The London Business School with Gower Publishing

Output has stagnated in the main industrialised countries this year but we expect the benefits of lower oil prices to show up in rapid growth from now on. The present weakness in the world economy stems from tighter US fiscal policy and the oil price shock itself. These have combined to reduce domestic demand in the United States, and hence to cut the market for Japanese exports in particular, and also to reduce expenditure by energydependent countries and companies. A further factor is that, with prices of oil-based products falling, there is an incentive to delay expenditure. We expect this impact effect of OPEC III to be short-lived and to give way to its positive effects in the second half of this year. Specifically, we expect consumer spending to lead the recovery as real incomes will be boosted by the terms of trade gain from lower oil prices - equivalent to 3 per cent of GNP in the OECD area as a whole. On the basis of oil prices holding at $15. we forecast OECD output growth of 3 per cent this year, rising to 41/2 per cent in 1987. Additionally, we expect lower oil prices to produce a significant reduction in world inflation. Zero growth of producer prices is forecast on average this year arid consumer price inflation is expected to fall to wards 2 per cent in the course of the year.     

Forecast Summary

Economic recovery is under way fuelled by a sustained rise in consumer spending. We expect. output to grow by 2% per cent this year, slightly faster in 1984. Although prices will rise more rapidly from now on than in recent months, the inflation rate is unlikely to rise signijkantly above 6 per cent over the next two years.     

The London Business School with Gower Publishing

In October we forecast 1 per cent output growth in 1993 accompanied by little change in retail price inflation, an increase in unemployment to 3.2 million by the end of the year and a £20bn deficit on the current account of the balance of payments. Since then we have revised our view of the international outlook and the Chancellor has made his Autumn Statement. There are also some hopeful signs in the latest data on retail sales, manufactured exports and the money supply that demand may be picking up both domestically and overseas. How do these developments affect our short-term forecast? The simple answer is very little: the outlook on output and inflation in 1993 is barely changed since October (Table I). We have lowered our forecasts for world inflation and for German interest rates which means that the pound can be held steady against the DM at lower UK interest rates and that the inflationary consequences of devaluation, though significant, are slightly less over the medium term than we made out in October. There is one revision of major significance, and that relates to the PSBR, which is now likely to reach f45bn in 1993-4, more than 7per cent of nominal GDP. The change is not on the spending side - the Autumn Statement confirmed existing expenditure plans - but on revenues, notably corporate taxes and tares 011 spending, which have fallen far more quickly than we envisaged. This, in combination with a projected near-2'per cent of GDP deficit on the balance of payments, poses a difficult medium-term policy dilemma. To escape from the twin deficits requires either deflation of demand, which conflicts with the Government's new-found commitment to growth, or a more buoyant economy to boost tax revenues and a competitive pound to underpin export-led growth. Of the two the latter is self-evidently more inflationary. This highlights the policy dilemma: at some stage the Government may have to choose between reducing the deficits and its 1–4 per cent inflation target or sacrifice its commitment to growth.     

The London Business School with Gower Publishing: Forecast Release: THE TIMING OF RECOVERY

In his Budget speech the Chancellor argued that "there are good reasons to expect that the recovery will begin around the middle of this year, although initially it may be slow. As we found ten years ago, confidence revives as inflation comes down… Just as falling consumer spending contributed to the onset of recession, so returning consumer confidence is likely to lead the recovery." Since then Mr. Lamont has detected 'faint stirrings' of a recovery in activity, while the Prime Minister is confident of a return to growth, arguing this month that "there are far too many indications for anyone to doubt that in the second half of this year there will be a great improvement and we will be coining out of recession." For all the official confidence that their relatively modest prognosis, which we shared in our June forecast, is proving correct, there are many who remain doubtful. The survey data, while improving, do not yet convincingly point to an upturn and there is a fear that while lower inflation and easier monetary policy would on their own produce higher spending, this effect could be outweighed by consumer caution in the face of rising unemployment. This Forecast Release examines these issues. It focuses particularly on the link between lower interest rates, falling inflation, rising unemployment and the savings ratio and finds that, on the basis of the experience in the recessions of 1975 and 1980 and the boom of 1988, it would be surprising if the savings ratio were not to head lower in the second half of the year. The latest figures on retail sales, which rose more than 1 per cent in June, suggest that this may already be happening, though this will only be confirmed by data showing a greater willingness on the part of consumers to step up their borrowing once again.     

