
2004, Chapter IV
How Do U.S. Interest and Exchange Rates Affect
Emerging Markets’
Balance Sheets? April 2004, Box 2.1
Does Financial Sector Development Help Economic Growth
and Welfare? April 2004, Box 4.1
Adjustable- or Fixed-Rate Mortgages: What Influences a
Country’s Choices? September 2004, Box 2.2
What Are the Risks from Low U.S. Long-Term Interest
Rates? April 2005, Box 1.2
Regulating Remittances April 2005, Box 2.2
Financial Globalization and the Conduct of
Macroeconomic Policies April 2005, Box 3.3
Monetary Policy in a Globalized World April 2005, Box
3.4
Does Inflation Targeting Work in Emerging Markets?
September 2005, Chapter IV
A Closer Look at Inflation Targeting Alternatives:
Money and
Exchange Rate Targets September 2005, Box 4.1
How Has Globalization Affected Inflation? April 2006,
Chapter III
The Impact of Petrodollars on U.S. and Emerging Market
Bond Yields April 2006, Box 2.3
Globalization and Inflation in Emerging Markets April
2006, Box 3.1
Globalization and Low Inflation in a Historical
Perspective April 2006, Box 3.2
Exchange Rate Pass-Through to Import Prices April
2006, Box 3.3
Trends in the Financial Sector’s Profits and Savings
April 2006, Box 4.2
Staff Studies for the
World Economic Outlook
The Global Real Interest Rate
Thomas Helbling and Robert Wescott September 1995
A Monetary Impulse Measure for Medium-Term Policy
Analysis
Bennett T. McCallum and Monica Hargraves September
1995
Saving Behavior in Industrial and Developing Countries
Paul R. Masson, Tamim Bayoumi, and Hossein Samiei
September 1995
Capital Structure and Corporate Performance Across
Emerging Markets September 2002, Chapter II
VII. Labor Market Issues
World Economic Outlook
Capital Formation and Employment May 1995, Box 4
Implications of Structural Reforms Under EMU October
1997, Annex II
Euro-Area Structural Rigidities October 1998, Box 5.3
Chronic Unemployment in the Euro Area: Causes and
Cures May 1999, Chapter IV
Labor Market Slack: Concepts and Measurement May 1999,
Box 4.1
EMU and European Labor Markets May 1999, Box 4.2
Labor Markets—An Analytical Framework May 1999, Box
4.3
The OECD Jobs Study May 1999, Box 4.4
The Effects of Downward Rigidity of Nominal Wages on
(Un)employment:
Selected Simulation Results October 1999, Box 4.1
Unemployment and Labor Market Institutions: Why
Reforms Pay Off April 2003, Chapter IV
Regional Disparities in Unemployment April 2003, Box
4.1
Labor Market Reforms in the European Union April 2003,
Box 4.2
Staff Studies for the
World Economic Outlook
Evaluating Unemployment Policies: What Do the
Underlying Theories Tell Us?
