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The world economy.

parties and political fragmentation may be irreversible. Electoral and constitutional reforms were already being discussed in a joint parliamentary commission, with the aim of creating a more efficient political system, but the process will be accelerated by the constitutional court's ruling which has approved ten referendums, two of which concern the abolition of proportional representation in favour of a first-past-the-post system.

Growing confidence in the Italian economy after the turmoil in the foreign exchange markets has enabled the monetary authorities to cut both the Lombard and the discount rate, Turbulence has continued in European foreign exchange markets over the last three months. The realignment of European exchange rates in September was not particularly conducive to promoting economic stability, and subsequent realignments have produced more strain. We had argued for some time before Black Wednesday that European exchange rates were not near their fundamentals. We have often said that such a realignment might be beneficial.(1) Any realignment involves some loss of credibility, but the disorderly rout seen in September appears to have damaged the reputation of a number of governments outside the core ERM countries, and it has affected confidence badly. A realignment could have been an aid to a weak recovery. It appears that the effects of the realignment and decline in confidence in the abilities of the authorities have helped turn what might have been a concerted upturn in France, Italy and the UK into a period of, at best, stagnation.

The US recovery seems moderately strong, and US imports continue to grow more rapidly than one might expect given past experience. This should help sustain world trade growth, as should a continued increase in imports into mainland China. However, trade is not the only, or even the main source of linkages between the major economies. Interest rates remain extremely important in the propagation to others of developments in one country. High interest rates are a major factor behind the problem of high unemployment that appears to be worsening once again throughout Europe.

The early-1980s saw a sharp rise in unemployment, and it remained stubbornly high until the late-1980s, when the recovery in demand growth, along with structural policies, helped reduce it throughout Europe. Unemployment has risen in France, Germany, the Netherlands and Belgium in the last year, and it is above 10 per cent in France. Unemployment has remained stubbornly high in Italy at over 11 per cent.

Short-term prospects

The decline in short-term interest rates in North America over the last four years appears to be beginning to have an effect. Growth was strong in the US in the second half of 1992, and the outturn for the year at two per cent was reasonably good by historical standards. There are, however, no real signs of a strong recovery outside North America, as is clear from the summary of our forecast in Table 1. Japanese growth was very low in 1992, despite the low level of interest rates. Prospects in the medium term are better, and we are expecting Japanese growth to rise to four per cent next year after two per cent in 1993. This recovery will be aided by low interest rates. As can be seen from Chart 1, Japanese rates began to fall two years later than in the US, and long rates were very high in 1989 and 1990. Both factors suggest that the Japanese recovery will mirror that in the US.

The two largest economies have differing prospects for 1993 in part because of their different fiscal positions. The US public sector deficit remains large, with little prospect of reduction in the short run. Chart 3 makes the contrast with Japan very clear. The government has been TABULAR DATA OMITTED in surplus for four years, and despite a number of fiscal packages, there appears to be little intention to use fiscal policy to expand the economy. The package announced in the Autumn has gradually been whittled away in the Diet until it is little more than a set of financial measures to aid the banking sector. Concerns over slow growth are, however, rising, and our forecast is predicated on the belief that fiscal policy will become more expansionary. This should help return the economy to trend growth, although probably not until 1994.

The slowdown in the Japanese economy has in part been driven by falling asset prices. Land prices began to fall in 1990, and the stock market reached its peak in that year and then fell precipitously. This reduced consumers' wealth and put considerable pressure on the banking system. We believe that the fall in real share prices has come to an end. Chart 4 plots real share prices in the UK, the US and Japan up until the end of 1992. The fall in Japanese share prices over the last 2 1/2 years has now brought them back into line with the other major stock markets.

Falling land and asset prices have affected the growth in housing investment in Japan. However, they are not the only factors at work. The recent downturn in activity has been accompanied by a marked fall in housing investment in all the major economies (except Germany). Chart 5 plots housing investment as a share of output in the US, Canada, Japan and the UK. In all cases housing investment accentuated the cycle. It is always tempting to look for specific explanations for cyclical phenomena, and in each country there have been good reasons for the downturn in housing. Financial liberalisation in the 1980s led to a rapid expansion of personal sector debt, as can be seen from Charts 6a and 6b, and as soon as the world economy began to slow down debt financing became less desirable. This was particularly the case because of developments in Germany, which raised both short-term real and long-term nominal interest rates.

German unification and the collapse of communism in Eastern Europe have opened up a number of potential outlets for capital investment. Many are not available in the short term, but as market mechanisms become established the opportunities will be taken up. In the medium term rates of return to capital and real interest rates will rise. These prospects were quickly reflected in long term interest rates in Germany, as can be seen from Chart 2. This rise would have been contractionary, and it will have partially offset the stimulus to demand that the immediate effects of unification produced. These effects, along with the decision by the government to finance unification by borrowing, led to a strong increase in demand. This was inflationary, and the independent Bundesbank reacted by raising short-term interest rates and arguing for fiscal rectitude. However, it is clear from recent US experience that high interest rates take some time to affect the economy, and a large public sector deficit can be sustained for long periods.

High German interest rates are a major driving force behind our pessimistic forecast of negative growth in West Germany in 1993. They are also a major factor behind the slow growth in the rest of Europe. The extended version of the ERM held together long enough to propagate the effects of German monetary rectitude throughout Europe. Growth in France in 1993 and 1994 is expected to be very slow, in part because the policy of the authorities has been to accept German interest rates and to maintain what, according to our calculations of the FEER in the November Review, is perhaps an overvalued exchange rate. Inflation in both countries will be reduced by the effects of appreciation. We are forecasting that German inflation will be around two and a half per cent in 1993 and 1994, despite an increase in indirect taxes. French inflation has been low for several years, and the renewed slowdown in activity will push it down further to around one and a half per cent.

There do not appear to be any panaceas for European problems. Reductions in interest rates in February were small, and they will be slow acting. The realignment in September should have helped the devaluing countries, boosting their trade. Because a systematic realignment would have reduced German inflation it should have led the Bundesbank to make significant cuts in interest rates. These two factors should have boosted output and demand, especially in the UK and Italy. Unfortunately, the gains from trade in Italy appear to be offset by the effects of the loss of confidence in the short-term prospects. We are forecasting very slow growth in Italy for the next two years, and this is likely to be accompanied by a rise in inflation driven by the effects of devaluation. Unemployment is expected to rise over the next two years to almost twelve per cent, and the prospective fiscal package should help keep it high.

