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World Outlook
Author(s) -
DICKS GEOFFREY
Publication year - 1979
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/j.1468-0319.1979.tb00209.x
Subject(s) - economics , balance of payments , recession , slowdown , current account , balance of trade , terms of trade , international economics , monetary economics , macroeconomics , exchange rate , economic growth
Summary Since the publication of February's Economic Outlook there has been a significant deterioration in the prospects of the OECD group of countries as a whole. The events in Iran and the associated reduction in the supply of Iranian oil, which other oil‐producing countries have chosen not to make up, have enabled the OPEC group of countries to charge a significantly higher price for their oil exports. For the non‐OPEC countries the repercussions are being felt in the form of a higher overall price level, and a worsening balance of payments. In 1980 there is likely to be a major slowdown in the rate of growth of output and trade. Industrial production in the 24‐nation OECD group is forecast to grow by 4.9 per cent in 1979, that is at about the same rate of growth as in the two previous years but in contrast with 1978 and similarly to 1977 most of the growth is expected to have occurred during the first half of the year. The second half of 1979 is expected to see a marked deceleration in the rate of growth of output which continues into 1980, for which year we are now forecasting a world recession, with output showing no growth over this year. The growth of world trade is also expected to be much reduced in 1980 at 1.8 per cent after 7.1 per cent in 1979. The immediate cause of the forecast world recession is the series of increases which have occurred in the price of oil (see next section). These have raised our world inflation forecast for 1979 to 18.1 per cent, 8.7 per cent and 9.1 for commodity prices (including oil), manufacturing prices and consumer prices respectively. Governments are expected to react to this higher rate of inflation by pursuing marginally tighter monetary policies. The net effect is that the rate of growth of the world real money supply is significantly reduced and output is seriously affected in turn. In 1981‐82, given our assumption of a stable real price of oil , the rate of world inflation slows down to about 6 per cent, real money supply growth picks up and output growth of about 4 per cent ensues.