Dennis J. Snower September 1995
Institutional Structure and Labor Market Outcomes:
Western Lessons for
European Countries in Transition
Robert J. Flanagan September 1995
SELECTED TOPICS, 1995–2006
260
SELECTED TOPICS, 1995–2006
261
The Effect of Globalization on Wages in the Advanced
Economies
Matthew J. Slaughter and Phillip Swagel December 1997
International Labor Standards and International Trade
Stephen Golub December 1997
EMU Challenges European Labor Markets
Rüdiger Soltwedel, Dirk Dohse, and Christiane
Krieger-Boden May 2000
VIII. Exchange Rate Issues
World Economic Outlook
Exchange Rate Effects of Fiscal Consolidation October
1995, Annex
Exchange Rate Arrangements and Economic Performance in
Developing Countries October 1997, Chapter IV
Asymmetric Shocks: European Union and the United
States October 1997, Box 4
Currency Boards October 1997, Box 5
The Business Cycle, International Linkages, and
Exchange Rates May 1998, Chapter III
Evaluating Exchange Rates May 1998, Box 5
Determining Internal and External Conversion Rates for
the Euro October 1998, Box 5.4
The Euro Area and Effective Exchange Rates October
1998, Box 5.5
Recent Dollar/Yen Exchange Rate Movements December
1998, Box 3.1
International Financial Contagion May 1999, Chapter
III
Exchange Rate Crashes and Inflation: Lessons for
Brazil May 1999, Box 2.1
Recent Experience with Exchange-Rate-Based
Stabilizations May 1999, Box 3.1
The Pros and Cons of Dollarization May 2000, Box 1.4
Why Is the Euro So Undervalued? October 2000, Box 1.1
Convergence and Real Exchange Rate Appreciation in the
EU Accession Countries October 2000, Box 4.4
What Is Driving the Weakness of the Euro and the
Strength of the Dollar? May 2001, Chapter II
The Weakness of the Australian and New Zealand
Currencies May 2001, Box 2.1
How Did the September 11 Attacks Affect Exchange Rate
Expectations? December 2001, Box 2.4
Market Expectations of Exchange Rate Movements
September 2002, Box 1.2
Are Foreign Exchange Reserves in Asia Too High?
September 2003, Chapter II
How Concerned Should Developing Countries Be About G-3
Exchange Rate Volatility? September 2003, Chapter II
Reserves and Short-Term Debt September 2003, Box 2.3
The Effects of a Falling Dollar April 2004, Box 1.1
Learning to Float: The Experience of Emerging Market
Countries Since
the Early 1990s September 2004, Chapter II
How Did Chile, India, and Brazil Learn to Float?
September 2004, Box 2.3
Foreign Exchange Market Development and Intervention
September 2004, Box 2.4
Staff Studies for the
World Economic Outlook
Multilateral Unit-Labor-Cost-Based Competitiveness
Indicators
for Advanced, Developing, and Transition Countries
Anthony G. Turner and Stephen Golub December 1997
Currency Crises: In Search of Common Elements
Jahangir Aziz, Francesco Caramazza and Ranil Salgado
May 2000
Business Cycle Influences on Exchange Rates: Survey
and Evidence
Ronald MacDonald and Phillip Suragel May 2000
SELECTED TOPICS, 1995–2006
262
IX. External Payments, Trade, Capital Movements, and
Foreign Debt
World Economic Outlook
Trade Among the Transition Countries October 1995, Box
7
World Current Account Discrepancy October 1996, Annex
III
Capital Inflows to Developing and Transition
Countries—Identifying Causes
and Formulating Appropriate Policy Responses October
1996, Annex IV
Globalization—Opportunities and Challenges May 1997
Moral Hazard and IMF Lending May 1998, Box 2
The Current Account and External Sustainability May
1998, Box 8
Review of Debt-Reduction Efforts for Low-Income
Countries and Status of
the HIPC Initiative October 1998, Box 1.1
Trade Adjustment in East Asian Crisis Countries
October 1998, Box 2.2
Are There Dangers of Increasing Protection? May 1999,
Box 1.3
Trends and Issues in the Global Trading System October
1999, Chapter V
Capital Flows to Emerging Market Economies:
Composition and Volatility October 1999, Box 2.2
The Global Current Account Discrepancy October 2000,
Chapter I,
Appendix II
Trade Integration and Sub-Saharan Africa May 2001,
Chapter II
Sustainability of the U.S. External Current Account
May 2001, Box 1.2
Reducing External Balances May 2001, Chapter I,
Appendix 2
The World Trading System: From Seattle to Doha October
2001, Chapter II
International Financial Integration and Economic
Performance: Impact on
Developing Countries October 2001, Chapter IV
Potential Welfare Gains From a New Trade Round October
2001, Box 2.3
Critics of a New Trade Round October 2001, Box 2.4
Foreign Direct Investment and the Poorer Countries
October 2001, Box 4.3
Country Experiences with Sequencing Capital Account
Liberalization October 2001, Box 4.4
Contagion and Its Causes December 2001, Chapter I,
Appendix
Capital Account Crises in Emerging Market Countries
April 2002, Box 3.5
How Have External Deficits Adjusted in the Past?