World Trade and Commodity Prices

World trade growth has slowed down over the last three years. The peak growth of almost 10 per cent in 1989 in trade in all commodities and between all market economies was matched by OECD manufactures export growth of 9 1/2 per cent. Both measures have slowed down, but by less than has commonly been the case in previous cycles. Total world trade has been boosted by the growth of trade between less developed countries, and this has also affected our OECD index. The lack of synchronisation in the cycle in the world economy has also contributed to sustaining trade growth, with North America imports rising just as Europe slows down.

The upturn in North America has been accompanied by rapid import growth. This may in part reflect the growing effects of the North America Free Trade Area (NAFTA). There may also have been changes in the structure of US trade. The manufacturing share of US output has fallen from 28.2 per cent in 1978 to 21.3 per cent in 1991, whilst manufactured imports have risen from 5.3 per cent of income to 7.4 per cent over the same period. Demand for manufactures' is much more cyclical than is total demand, and hence we would expect an increase in the cyclicity of US imports. US exports have always had a high non-manufactured content. The change in US imports in part reflects the 'beach head' effect of increasing market penetration by Japanese owned (but not necessarily located) plants, and hence it may not be easily reversible.

World trade growth in aggregate has been supported by developments in mainland China. However, much of Chinese trade is with the rest of the Far East, and especially with Japan, and we would expect the UK exporters would be feeling little impact from these developments. Box 1 attempts to decompose market growth for UK, German and French exports. The prospects for European exporters are dependent on developments in their export markets, and they do not look anywhere as near as robust as that for the world as a whole.

Commodity prices have not weakened as much as one might expect given slow growth in output. The Institute maintains a weekly database of prices for a dozen of the more significant commodities. Chart 8 plots our aggregated commodity price indices for the last three years, whilst Chart 9 plots real commodity prices for the same groups over the last fifteen years. The general downward trend in real commodity prices is usually accentuated in a recession, but this has not been the case in the last two years. This could indeed be read as a sign that the recovery could be somewhat stronger than is currently anticipated. Our forecast for commodity prices is given in Table 2.

Oil prices have not been at all resilient in the last three months despite renewed tension in the Middle East. Spot prices for Brent crude were around $17 per barrel for most of January, reflecting an excess of supply in the market. OPEC output in December was almost 25 million barrels per day, around 10 per cent higher than in mid-1990. Supply from elsewhere, and especially from the former Soviet Union, has held up, and stocks are TABULAR DATA OMITTED expected to rise. Coal supplies have also been rising as CIS producers dump steam coal in order to raise foreign exchange. However, there is a great deal of pressure within OPEC to cut output back to agreed quotas. We expect the current negotiations to be successful, and our forecast contains a strengthening of oil prices to $18-$19 per barrel.

Interest Rates and Exchange Rates

The realignment of the ERM in September 1992 led to a small reduction in German interest rates. Market rates fell by 0.8 per cent between the third and fourth quarters of 1992, rather more than official rates. This reflected a general view that the German appreciation would reduce inflationary pressures and lead the Bundesbank to lower interest rates. Market interest rates in France initially moved down with German rates, but in January the differential between German and French rates opened up from 1 to 3 per cent. We believe that this reflects a market perception that there is a reasonable probability of a realignment within the first quarter, possibly immediately after the French general election in March. We analyse the effects of this policy in a Box in our forecast for France.

The lira, the pound, the peseta, escudo and the Irish punt have all depreciated against the D-Mark. The pound and the lira have depreciated by 17 and 20 per cent since leaving the ERM, but interest-rate developments have been very different in the two countries. Italian short-term interest rates averaged 16.5 per cent in the third quarter of 1993, and they have fallen by four points since then. Real interest rates remain at around 6 per cent. This is around the level seen in Germany and a little below that in France. Real rates of this magnitude are bound, if they are sustained, to contribute to the slowdown in activity that is now developing in continental Europe.

The North American authorities' interest-rate response to emerging recession was very different to that in Germany. Interest rates were cut rapidly and substantially, and real interest rates fell close to zero in the US, and just above in Canada. This policy has clearly helped sustain the recovery, and Canadian short-term market rates have now started to rise. Japanese rates, however have continued to fall in response to deepening gloom about the short-term prospects.

Our forecast for short-term nominal interest rates is given in Table 3. Deepening recession and strains on the ERM have already led the Bundesbank to cut official rates, and we expect them to go on doing so during 1993. By the end of the year we expect short-term rates in Germany to have fallen to 6.8 per cent. If, as we expect, the French franc weathers its current problems, then interest rates in that country will also fall quickly, although we do not expect them to reach German levels until 1995. We are anticipating that interest rates will rise in North America, having reached a trough in the second half of 1992. The US recovery looks moderately strong, and we anticipate that nominal rates will rise by 1 per cent over the coming year. We are, however, forecasting that Japanese interest rates will continue to fall through 1993 as the authorities respond to a worsening economic situation and the liquidity problems facing banks.
Table 3. Short-term interest rates
 Per cent
 US Japan Germany France Italy
1987 6.9 4.2 4.0 8.2 11.5
1988 7.7 4.5 4.2 7.9 11.3
1989 9.1 5.3 7.1 9.3 12.7
1990 8.1 7.7 8.4 10.2 12.4
1991 5.8 7.3 9.2 9.7 12.2
1992 3.7 4.5 9.5 10.3 14.0
1993 3.6 3.5 7.5 9.3 12.2
1994 4.8 3.9 6.8 7.3 12.0
1995 5.9 5.0 6.8 6.8 12.0
1996-9 ave 6.8 5.2 6.8 6.8 12.0
1991 I 6.7 8.1 9.1 9.8 13.2
 II 6.0 7.8 9.0 9.6 11.7
 III 5.7 7.2 9.2 9.7 11.8
 IV 4.9 6.2 9.4 9.6 12.0
1992 I 4.1 5.1 9.6 10.2 12.2
 II 3.9 4.7 9.7 10.3 12.7
 III 3.3 4.1 9.7 10.6 16.5
 IV 3.4 4.0 8.9 10.0 14.7
1993 I 3.3 3.6 8.4 11.4 12.3
 II 3.4 3.5 7.6 9.3 12.3
 III 3.8 3.4 7.3 8.8 12.1
 IV 4.1 3.4 6.8 7.7 12.1
1994 I 4.3 3.5 6.8 7.6 12.0
 II 4.6 3.8 6.8 7.5 12.0
 III 4.9 4.0 6.8 7.2 12.0
 IV 5.2 4.3 6.8 7.0 12.0

Chart 10 plots real short-term interest rates for the US, France, Italy and Germany between 1984 and 1994. Real rates in Europe have risen sharply whilst those in the US have fallen. Higher short-term real interest rates may not have much impact if they are not expected to be sustained. It is more difficult to calculate real long-term than short-term rates, but as Maurice Scott argues in this Review, they are very important. The real short-term rate is the nominal rate minus the rate of inflation expected over the next quarter. Our world model, NIGEM, is forward looking, and our real short-term rates use the model forecast for inflation. We can calculate ten year long-term interest rates on the same basis.(2) Real long-term interest rates are now around 4 per cent in the US and 5 per cent in Europe. Such real differentials imply continued real appreciation of the US dollar in the medium term.