THE REAL WAGE GAP

Over the past year a gap has opened up between the growth of manufacturing productivity and that of real wages. This gap cannot persist indefinitely, but it can be closed in many different ways. The best that can happen is that wage settlements fall while output and productivity accelerate. The worst outcome would be continued stagnation of real output and no deceleration of wages, in which case the required productivity improvement would have to come about through renewed labour shedding. There are worrying signs that this has started to happen. An intermediate solution might involve a fall in the exchange rate, with some improvement in competitiveness boosting real output (so that UK producers get a larger share of buoyant consumer spending) and some rise in prices holding back real wages.
We continue to believe that the most likely outcome is a rise in output and a fall in the rate of wage settlements. In our June forecast this occurs despite a fall in the real exchange rate. In these circumstances we expect the growth of unit labour costs to fall back from its current high level so that the current 3 per cent inflation rate becomes a true "core" rate. But a moderate fall in the real exchange rate may prove hard to achieve, especially if the oil price continues to weaken. We therefore explore what would happen if the required depreciation happens more rapidly, so that interest rates have to remain high to prevent it getting out of control. In this case we would expect lower growth and higher inflation than we forecast in June.     

The London Business School with Gower Publishing

This forecast release examines the latest monthly indicators. In general there are few surprises although total output in the economy is showing signs of moving upwards more rapidly than we had expected, with the underlying trend in industrial production showing a 1½ percent increase over the last three months. Retail sales are currently running at over 3 per cent above the 1977 level. The underlying rate of retail price inflation is now under 8 per cent although the input price figures are showing some increase after the earlier falls. The balance of payments continues to be very erratic with monthly oscillations of up to £500m. The most recent figures showing a sharp fall in imports are consistent with the view we expressed last month that much of the rise in imports in the first quarter reflected stock- building of imported goods as companies took advantage of the strong pound. The money supply figures continue to be disturbing with recent growth over 12 months at 16 percent while the six-monthly figure has been close to 20 per cent; compared to our major industrial competitors this puts us back towards the top of the league on monetary growth and in this light it is not surprising that the exchange rate has fallen.     

World Economic Prospects Monthly

Overview: Global growth in 2019 revised down again

• ? In response to continued weakness in global trade and signs that the softness has spread to other sectors, we have cut our 2019 world GDP growth forecast to 2.5% from 2.7% last month (after 3.0% in 2018). But we see growth accelerating in H2 due to fiscal and monetary policy changes and as some temporary negative forces unwind. While revised fractionally lower, global growth is still expected to tick up to 2.7% in 2020 – but the risks lie to the downside.
• ? The latest tranche of trade data points to another poor quarter in Q1. While the weakness in Chinese trade is partly related to the impact of US tariffs, the causes of the trade slowdown are rather broader. Reflecting this, we have again lowered our world trade growth forecast – we now see it slowing from 4.8% in 2018 to just 2.5% in 2019, only a little above the previous low of about 2% in 2016.
• ? One source of comfort is that the February global services PMI rose to its highest level since November. But retail sales in the advanced economies as a whole have been weak recently and, while consumer confidence bounced in February, it has trended lower over recent months. Reflecting this, we have cut our global consumer spending forecast for this year.
• ? We expect ongoing policy loosening in China and dovish central banks – either in the form of delays to rate hikes and liquidity tightening or via renewed easing – to boost the global economy in H2 and beyond. Some recent temporary drags on growth (such as auto sector weakness) should also wane, providing further modest support.
• ? But the modest rise seen in GDP growth in 2020 exaggerates underlying dynamics due to sharp rebounds in a few crisis‐hit economies such as Turkey, Venezuela and Argentina. And downside risks for 2020 are probably larger than in 2019; benign financial conditions and the weaker US$ assumed in our baseline may not materialise, while the build‐up of debt in EMs could act as a larger‐than‐expected drag on growth.