September 2002, Box 2.2
Using Prices to Measure Goods Market Integration
September 2002, Box 3.1
Transport Costs September 2002, Box 3.2
The Gravity Model of International Trade September
2002, Box 3.3
Vertical Specialization in the Global Economy
September 2002, Box 3.4
Trade and Growth September 2002, Box 3.5
How Worrisome Are External Imbalances? September 2002,
Chapter II
How Do Industrial Country Agricultural Policies Affect
Developing Countries? September 2002, Chapter II
Trade and Financial Integration September 2002,
Chapter III
Risks to the Multilateral Trading System April 2004,
Box 1.3
Is the Doha Round Back on Track? September 2004, Box
1.3
Regional Trade Agreements and Integration: The
Experience with NAFTA September 2004, Box 1.4
Globalization and External Imbalances April 2005,
Chapter III
The Ending of Global Textile Trade Quotas April 2005,
Box 1.3
What Progress Has Been Made in Implementing Policies
to Reduce
Global Imbalances? April 2005, Box 1.4
Measuring a Country’s Net External Position April
2005, Box 3.2
Global Imbalances: A Saving and Investment Perspective
September 2005, Chapter II
Impact of Demographic Change on Saving, Investment,
and Current
Account Balances September 2005, Box 2.3
How Will Global Imbalances Adjust? September 2005,
Appendix 1.2
Oil Prices and Global Imbalances April 2006, Chapter
II
How Much Progress Has Been Made in Addressing Global
Imbalances? April 2006, Box 1.4
The Doha Round After The Hong Kong SAR Meetings April
2006, Box 1.5
Staff Studies for the
World Economic Outlook
Foreign Direct Investment in the World Economy
Edward M. Graham September 1995
Trade and Financial Integration in Europe: Five Years
After the
Euro’s Introduction September 2004, Box 2.5
X. Regional Issues
World Economic Outlook
Adjustment in Sub-Saharan Africa May 1995, Annex II
Macroeconomic and Structural Adjustment in the Middle
East and North Africa May 1996, Annex II
Stabilization and Reform of Formerly Centrally Planned
Developing
Economies in East Asia May 1997, Box 10
EMU and the World Economy October 1997, Chapter III
Implications of Structural Reforms Under EMU October
1997, Annex II
The European Union’s Stability and Growth Pact October
1997, Box 3
Asymmetric Shocks: European Union and the United
States October 1997, Box 4
Interim Assessment (Focus on Crisis in Asia—Regional
and Global Implications) December 1997
The Asian Crisis and the Region’s Long-Term Growth
Performance October 1998, Chapter III
Economic Policy Challenges Facing the Euro Area and
the External
Implications of EMU October 1998, Chapter V
Economic Policymaking in the EU and Surveillance by EU
Institutions October 1998, Chapter V,
Appendix
Chronic Unemployment in the Euro Area: Causes and
Cures May 1999, Chapter IV
Growth in Sub-Saharan Africa: Performance,
Impediments, and
Policy Requirements October 1999, Chapter VI
The Regional Economic Impact of the Kosovo Crisis
October 1999, Box 1.5
Counting the Costs of the Recent Crises October 1999,
Box 2.6
Africa and World Trends in Military Spending October
1999, Box 6.1
The Economic Impact of HIV/AIDS in Southern Africa
October 2000, Box 1.4
Accession of Transition Economies to the European
Union:
Prospects and Pressures October 2000, Chapter IV
The IMF and the Transition Economies October 2000, Box
3.1
Previous EU Enlargements October 2000, Box 4.2
The Enhanced HIPC Initiative in Africa May 2001, Box
1.4
Large Current Account Deficits in EU Accession
Countries May 2001, Box 1.5
Africa’s Trade and The Gravity Model May 2001, Box 2.2
SELECTED TOPICS, 1995–2006
263
The Implications of the Japanese Economic Slowdown for
East Asia October 2001, Box 1.4
Relative Euro-Area Growth Performances: Why Are
Germany and Italy
Lagging Behind France? October 2001, Box 1.5
Economic Growth, Civil Conflict, and Poverty Reduction
in Sub-Saharan Africa October 2001, Box 1.7
Information Technology and Growth in Emerging Asia
October 2001, Box 3.3
The IT Slump and Short-Term Growth Prospects in East
Asia October 2001, Box 3.5
The Effects of the September 11 Attacks on the
Caribbean Region December 2001, Box 3.3
Debt Crises: What’s Different About Latin America?