Exchange-rate forecasting is a risky business. We almost always set our exchange-rate forecast in line with observed and forecast interest-rate differentials. A currency with a high interest rate is expected to depreciate, so that exchange losses just offset interest differentials. In this forecast we have overriden this rule in the short term for our forecast of the French franc exchange rate. As can be seen from Table 4, we are not anticipating a further ERM realignment. Our interest-rate forecast is usually based on the observed yield curve, which gives information about expected future short rates. However, we depart from market expectations when our forecast for output or inflation is significantly different from the consensus, because if our forecast is reflected in outturns then the authorities would implement different policies from those expected by the market. In this forecast our longer-term interest-rate and exchange-rate paths are set in relation to long-term bond yields, and we see interest rates falling to under 7 per cent in much of Europe by the end of the decade. North American rates will, we believe, rise to similar levels, but interest rates will in the longer term be significantly higher than this for the European countries that remain outside the ERM.

Real exchange rates within Europe were altered significantly by the ERM realignment. Past data and our forecast are given in Table 5, which depends upon our forecasts for inflation as well as for exchange rates. The fall in the Lira is likely to cut the Italian real exchange rate by 12 per cent between 1992 and 1993, and in the medium term this should boost growth. We do not expect that the Italian authorities will attempt to peg their currency against the D-Mark in the foreseeable future. They may be able to rejoin the ERM, but from time to time they would have to undertake realignments. It is possible that the franc/D-Mark exchange rate could remain fixed as most of the pain involved in inflation convergence has already been suffered. Current strains seem to stem more from political uncertainty than from deeper problems. The real appreciation of the D-Mark and the franc against other European economies has been partially offset by depreciations against the US and Japan. Both Germany and France have higher real exchange rates than in the last three years of the 1980s, whilst the reverse is true for the US. This pattern will, we believe, be slowly reversed as lower interest rates in the US induce an appreciation of the exchange rate.
Table 4. Exchange-rate forecasts
 Percentage change in effective rate
 US Japan Germany France Italy Canada
1987 -12.7 7.8 8.4 1.0 1.2 -0.7
1988 -5.5 11.2 -0.6 -1.9 -3.4 6.1
1989 4.8 -4.2 -2.1 -2.1 0.0 6.4
1990 -6.8 -10.7 8.1 7.9 4.7 -1.7
1991 -0.7 8.6 -2.1 -2.7 -2.5 1.9
1992 -2.9 4.0 3.0 3.4 -3.2 -6.7
1993 5.1 6.4 0.5 1.8 -14.5 -5.0
1994 2.2 2.0 -0.9 0.0 -4.8 -1.8
1995 1.4 1.8 -0.1 0.1 -4.5 -1.5
 Yen D-Mark Franc Lira Franc Lira
 per Dollar per D-Mark
Nominal cross rates, year average
1987 144.6 1.80 6.01 1296.2 3.34 721.5
1988 128.1 1.76 5.96 1301.2 3.39 741.1
1989 137.9 1.88 6.37 1370.9 3.39 729.7
1990 144.8 1.62 5.44 1197.8 3.37 741.7
1991 134.5 1.66 5.64 1240.0 3.40 747.7
1992 126.7 1.56 5.29 1231.1 3.39 789.2
1993 123.2 1.63 5.49 1480.9 3.37 907.7
1994 122.6 1.68 5.62 1582.5 3.35 942.5
1995 121.6 1.70 5.71 1671.7 3.35 980.5
Table 5. Real effective exchange rates
Real effective rates, year average
 US Japan Germany France Italy
1987 101.2 138.8 87.3 83.9 109.5
1988 97.2 149.6 84.9 81.9 109.2
1989 102.9 138.8 80.9 78.8 111.7
1990 98.0 121.8 88.8 85.9 121.8
1991 97.4 130.3 85.8 81.8 121.7
1992 94.9 134.3 90.4 84.6 120.5
1993 100.0 140.2 89.8 84.3 106.3
1994 102.7 140.8 87.5 83.0 104.7
1995 104.7 140.4 85.8 82.1 103.6

The United States

The latest figures for GDP for the US show that the robust recovery of the third quarter has continued into the final quarter of 1992. Real GDP grew by almost 1 per cent in the fourth quarter, compared to around 0.9 per cent in the third and only 0.4 per cent in the second quarter. Both real consumer spending and investment grew strongly. A decline in the savings ratio to 4 1/2 per cent (slightly down from the third quarter but much lower than the 5.3 per cent of the second quarter), rather than a rise in personal incomes, has accompanied the recent strong increase in consumers' expenditure. Weaker external demand partly explains why export volumes of goods and services grew by only 0.9 per cent in the fourth quarter compared to over 2 1/2 per cent in the previous quarter. Import volumes only rose by around 1 1/4 per cent which is slower than the 4 per cent growth in the previous two quarters. The deficit on trade in goods and services in the fourth quarter rose to its highest level for two years. Gross private domestic investment growth slowed down somewhat to 1.6 per cent and 2.5 per cent in the last two quarters of 1992. Residential investment, however, grew by over 7 per cent in the final quarter of last year. Although investment in producers' durable equipment has slowed down from its second quarter growth of 6 per cent, it still rose by more than 5 per cent in the second half of 1992.