     

WORLD OUTLOOK

Over the last 12 months industrial production in the OECD area has risen by 8–9 per cent, only slightly less rapidly than in the first year of recovery from the OPEC 1 oil crisis. Much of the growth in output stems from a very rapid expansion in North America although, in the second half of 1983, output in Europe and Japan began to accelerate. We expect the recovery to be maintained during 1984 with some convergence of growth rates. For the year as a whole we are now forecasting 61/2 per cent growth of industrial production, 33/4 per cent for total GNP. By the end of 1983 the long-standing reduction in inflation had run its course and OECD consumer prices were about 5 per cent higher than a year earlier. Within the area some countries, such as France and Italy, were still reducing inflation, but this was offset by the US where inflation has been rising slowly since the summer. We expect these trends to continue in 1984, i.e. stable inflation in the OECD but accelerating prices in the US, producing in each case about 5 per cent inflation. In 1985 we are now forecasting a slowdown in the world economy. This is expected to be centred on the United States, where the problem of the Federal Budget remains to be tackled. By the time of the Presidential election the US economy will have registered two years of relatively rapid growth. This is likely to be producing upward pressure on prices and interest rates and, as a result, a pause in 1985 in the growth of output. In Europe and Japan, where output has grown more slowly, we expect the recovery to be sustained in the medium term.     

The London Business School with Gower Publishing: Forecast Release: EARNINGS AND UNEMPLOYMENT IN THE CAR INDUSTRY: THE BEST AND WORST OF BRITISH INDUSTRY

The Chancellor has described the cost in terms of lost output and higher unemployment of getting inflation down as ‘well worth paying’. Yet the trade-off so far is a miserable 1.25 per cent off the underlying rate of growth of earnings for an unemployment increase approaching 600,000, some 2–3 per cent off the underlying rate of inflation for a 3 per cent drop in GDP and a 7 per cent fall in manufacturing output. The question is clear: why is it that in the UK we seem to have to pay such a high price in terms of lost output and higher unemployment to make only modest progress on reducing wage and price inflation? One possible answer is in terms of the NAIRU; another stems from the way in which we measure retail price inflation. Using the example of the car industry as a backdrop, we examine the relationship between unemployment and inflation and ask whether there is a role for government to play in improving the trade-off. Our conclusion is that the present non-interventionist stance is probably appropriate but that the government should be doing more to educate both sides of the wage bargain - a challenge picked up by the Prime Minister in his recent speech to the CBI. This is especially appropriate at the present time, because price inflation is falling but wage inflation is lagging behind. It is not a cut in real wages that is required but an equi-proportionate deceleration in both wages and prices. By joining the ERM, we will ultimately obtain German rates of inflation; low wage settlements would both shorten the time-scale and reduce the unemployment cost of convergence.     

THE 1981 BUDGET

In this Forecast Release we examine the short-term prospects for the UK economy in the light of the Budget and other developments. Compared with our February forecast the Budget has raised taxes by about £2 bn but it has also increased public expenditure by a similar amount The net effect on the PSBR, compared with our February forecast, is therefore small, especially if the Treasury's estimates for nationalised industry profits and/or public sector wages prove over-optimistic. We therefore believe that the outturn for the PSBR in 1981-82 could be close to the figure of £12 bn presented in our last forecast.
We also believe that the prospects for output and inflation are little changed The Budget by itself will have raised prices by about 1 per cent compared with our previous forecast but because we had probably over-estimated indirect tax receipts, the net effect on prices is small For output, the likely reduction in consumers' expenditure is more or less offset by higher public spending. We continue to expect a fall in output between 1980 and 1981 of 1–11/2 per cent, inflation during the year at about 10 per cent, a current account surplus of £3 bn, monetary growth of 8 to 9 per cent and a PSBR of £12 bn.     

THE 1990-91 WAGE ROUND

The 1990-91 pay round could hardly have started against a less propitious background. Retail price inflation -still the principal target for wage negotiators despite its unreliability as a measure of inflation -is at 10 per cent and rising. The shock to oil prices will boost prices and add to wage demands -the natural desire to seek recompense in higher wages will be little impressed by the economist's argument that it is not possible to offset the real income shock to oil consumers by raising nominal incomes. And while cost pressures are pushing up prices, almost every other factor is working in the opposite direction. Domestic demand is at last responding to high interest rates, while the recovery in the pound has worsened UK competitiveness by 10 per cent since the start of the year and this is now taking its toll of exports, hitherto the only buoyant component of demand. The CBZ is warning forcibly that recession is beckoning. How will wages respond to a situation where a backward-looking view points to higher settlements but a forward-looking view indicates the need for wage moderation?     