April 2002, Chapter II
Foreign Direct Investment in Africa September 2002,
Box 1.6
Promoting Stronger Institutions and Growth: The New
Partnership for
Africa’s Development April 2003, Box 3.3
How Can Economic Growth in the Middle East and North
Africa
Region Be Accelerated? September 2003, Chapter II
Gulf Cooperation Council: Challenges on the Road to a
Monetary Union September 2003, Box 1.5
Accounting for Growth in the Middle East and North
Africa September 2003, Box 2.1
Is Emerging Asia Becoming an Engine of World Growth?
April 2004, Box 1.4
What Works in Africa April 2004, Box 1.5
Economic Integration and Structural Reforms: The
European Experience April 2004, Box 3.4
What Are the Risks of Slower Growth in China?
September 2004, Box 1.2
Governance Challenges and Progress in Sub-Saharan
Africa September 2004, Box 1.6
The Indian Ocean Tsunami: Impact on South Asian
Economies April 2005, Box 1.1
Workers’ Remittances and Emigration in the Caribbean
April 2005, Box 2.1
What Explains Divergent External Sector Performance in
the Euro Area? September 2005, Box 1.3
Pressures Mount for African Cotton Producers September
2005, Box 1.5
Is Investment in Emerging Asia Too Low? September
2005, Box 2.4
Developing Institutions to Reflect Local Conditions:
The Example of
Ownership Transformation in China Versus Central and
Eastern Europe September 2005, Box 3.1
How Rapidly Are Oil Exporters Spending Their Revenue
Gains? April 2006, Box 2.1
Staff Studies for the
World Economic Outlook
The Design of EMU
David Begg December 1997
The Great Contraction in Russia, the Baltics and Other
Countries of
the Former Soviet Union: A View from the Supply Side
Mark De Broeck and Vincent Koen May 2000
XI. Country-Specific Analyses
World Economic Outlook
Factors Behind the Financial Crisis in Mexico May
1995, Annex I
New Zealand’s Structural Reforms and Economic Revival
May 1995, Box 3
Brazil and Korea May 1995, Box 5
The Output Collapse in Russia May 1995, Box 8
Foreign Direct Investment in Estonia May 1995, Box 9
September 1995 Economic Stimulus Packages in Japan
October 1995, Box 1
Uganda: Successful Adjustment Under Difficult
Circumstances October 1995, Box 3
Changing Wage Structures in the Czech Republic October
1995, Box 6
SELECTED TOPICS, 1995–2006
264
Resolving Financial System Problems in Japan May 1996,
Box 3
New Zealand’s Fiscal Responsibility Act May 1996, Box
4
Deindustrialization and the Labor Market in Sweden May
1997, Box 7
Ireland Catches Up May 1997, Box 8
Foreign Direct Investment Strategies in Hungary and
Kazakhstan May 1997, Box 12
China—Growth and Economic Reforms October 1997, Annex
I
Alternative Exchange Rate Assumptions for Japan
October 1997, Box 2
Hong Kong, China: Economic Linkages and Institutional
Arrangements October 1997, Box 9
Russia’s Fiscal Challenges May 1998, Box 9
Japan’s Economic Crisis and Policy Options October
1998, Chapter IV
Brazil’s Financial Assistance Package and Adjustment
Program December 1998, Box 1.1
Recent Developments in the Japanese Financial System
December 1998, Box 1.2
Malaysia’s Capital Controls December 1998, Box 2.1
Hong Kong’s Intervention in the Equity Spot and
Futures Markets December 1998, Box 2.2
Is China’s Growth Overstated? December 1998, Box 4.1
Measuring Household Saving in the United States May