Short-term prospects for the US economy are improving. The Conference Board index of consumer confidence jumped over 10 points in both November and December to end the year at 78.4. This is high in comparison to the recent trough of 47.3 in February 1992. The recovery in consumer sentiment seems to originate in part from political factors associated with the Clinton election victory. Robust consumers' expenditure may not be sustained unless real incomes and job prospects also improve. However, in recent months there have been signs of stronger recovery in industrial production, orders and employment. After falling in August and September, industrial output increased by almost 1 per cent in the final quarter of 1992, causing manufacturing capacity utilisation to rise to its highest level since November 1991. The widely quoted National Association of Purchasing Managers composite index rose to around 60 in December compared to the depressed level of 49 in September. Unemployment declined further in December to 7.3 per cent compared to 7.7 per cent in June. Non-farm employment has now risen for four consecutive months. In addition, both average weekly hours and overtime working have increased in manufacturing in the past few months. In contrast, exports fell by 3 per cent in November. More than half of US exports go to Europe, Canada and Japan where demand growth is either on a downward trend or depressed, and there has been an appreciation of the exchange rate. Both factors are likely to depress export growth in the short term.

Annual consumer price inflation fell to just below 3 per cent in December. The recent strengthening of the US dollar contributed to this low inflation rate as import prices declined by around 1/2 per cent in November. However, average weekly earnings growth is now accelerating, registering a 3 3/4 per cent annual increase in November compared to 3 per cent in October and 2 per cent in September.

The Federal Reserve has reduced short-term interest rates gradually from around 10 per cent in the middle of 1989 to 3 per cent in November of last year. The forward markets anticipate that the process of partially reversing this substantial monetary easing will begin this year, and short rates are expected to be about 3/4 per cent to 1 per cent higher by the end of 1993. However, given the current low rate of inflation, combined with both M2 and M3 growth below their target ranges, the Federal Reserve may well be cautious in its a tightening of monetary policy. Prospects for stronger growth and a large fiscal deficit suggest that interest rates are likely to rise over the next few years. For the fiscal year 91/92 the Federal deficit increased to a record $290.2 bn compared to $269.5 bn in the previous fiscal year. Most of the rise in the deficit is cyclical and there are signs that the upward trend is coming to an end as the $33 bn deficit in November of last year was almost $10 bn lower than a year ago. This may reduce upward pressure on borrowing rates.

Our forecast for US GDP is given in Table 6. We feel that, as long as the underlying economy continues to respond, consumption growth will be in excess of three TABULAR DATA OMITTED per cent. This would result in a savings ratio similar to that of the late-1980s. Interest-rate reductions have resulted in upward revaluations of equities and bonds, and this has raised the external sector net wealth in the personal sector, encouraging increased expenditure. Consumers will also benefit from stronger growth in real personal disposable income this year. Falling unemployment will raise incomes via two main routes: first, aggregate income will rise because the numbers of wage earners will increase. Second, reduced excess supply in the labour market will put upward pressure on wages.

We believe that the recovery in business investment in 1992 will continue through 1993. It seems that growth in business investment is now responding to the sustained and substantial cuts in interest rates from mid-1989. However, the total response will be based on long-term interest rates (which are more appropriate for investment decisions) which have only fallen by about one third of the decline in short rates, because short rates are expected to rise again. Uncertainty over demand prospects is rapidly diminishing, and we expect fairly strong business investment growth of around 7 per cent this year. The strong growth in residential investment of last year should also continue in 1993 as confidence remains high and real interest rates stay low. However, the external sector will probably have a negative impact on growth this year. Accelerating domestic demand, slower growth in US export markets and an appreciating Dollar should worsen the trade balance in both 1993 and 1994.

Given all of the above factors, it is likely that GDP growth will be more than 3 per cent this year, and 2 1/2 per cent next year. However, inflation will probably remain low at around 3 per cent. Earnings will grow more strongly both this year and next, but unit labour cost growth may not be so rapid as productivity rises in the upswing. Furthermore, the appreciation of the dollar that we are forecasting will further suppress consumer price inflation via slower growth in import prices.

Table 7 shows our forecast for the US balance of payments. The current balance deficit for 1992 should be around $60 bn, approximately 1 per cent of GDP after 0.1 per cent in 1991. However, the better outturn in 1991 was primarily due to negative GDP growth reducing the visible trade deficit plus large transfers reflecting one-off Gulf war payments from the allies. The resumption of strong US growth this year combined with weak demand in US export markets will probably cause a further deterioration in the current balance deficit to around 1 1/2 per cent of GDP. The deterioration is forecast to continue next year partly because of a loss in competitiveness if the dollar rises as anticipated, but also because the projected recovery is expected to occur mainly via the import intensive expenditure categories of consumption and investment. The surplus on interest profits and dividends will probably turn to continued deficit in the near future. Although this is partly explained by the appreciation of the dollar and the rise in interest rates in the US relative to the rest of the world is primarily due to the deterioration in US overseas net assets that has resulted from the accumulation of current balance deficits in the 1980s. The US was a net creditor until the late-1980s and then became a substantial net debtor. The associated deterioration in trade in goods and services TABULAR DATA OMITTED trade, shown in Chart 12, was driven by very strong import growth over much of the last twelve years.

A fiscal stimulus seems less necessary now that the US recovery is more established. Furthermore, extra public expenditure when the government deficit is around 5 per cent of GDP is not advisable if upward pressure on short-term interest rates is to be avoided. Recession and slower growth have probably added around 2 to 3 percentage points to the government deficit/GDP ratio (the ratio was only 2 1/4 per cent in 1989). The rise in transfers of almost 20 per cent last year largely reflects payments to the unemployed and indicates the cyclical nature of part of the deficit. However, the deficit should stabilise this year as strong GDP growth is forecast to increase tax revenue and decrease welfare payments. By the end of 1994 the deficit should be close to 4 1/2 per cent of GDP. In the longer term, we expect the deficit to stabilise at around 2 1/2 per cent of GDP. The debt ratio rose substantially during the period of Republican Presidents in the 1980s, as can be seen in Chart 13. There was a severe structural problem during the mid part of this period (1982-89) despite strong GDP growth. The major growth categories sustaining the deficit over both the past and the projected medium term are the mandatory expenditures on pensions, welfare payments and other social entitlements. It remains to be seen whether (and how) the Clinton administration deals with this problem.

Table 8 outlines our projection for the US budget deficit. The figures are based on the National Income and TABULAR DATA OMITTED Product accounts which exclude financial transactions. Therefore, public money used to rescue the savings and loans' institutions is not included in the deficit. However, our forecast makes an allowance for higher interest payments on the additional debt stock associated with the failure of these institutions.