CONSUMER RECOVERY: LOSING MOMENTUM

Retail sales figures for February showed a fall of 0.5%, raising the possibility that the consumer recovery may be losing momentum. That would be consistent with our latest forecast, published in February's Economic Outlook, indicating a slowdown in consumer spending growth from the present rate of over 3% per annum to between 1 and 1.5%. In particular, our forecast of consumption growth for 1995 - 1.1% - is markedly lower than the consensus expectation of over 2%. In this Forecast Release, we look in more detail at the arguments for taking a cautious view of consumer prospects.     

THE MONETARY CONUNDRUM

The broad money supply, sterling M3, has grown by 14.1 per cent (ie an annual rate of over 30 per cent) over the past six months. Over the same period the narrow money supply definition (M1) has increased by only 4.4 per cent, while the difference between the two money supply measures — broadly speaking, the interest bearing component of sterling M3 — has grown by no less than 23.1 percent. The real economy is showing all the signs of a severe monetary squeeze with stocks and imports falling rapidly, while the balance of payments and the exchange rate are exceptionally strong. Over the past six months, industrial production (excluding North Sea oil) has fallen by 7.9 per cent while wholesale prices have risen by only 4.2 per cent. Thus, there is a double conundrum: the sharply different growth trends in M1 and sterling M3, and the contrast between the explosive growth of sterling M3 and the subdued behaviour of the real economy.
One possible answer to this puzzle, spelt out in more detail in the following pages of this Forecast Release, is that the rate of interest being paid on the interest-bearing component of sterling M3 is now abnormally high. Consequently, the asset demand for the interest-bearing component of sterling M3 is exceptionally large, with the result that both the non-interest-bearing component of the money stock (ie M1) and the real economy are being squeezed Under these circumstances, the short-run behaviour of sterling M3 may not be an entirely reliable guide to the behaviour of the real economy.     

Determinants of retail sales in SMSAs

This paper develops a theoretical model to explain consumer behavior in the context of spatially extensive retail markets. Several socio-economic variables influencing total and per capita retail sales are identified and their effects on sales are predicted. The theoretical framework presented in this paper serves to link location theoretic arguments to the retail trade arena and to provide a guideline for the empirical work reported. The empirical work encompasses nine retail trade sectors plus retailing in the aggregate. Good results are obtained for total sales and credible results for per capita sales using data from 229 United States SMSAs.     

Forecast Summary

Nearly two years after the I990peak in output, the economy continues to 'bump along the bottom' of an L-shaped recession, which has turned into as severe a downturn as its predecessors in 1974-5 and 1980-1. The origins of the recession lie in the weakness of domestic demand, which has failed to respond to the 4.5per cent cut in interest rates that has taken place since we joined the ERM. It is now the turn of fiscalpolicy: public spending was raised in the Autumn Statement and, as the General Election approaches, the odds are on tax cuts in next month's Budget. This relaxation of monetary and fiscal policy should produce recovery and we see output moving ahead from the second quarter onwards. Nevertheless, the outlook for I992 is weaker than before: we forecast a rise in GDP of a little over I per cent, rather less for manufacturing industry. In 1993 and beyond n growth rate of around 2112per cent should be possible but it is the second half of next year before output passes its previous peak. This suggests that unemployment will rise for at least another year - to a peak in the summer of I993 of 2.8 million. The combination of a stable exchange rate inside the ERM and protracted recession has produced a rapid reduction in inflation and the current account deficit. As long as the pound maintains its present parity, inflation should moderate further, to the 3–4 per cent range by the end of the year and beyond. On the trade side, in contrast, imports have already bottomed out and exports are struggling in a weak world economy. This suggests that, as the recovery gets under way, the deficit on current account will widen from last year's £6bn to £8bn this year and £10bn by I995.     

Forecast Summary

As the Chancellor recognised in his Mansion House speech, sterling M3 is once again proving to be a wayward indicator, and it is the exchange rate which is currently the principal instrument of the government's policy to reduce inflation. The strength of sterling, reinforced by the Group of Five commitment to a lower dollar, is the main factor behind decelerating retail prices and we endorse the Chancellor's forecast that inflation will fall to under 4 per cent in the middle of next year. A strong exchange rate, however, hits UK competitiveness and results in a slower rate of growth in output next year. Output growth, over 3% per cent this year including the post-strike rebound, remains at 2% per cent in 1986 and comes down to an underlying 2 per cent in the medium term.     