1999, Box 2.2
Australia and New Zealand: Divergences, Prospects, and
Vulnerabilities October 1999, Box 1.1
The Emerging Market Crises and South Africa October
1999, Box 2.1
Structural Reforms in Latin America: The Case of
Argentina October 1999, Box 2.3
Malaysia’s Response to the Financial Crisis: How
Unorthodox Was It? October 1999, Box 2.4
Financial Sector Restructuring in Indonesia, Korea,
Malaysia, and Thailand October 1999, Box 2.5
Turkey’s IMF-Supported Disinflation Program May 2000,
Box 2.1
Productivity and Stock Prices in the United States May
2000, Box 3.1
India: Reinvigorating the Reform Process May 2000, Box
4.2
Risky Business: Output Volatility and the Perils of
Forecasting in Japan October 2000, Box 1.2
China’s Prospective WTO Accession October 2000, Box
1.3
Addressing Barter Trade and Arrears in Russia October
2000, Box 3.3
Fiscal Decentralization in Transition Economies: China
and Russia October 2000, Box 3.5
Accession of Turkey to the European Union October
2000, Box 4.3
Japan’s Recent Monetary and Structural Policy
Initiatives May 2001, Box 1.3
Japan: A Fiscal Outlier? May 2001, Box 3.1
Financial Implications of the Shrinking Supply of U.S.
Treasury Securities May 2001, Box 3.2
The Growth-Poverty Nexus in India October 2001, Box
1.6
Has U.S. TFP Growth Accelerated Outside of the IT
Sector? October 2001, Box 3.2
Fiscal Stimulus and the Outlook for the United States
December 2001, Box 3.2
Argentina: An Uphill Struggle to Regain Confidence
December 2001, Box 3.4
China’s Medium-Term Fiscal Challenges April 2002, Box
1.4
Rebuilding Afghanistan April 2002, Box 1.5
Russia’s Rebounds April 2002, Box 1.6
Brazil: The Quest to Restore Market Confidence
September 2002, Box 1.4
Where Is India in Terms of Trade Liberalization?
September 2002, Box 1.5
How Important Are Banking Weaknesses in Explaining
Germany’s Stagnation? April 2003, Box 1.3
Are Corporate Financial Conditions Related to the
Severity of Recessions
in the United States? April 2003, Box 2.2
Rebuilding Post-Conflict Iraq September 2003, Box 1.4
How Will the U.S. Budget Deficit Affect the Rest of
the World? April 2004, Chapter II
SELECTED TOPICS, 1995–2006
265
China’s Emergence and Its Impact on the Global Economy
April 2004, Chapter II
Can China Sustain Its Rapid Output Growth? April 2004,
Box 2.3
Quantifying the International Impact of China’s WTO
Accession April 2004, Box 2.4
Structural Reforms and Economic Growth: New Zealand’s
Experience April 2004, Box 3.1
Structural Reforms in the United Kingdom During the
1980s April 2004, Box 3.2
The Netherlands: How the Interaction of Labor Market
Reforms and
Tax Cuts Led to Strong Employment Growth April 2004,
Box 3.3
Why Is the U.S. International Income Account Still in
the Black,
and Will This Last? September, 2005, Box 1.2
Is India Becoming an Engine for Global Growth?
September, 2005, Box 1.4
Saving and Investment in China September, 2005, Box
2.1
China’s GDP Revision: What Does It Mean for China and
the Global Economy? April 2006, Box 1.6
Staff Studies for the
World Economic Outlook
How Large Was the Output Collapse in Russia?
Alternative Estimates and
Welfare Implications
Evgeny Gavrilenkov and Vincent Koen September, 1995
SELECTED TOPICS, 1995–2006
266
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