The last year has been one of the worst for the Japanese economy for two decades. Real GNP grew by 4.8 per cent in 1990 and 4.1 per cent in 1991, but is now expected to have grown by less than 2 per cent in 1992, the lowest growth rate since 1974. The downturn was mainly due to the dramatic fall in investment. Companies have seen their asset positions eroded due to the collapse of equity and real estate prices, and have reduced their capital expenditure. Banks have to build up their ratio of their equity base to total assets to meet new banking rules and have restrained their lending. In addition, sales have fallen as households have suffered income losses caused by lower wage increases and the decline in overtime worked.

Real GNP fell by 0.4 per cent in the third quarter, compared with zero growth in the second and 1.0 per cent growth in the first quarter, when it was boosted by more working days. Consumption rose by only 0.7 per cent in the third quarter, after falling 0.8 per cent in the second. Several indicators for the fourth quarter suggest that consumer confidence is weakening. Department stores' sales fell by 8.1 per cent in December compared to a year ago. Sales have fallen by 3.3 per cent in 1992, the first year-on-year decline since data collection began in 1965. Consumer incomes and confidence have been hit by the drastic cut in year-end and other bonus payments. Bonuses traditionally form a large share of total earnings in Japan. The average wage rise agreed in the annual negotiations, the Shunto, was 4.9 per cent last year, the lowest for four years. But bonuses, which amount to a quarter of total earnings, have also been reduced as corporate profits have fallen. For the first time since 1975, winter bonuses were actually lower than a year ago. This has been accompanied by a marked decline in overtime worked, leading to a much lower increase in total compensation per employee than last year. The effects of the fall in households' wealth due to the fall in real estate and equity prices have also added to the downward pressure on consumer spending.

The severity of the slowdown is best illustrated by the fall in investment and output. Total investment fell by 2.1 per cent in the third quarter. Housing investment was largely unchanged, but government investment fell 3.2 per cent, compared with 7.6 per cent growth in the second quarter, when public works' expenditure was brought forward as part of a fiscal package to boost the slowing economy. Private investment in machinery and equipment fell by 2.2 per cent in the third quarter and has now fallen for four consecutive quarters.

In November, industrial production was 6.0 per cent lower than a year ago, while mining and manufacturing output was 8.0 per cent lower. Corporate bankruptcies rose by 32 per cent in 1992, due to a tougher approach by Japanese banks, which are carrying a heavy burden of bad loans. Survey data reflects the widespread pessimism over future growth. Major companies have revised their expectations down and survey evidence suggests that profits will fall by 22 per cent in 1993. The expected drop in profits in manufacturing is 27 per cent. The Bank of Japan's quarterly survey showed business confidence in manufacturing fell to -44, a ten-year low, in the fourth quarter, compared to -37 in the third and -24 in the second. A similar fall was reported in non-manufacturing. Expectations for the first quarter of 1993 have also worsened in both sectors compared with the previous quarter.

The depressed state of the economy has put the Bank of Japan under pressure to cut interest rates further, especially as inflation is at a very low level. The annual inflation rate based on the national price index fell to 0.7 per cent in November, while that based on Tokyo prices reached 0.9 per cent in December. Wholesale prices fell 1.6 per cent in 1992, whilst import prices fell 6.0 per cent.

The Bank of Japan has maintained a tight monetary policy since 1990 to combat inflation. It has generally followed market rates down and has tightened lending restrictions. It is now feared that the money supply growth has weakened too much. Average M2 plus CD's fell by 0.5 per cent year-on-year in the fourth quarter and there is widespread concern about the risk of a monetary contraction. Equity prices have fallen sharply in 1992, for the third consecutive year. They ended the year 29 per cent lower than at the beginning of 1992. The stock market could fall further if companies start to sell some of their holdings of equity to boost their reported profits towards the end of this fiscal year in March.

Despite supplementary fiscal packages that were introduced last year to stimulate the economy, the fiscal stance in Japan has been relatively tight. In the initial budget last year, the government had set expenditure only 2.7 per cent higher than the year before, which was the smallest increase for five years. This was later supplemented by various additional packages, but these were insufficient to boost the economy. The draft budget for the next fiscal year, beginning in April, sets expenditure only 0.2 per cent higher than last year's. It is expected that a supplementary budget will be announced later in the fiscal year, that could include significant tax cuts. We have TABULAR DATA OMITTED built this into our forecast for the Japanese public sector deficit in Table 9.

Our forecast for Japanese GNP is shown in Table 9. After the sharp downturn in growth in 1992, we foresee no strong upturn in 1993. The slowdown last year was mainly due to the fall in investment, which had been TABULAR DATA OMITTED severely hit by the fall in asset prices. For 1993, we forecast only very modest growth in investment. Recent cuts in interest rates could stimulate housing investment, which we expect to grow by 4.5 per cent this year, after two years of collapse. Consumers' spending could also be boosted by interest-rate cuts. Consumers have to rebuild their wealth stocks and this could depress spending in the medium term. Although we are forecasting a fall in the saving ratio we expect that it will stay at a relatively high level. The contribution of the external sector to GNP growth is very weak. Exports are held back by the sluggish recovery in Japan's major export markets and the loss of competitiveness due to the yen's recent appreciation.

Our forecast for Japanese trade is set out in Table 10. In 1992, import growth weakened as domestic demand was depressed, which was reflected in a slowing of demand for imported luxury goods. But export volumes were affected by the loss of competitiveness. The trade surplus improved because of the strong improvement in Japan's terms of trade. This was not only due to the increased trade surplus with China. Both the trade surplus with the US and the surplus with the EC rose significantly last year, fueling fears of a fresh conflict with the new US administration. For this year we expect stronger export growth. The recovery of the US economy will boost exports and lead to a larger trade surplus with the US. However, the loss of competitiveness resulting from the appreciation of the Yen could partly offset this boost to exports. The deficit on invisibles is expected to increase due to the rising services deficit, and we forecast a slightly lower current account surplus in 1993.


The German economy slowed dramatically last year. Real GNP fell by 1.3 per cent in the third quarter of 1992, after a fall of 0.2 per cent in the second quarter and an increase of 1.9 per cent in the first. It is now estimated that real GNP grew by only 0.8 per cent in 1992, compared with 3.6 per cent in 1991 and 5.0 per cent in 1990, when unification boosted consumer spending and investment. Real GDP, which excludes net factor income from abroad, fell by 0.4 per cent in the third quarter,(3) compared with a 0.3 per cent fall in the second quarter. It is estimated that GDP grew by 1.5 per cent in 1992, which is higher than the estimate for GNP growth.

