General assessment

Quarterly Bulletin 1987 Q1
Published on 01 March 1987

Demand continues to grow at a fair pace in the major overseas economies. Weak commodity prices have boosted real incomes in these countries, contributing to strong growth in private consumption, with the result that their real domestic expenditure was some 3½% higher in the third quarter of 1986 than a year earlier, much in line with previous expectations. But an unusually high proportion of this demand was met from imports from outside the area, while their exports were, on the whole, weaker than forecast, so that output growth was more modest at 2½%. Exports of manufactures to the developing countries appear to have been affected unexpectedly rapidly by these countries' need to adjust to the fall in their real incomes brought about by weak commodity prices, while exports of manufactures from the newly-industrialising countries of the developing world continue to grow rapidly. The shortfall in output in the major economies has thus been particularly concentrated in their industrial sectors, with industrial production in aggregate little changed from a year earlier. Growth has been concentrated in other areas, including services. Meanwhile inflation remains subdued: while the bulk of the downward influence of the earlier collapse in oil prices has already come through, prices of other primary products have continued to fall, overall, and in January were, in SDR terms, around 15% lower than a year earlier. Moreover, wage rises remain modest and there has been a widespread and welcome rise in profitability. Against this background, the Assessment considers the problems posed by continuing large payments imbalances among the largest economies. In this country the economic recovery is re-emerging if anything more strongly than elsewhere, and perhaps in a less lopsided way than some of the statistics suggest; its implications for monetary policy are also considered.

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