The London Business School with Gower Publishing

This forecast release examines the latest monthly indicators. In general they are in line with the detailed forecast published in February; retail sales have recovered from the fall in 1977 and price inflation is firmly in single figures, whilst output is showing only slight signs of recovery. The most disturbing indications are for money supply and the exchange rate. Monetary growth has been above the limit and the exchange rate has drifted in a manner that we did not expect until later this year. These indicators are related and give a clear warning for the Budget strategy. Unless the rate of monetary growth is brought back below 12 per cent it will not be possible to maintain a stable exchange rate. The target of maintaining single-figure inflation would then be virtually impossible.     

Forecast Summary

The recovery that we forecast in February remains intact, though its composition is shifting between external and domestic demand. As we reported in International Economic Outlook earlier this month, the recession in Europe is intensifying so that, even with the devaluation-induced improvement in competitiveness, exports are being held back The weaker world outlook is the main factor behind a lower growth forecast next year. For 1993, however, we are continuing to forecast growth of 11/2 per cent, principally on the basis of more buoyant consumer spending. But the boost from consumption, while welcome in the first stage of recovery, is short-lived since the higher taxes already announced for next year hold back the growth of disposable incomes. Again this is desirable for the share of consumption, private and public, in GDP has been rising steadily and needs to be reversed in order to devote resources to reducing the two deficits: the PSBR and the trade gap. Over the forecast as a whole it is exports and investment which drive demand, not consumption. Underlying inflation has fallen below 3 per cent for the first time in twenty years, but it is now at its cyclical low point. We expect some increase in inflation from now on, though the Government's 1–4 per cent target is not likely to be breached this year. Next year and beyond, however, without more action on the budget deficit or a sharper increase in interest rates than we are assuming, inflation is forecast to settle in the 4–5 per cent range. Unemployment has fallen in recent months but the underlying trend remains upwards. We expect the three million level to be reached in the second half of the year.     

需求驱动下的经济增长及增长中的价格水平波动——基于投资与消费本质属性分析框架的阐释

基于投资与消费本质属性的理论框架和实证分析表明:(1)消费需求是经济增长的最初需求动力,对经济增长的驱动作用由强变弱再变强,受消费需求导向的投资需求对经济增长的驱动作用由弱变强再变弱;(2)均衡增长状态下,产出与投资、消费同步增长,价格水平基本稳定;(3)相对于消费需求而言,投资需求的"投资滞后性"和"投资惯性"的存在使投资常与消费非同步增长,导致经济失衡和价格水平规律性波动,即经济发展早期阶段的价格水平上升多为消费需求拉动,经济发展中后期阶段的价格水平上升多为成本推动,而结构性价格水平上升会随着消费结构升级而成为一种常态;(4)1978年以来,中国经济增长的总体态势良好,但长期高投资率导致的强"投资惯性"致使当前产能过剩及通货膨胀预期并存,对中国经济持续稳定增长形成较大威胁。政府应通过以消费结构升级为导向扩大投资,努力提高农村居民收入水平,推进农村居民消费结构升级和稳定粮食价格等措施进行化解。。     

WORLD OUTLOOK

The recent weakness of the world economy does not undermine the relatively optimistic forecast for 1987 which we presented in May. At that time we suggested that activity would be sluggish for most of this year as a result of the impact effect of the OPEC III oil price collapse. But we also argued that by the end of the year there would be clear signs of a consumer-led recovery as the personal sector adjusted to the real income gains and lower inflation benefits of the lower oil price and the reduction in nominal interest rates which followed. There is mounting evidence of rising consumer spending, particularly in Europe and it is something of a puzzle that output has not risen to meet this demand. The explanation is partly that producer confidence has lagged behind that of consumers, so that demand has been met from stock, and partly that spending has been supplied from countries outside the OECD, especially the NICs in the Far East. Nevertheless, we are convinced that our earlier view of OECD output prospects next year remains the most likely though, in recognition of the growing importance of non-OECD competition, we have adjusted the output forecast down slightly. OECD GNP is expected to rise 2.6 per cent this year, with an acceleration to over 4 per cent in 1987 arid 1988. Moreover, we believe this can be achieved without a rebound in inflation, which is forecast to be stable at about its present level of 2 1/2 per cent.