Consumers' expenditure dropped by 0.6 per cent in the third quarter and 0.9 per cent in the second quarter of 1992. Consumer spending weakened last year, after a 3.6 per cent increase in 1991 and a 5.3 per cent surge in 1990. Retail sales in 1992 were depressed by various tax increases that have been introduced to finance unification. Some recovery of spending was expected when the one-year 7.5 per cent surcharge on income tax, the 'unification' tax, was removed in July last year, but this failed to materialise in part because further increases in tax rates are expected to be announced. For the first half of this year a recovery of sales can be ruled out now the higher VAT rate has been increased from 14 to 15 per cent to harmonise with those in other EC countries.

Total investment fell 2.2 per cent in the third quarter of 1992, compared with a 4.5 per cent fall in the previous quarter. For the year as a whole, business investment is expected to have risen by approximately 1 per cent, much less than the 6.5 per cent increase in 1991 and the 9 per cent surge in 1990, when it was boosted by unification. There are no indications of an immediate upturn. Capacity utilisation fell to 83.1 per cent in the third quarter, the lowest for seven years. Order books also suggest prospects are poor for the first half of this year. Manufacturing orders continue to decline and are now the lowest for four years. Home orders are affected by the domestic downturn, whilst export orders have been hit by slow growth in Germany's export markets and the recent appreciation of the D-Mark.

Employment is also declining rapidly. Unemployment rose by 100,000 in the fourth quarter. Almost 2 million people are out of work in west Germany. The unemployment rate has risen to 7.2 per cent in December. In addition, it is estimated that half a million people are on job creation or training schemes. Short-time working has also risen sharply to 650,000 in December, the highest for ten years.

All the above figures refer to the western Lander only, as does our forecast for GNP. The recovery of the economy in the eastern Lander has so far been disappointingly slow. After the virtual collapse of the east German economy over the last two years, the recovery that was expected in 1992 has faltered and output grew by only 6 per cent. Figures for the east German labour market illustrate the economic situation in the eastern Lander. Productivity is much lower than in the western Lander, but wages have risen sharply in the east. It is estimated that the average wage in the east is 63 per cent of that in the west, whilst productivity in the east is less than 40 per cent of the level in the west. This has weakened the competitiveness of those firms that were profitable, and constitutes a serious disincentive for much needed new investment. The rate of unemployment rose to 13.9 per cent in December, with 1.1 million out of work. In addition, some 1.7 million are on job creation or training schemes or have been encouraged to retire early. It is now believed that the restructuring of the east German economy will take many years and no significant improvement in the labour market can be expected.

The economic slowdown in west Germany has helped to keep wage pressure down. Wages have risen by around 6 per cent in 1992, but more moderate settlements are expected for 1993. Leaders of west German industry have called for lower wage settlements to reduce inflationary pressures and help recovery. They also promised to step up private investment in the eastern TABULAR DATA OMITTED Lander from DM110 bn in 1992 to 130 bn this year on the condition that the trade unions agree to hold back the pace of wage equalisation between east and west. The government has also supported the call of employers to postpone the 26 per cent pay rise for east German engineering workers planned for later this year. This was part of the package agreed in 1991 to assure eastern workers pay parity with the west by 1994. The wage equalisation plans are now seen as the main obstacles to recovery in the east, as the wage differential has been reduced much faster than was justified on the basis of the productivity differential. The government hopes that the proposed solidarity pact between employers, trade unions, the state governments and the opposition, which is designed to facilitate the restructuring process in the east, will lead to lower wage settlements in the coming years.

Inflation rose slightly in the fourth quarter to 3.7 per cent on an annual basis. Inflation fell sharply in July last year when the temporary indirect tax increases imposed to finance unification in July 1991 were reversed. In 1992 the inflation rate averaged 4.0 per cent. Inflation is expected to pick up slightly in the first half of this year as the effect of the increase in the higher VAT rate works through, but later in the year inflation could fall below 3 per cent, as import prices continue to fall in response to the appreciation of the D-Mark. Inflation is currently higher than the historical average for Germany and this concerns the Bundesbank. The bank has refused to lower official interest rates as long as there are no signs that inflationary pressures are abating. The government hopes that the proposed solidarity pact between employers and trade unions will guarantee more moderate wage settlements in the coming years and that this will reduce inflationary pressures.

An agreement on a solidarity pact is also a precondition for the Bundesbank before it would be willing to consider a reduction of official interest rates. Although it has admitted it would take a wider range of factors into account when deciding on interest-rate cuts, it still emphasises growth in the M3 money supply. For 1992, the all Germany target range was set at 3.5-5.5 per cent, calculated relative to the last quarter of the previous year. In December, the M3 growth rate was 8.8 per cent. Although this was lower than the 9.3 per cent growth in November and the 10.3 growth rate in October, when it was boosted by currency inflows and the Bundesbank's intervention during the ERM crisis, it meant that for the fourth quarter of 1992, the M3 growth rate amounted to 9.4 per cent, well above the top of the target range set for 1992. The narrow target range for M3 growth has been widely criticised. The growth of M3 has been influenced by special factors. First, D-Marks are increasingly held in central and eastern European countries and this has raised cash in circulation. Second, M3 growth was boosted by the expansion of credit to the eastern Lander. As a large proportion of this is by subsidised loans, it is not much affected by increases in interest rates. Third, with short rates above long rates, more funds have been transferred into short-term deposits. The inflow of speculative funds since the ERM crisis has also raised M3 growth. It has also been argued that the target range was set too low. The Bundesbank claims the target range is justified on the basis of its estimate of the growth in production potential in the medium term. Critics argue that more allowance should have been made for the effects of the ending of price controls in the east and the rise in potential output growth after unification. The Bundesbank has accepted that the 1992 target has been exceeded due to extraordinary circumstances. The target range for 1993 has been set to 4.5-6.5 per cent and this is expected to become a less binding constraint on monetary policy.

Our forecast of German interest rates is discussed above. In January, the Bundesbank lowered the repurchase, or repo-, rate again. It came down slowly last year from its peak of 9.7 per cent in August 1992. Lombard and discount rates were cut on the fourth of February, slightly earlier than had been anticipated. This move can be seen as a response to increasing worries about the survival of the ERM. We base our interest-rate forecast on the current forward rates in the money markets and these seem already to have discounted significant interest-rate cuts this year. We expect the Bundesbank will remain cautious and not cut its official rates further before it is satisfied that inflationary pressures have receded and the government has undertaken credible measures to reduce the mounting deficits. A satisfactory conclusion to the discussions on the solidarity pact between government, employers and trade unions may be a necessary prerequisite for further cuts this quarter.

Our forecast for the west German economy is set out in Table 11. The slowdown in activity has reduced inflationary pressures. Recent wage settlements have been on average around 3 per cent, below the current rate of inflation. In addition, the recent appreciation of the D-Mark has reduced import prices and this will also put downward pressure on inflation. Moderate wage settlements in combination with the announced budget savings will make it possible for the Bundesbank to reduce interest rates and this will dampen the recession. We expect (west) German GNP to fall very slightly this year, while GDP, which excludes net factor income, will increase slightly by a quarter of a per cent. Consumption is expected to grow by three quarters of a per cent, as consumer confidence remains low due to the deteriorating job market and lower real wage growth. Investment could fall by more than 3 per cent this year. There will be no contribution from the external sector to GNP growth with exports hit by the loss of competitiveness that has resulted from the appreciation of the D-Mark. For 1994, we forecast a modest recovery, as investment and exports pick up again.

In the first 11 months of 1992, the trade surplus rose to DM32.4 bn. Over the same period, the current account showed a slightly larger deficit than the year before, as the balance on services and transfers has fallen by DM10 bn. Exports have been hit by the lack of demand in Germany's export markets, but their decline has been less than that of imports, and we expect that they will grow by over 3 per cent. Import volumes will be held back by the recession at home and grow at less than 1 per cent. This will help to reduce the current account deficit for 1993 to less than one per cent of GNP.

The federal budget deficit was not as large as expected in 1992, due to higher tax revenues. It is estimated to be around DM40 bn, more than 4 bn less than anticipated. The prospects for the current year are less encouraging. As the government had to revise downward its growth forecast for 1993, it became clear that the projected federal deficit had to be revised upwards, from DM43 bn to DM53 bn. Half this revision is due to a shortfall in expected tax revenues, while another DM5 bn is expected to be needed for unemployment payments. Substantial cuts in social spending, unemployment benefits and industrial subsidies have been announced, as well as a reintroduction of the 'solidarity surcharge' on income tax in the near future and the abolition of a series of tax allowances (see box). The costs related to unification are an ever increasing burden on the German budget. TABULAR DATA OMITTED Transfers to the east reached DM170 bn in 1992 and are expected to remain high in the coming years. Our forecast for the German public sector is set out in Table 13. This shows the deficit on a national account basis, including the social security fund. For 1993 we expect a deterioration of the public sector deficit to over five per cent of GDP. Most of the announced fiscal measures will only take effect in 1994 and 1995 when expenditure on the restructuring of the eastern Lander increases dramatically. The outstanding debts of the Treuhandanstalt and the GDR debt fund must be taken over by the government in 1995, and this will raise the debt stock by over DM400bn. The cost of servicing this debt will be enormous. The fiscal package that has been announced includes future tax increases and additional budget savings to keep the mounting deficits under control.



Many uncertainties remain for the French economy over the next few years. High real interest rates combined with the recent appreciation of the French effective exchange rate are pushing the economy closer to recession. An already high unemployment rate will probably continue to rise and it will become increasingly tempting for the government to consider a departure from the inappropriately tight monetary policy of the Bundesbank. It seems probable that the March elections will result in a new government which the financial markets may perceive as making the latter outcome more likely. Although our main assumption is that the franc maintains its current parity against the D-Mark, simulations of a French devaluation are shown in Box 3.

France has already experienced a prolonged period of low growth. Real GDP grew by over 4 per cent in 1989 but then decelerated to 2.2 per cent and 1 per cent in 1990 and 1991 respectively. Subdued investment and consumption explain most of this downturn. However, it seems that the decline in GDP growth had actually come to a halt in the middle of last year, largely because of buoyant exports in the first half of 1992. A high level of German imports combined with an improvement in French competitiveness, driven by relatively low French inflation, explains much of this strong export performance. Figures for the third quarter of 1992 show that GDP growth improved on the second quarter. Consumption rose by 1 per cent compared to 1/4 per cent in the previous quarter and business investment only fell by 3/4 per cent after declining by 2 per cent in the second quarter. However, export growth was unchanged probably reflecting the deceleration in German demand. In the TABULAR DATA OMITTED third quarter inflation was below 3 per cent, partly reflecting the effects of rising unemployment which was particularly significant given that many of the long-term unemployed are coming off the register as job creation schemes are implemented.

Recent data give the impression of a renewed slow down. Although industrial production rose by almost 1 per cent in October there was an 8 per cent increase in energy output due to the cold weather. A more accurate indicator of the underlying economy is probably given by figures for consumption of manufactured goods in October and November which indicate that total private consumption growth may have decelerated in the final quarter of 1992. This is consistent with a 1 3/4 per cent fall in manufacturing production in October. Manufacturing capacity utilisation is 2 per cent lower than in the first quarter and is at its lowest level since 1984 but did not fall further in the fourth quarter. According to the INSEE survey car production has dropped dramatically and stocks have risen in response to the downturn in foreign demand. Below capacity output growth is now firmly pushing unemployment upwards. Seasonally adjusted unemployment rose by over 36,000 in November, reaching almost 3 mn. This is an increase on the previous monthly rises of 24,400 and 29,400 in October and September respectively. The unemployment rate in November was 10.5 per cent, the highest for five years. The general slowdown in the economy is also reflected in the number of unfilled vacancies which were 22 per cent lower than a year previously in November 1992. The French government is to spend an extra FFr 7.5 bn on employment creation schemes over the next two years. Firms hiring young unqualified people will have social charges waived and there will also be tax reductions for people employing domestic help. In addition, at the beginning of last year an 18 month subsidised training programme for young people unemployed for over 6 months was announced.

Excess supply in both the labour and goods markets has put substantial downward pressure on inflation. In the third quarter hourly wage rates for manual workers were increasing at an annual rate of around 3 1/2 per cent, a percentage point lower than the 1991 average. In addition, consumer prices did not grow at all in the last two months of 1992. Consequently, annual consumer price inflation fell to 2 per cent at the end of last year, its lowest level since mid-1986.

We expect GDP growth of below one per cent for France in 1993, below the consensus of 1 1/4 to 1 1/2 per cent. We believe that high real interest rates will continue to depress both investment and consumption. Pessimistic expectations about future output growth, largely caused by the recent appreciation of the franc will probably deter growth in the two aforementioned categories of expenditure. Capital expenditure will be dominated by expectations of both lower profitably and capacity utilisation. Consumers will be concerned about rising unemployment and a deceleration in real personal disposable income growth. The latter will probably only grow by around two per cent in 1993 largely in response to slower growth in earnings. There is excess supply in the labour market, and we are forecasting that expectations of inflation will fall because of the French authorities demonstration of their anti-inflation resolve by resisting a franc devaluation. GDP growth will also be adversely affected by net exports in 1993, because of the effects of a higher French real exchange rate and the rapid slowdown in growth in French export markets, particularly Germany.

We expect GDP growth of around 1 1/2 per cent next year. This improvement is likely to be driven both falling interest rates and an unwinding of the negative trade effects from the recent appreciation. The strongest category of expenditure is expected to be investment which could show positive growth for the first time in four years. As long as devaluation is avoided, French inflation performance should continue to be better than that of Germany. The higher effective exchange rate should lower inflation this year and some of the effects will spill over into 1994. As a result, we are confident that consumer price inflation will probably be below 2 per cent this year. A combination of stronger growth and a pick-up in import prices should cause consumer price inflation to rise next year to about 2 1/2 per cent.

According to the French Finance Ministry, the government deficit is likely to be around FFr190 bn in 1992 TABULAR DATA OMITTED which is approximately 2.6 per cent of GDP. Although the reduction in VAT rates (when the top rate was abolished in April 1992) has depressed receipts somewhat, high interest rates and sluggish activity have contributed to a deficit greatly in excess of its April target of Fr135 bn (which had been revised up from Fr 90 bn). The latest published government target for 1993 is Fr 165 bn but this seems optimistic and we are forecasting a deficit of around three per cent of GDP for 1993.

Our forecast for the French balance of payments is given in Table 15. Sluggish activity has been reflected in an improvement in the trade balance. Over the 3 months to December imports declined by almost 3 per cent although some of this is due to a higher franc. In addition, until recently French exports have been growing strongly in response to improved price competitiveness. This resulted in a trade surplus of 30.6 bn francs for 1992 compared to a deficit of 30 bn francs in the previous TABULAR DATA OMITTED year. Similarly, from January to November, the current account registered a 6 bn franc surplus which is a dramatic turn around from the FFr31 bn deficit over the same period in 1991. The improved current balance is almost completely due to the good performance in visible trade. For this year, we calculate that there will be a current account deficit of 1/2 a per cent of GDP. The J-curve effect of the Franc appreciation combined with slow domestic demand should offset the effect of a substantial deceleration in demand from overseas.


Budgetary stringency and low growth in Europe are sharply slowing down the pace of expansion in Italy. GDP declined 0.6 per cent in the third quarter of 1992, and hence it was growing at an annual rate of 0.8 per cent to the end of September, the lowest rate in a decade. In December industrial production was 6 per cent lower than a year before, and orders 8 per cent lower, according to Confindustria, the Italian industrialists' association. A study by the investment bank Mediobanca shows that the level of indebtedness of Italian industry has increased sharply, because profits have shrunk substantially. Business fixed investment declined by 5.2 per cent in the period up to October, and employment fell by 5.1 per cent. Capacity utilisation is now at its lowest level since 1985 (74.3 per cent). One positive note was the 4 per cent increase in exports in the third quarter. In October the balance of payments registered a surplus of L10,126 bn against a deficit of L29,954 bn in September. Net capital inflows amounted to L7,698 bn in October and to L48,848 bn in the first ten months of 1992, up from the corresponding figure of L10,126 bn in 1991. Inflation has decelerated over the last few months, the annualised rate going down to 4.8 per cent in December against 6 per cent a year earlier. This is due to the government's policy of freezing public sector prices and to the slack in economic activity, and it is not linked to cuts in production and distribution costs. Hence inflationary pressures are likely to increase when the effects of the lira devaluation start to feed through.

The Italian cabinet recently approved a privatisation plan which is aimed at reducing Italy's budget deficit. The sale of state holdings in many sectors, such as banking, foods, insurance, engineering and energy is expected to raise L27,000 bn over the next three years, approximately 17 per cent of the present debt stock. In addition, IRI, the state holding company, and ENI, the state oil concern, will raise from their own divestments L24,000 bn, to be used to recapitalise and repay debts. As a result of this shake-up, a more modern corporate structure should be created, with a number of big Italian groups replacing the two big state holdings. It has to be noted, however, that in most cases only minority holdings in the subsidiaries of IRI and ENI will be sold to private investors, which means that state shareholding control will be maintained.

Privatisation will require a change in Italian savings habits. Share ownership is not widespread in Italy, where the trading volume in the stock exchange is much lower than in France and the UK. This is because government securities have been so far the most attractive form of investment, combining low risk and high returns. Hence measures to allow wider ownership and the developments of pension funds have been approved, in addition to the suspension until September 1993 of the capital gains tax on shares. Investors will be given tax incentives to buy shares in the privatised companies and also a chance to swap holdings in government bonds for privatised shares. A new retirement savings account offering tax advantages has been created, and Consob, the stock market watchdog, will now have independent funding. Another important step is the reform of the civil service, with the introduction of performance-monitored work contracts, staggered hours, more job flexibility and the state's right to fire. Shorter-run measures are designed to stimulate the economy include a L1,650 bn spending package to counter unemployment, and the unfreezing of L10,000 bn in payments for public work contracts.

The fiscal package adopted by the government has received the approval of both the OECD and the IMF, whose reports say that the government is on the right track with its austerity programme. It is stressed that the credibility of the adjustment process will be enhanced by privatisation. External discipline is also going to be imposed by the European Commission, which has approved an ECU8 bn balance of payments' loan to Italy to be disbursed in four tranches dependent on performance, not dates. As the economy picks up, higher tax receipts and lower cyclical spending should reduce the deficit, and thus the risk premium in Italian interest rates. Recent local elections suggest that the decline of the traditional
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Title Annotation:The Economic Situation; includes related articles
Author:Barrell, R.; Anderton, R.; Caporale, G.M.; Veld, JW in't
Publication:National Institute Economic Review
Date:Feb 1, 1993
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