Content

Page

Explanatory notes

viii

Abbreviations

ix

Preface

xi

Chapter 1   OVERVIEW AND SELECTED POLICY ISSUES

1

1.1   The current economic situation in the ECE region

1

1.2   Strong policies and weak foundations

4

(i)   Unemployment

4

(ii)   Inflation

5

(iii)   Trade liberalization

6

(iv)   Liberalization of international capital flows

7

(v)   Conclusions

10

Chapter 2   THE GLOBAL CONTEXT AND THE SITUATION IN THE WESTERN MARKET ECONOMIES

13

2.1   The global context

13

(i)   The broad pattern

13

(ii)   Lingering instability in financial markets

15

(iii)   The crisis in Brazil

16

(iv)   Recent developments in East Asia

17

2.2   The economic situation in western Europe and North America

19

(i)   General economic developments

19

(ii)   Monetary conditions and fiscal policy

32

(iii)   The short-term economic outlook

35

2.3   The start of EMU

37

(i)   Introduction

37

(ii)   The new institutional framework for monetary policy

39

(iii)   Monetary policy goals and strategy

40

(iv)   Exchange rate policy

43

(v)   Domestic economic policy coordination

44

Chapter 3   THE TRANSITION ECONOMIES

49

3.1   Introduction

49

(i)   Expectations and outcomes

49

(ii)   Short-term outlook

54

3.2   Issues in transformation policy

55

(i)   Policy challenges in the current stage of transition

55

(ii)   Monetary policy

60

(iii)   Structure, strain and economic adjustment: the crisis in Romania

70

3.3   Output and demand

81

(i)   Output

81

(ii)   Demand

100

3.4   Costs and prices

110

(i)   Introduction

110

(ii)   Consumer prices

110

(iii)   Producer prices in industry

120

(iv)   Wages, unit labour costs and profit margins in industry

120

3.5   Labour markets

125

(i)   Recent developments

125

(ii) Effects of transition on the labour force and employment from a gender perspective, 1985-1997

135

3.6   International trade

142

(i)   Introduction

142

(ii)   Trade of eastern Europe and the Baltic states

143

(iii)   Trade of the CIS countries

152

3.7   Balance of payments and external finance

162

(i)   Introduction

162

(ii)   Current account developments

162

(iii)   External financing and FDI

165

(iv)   Sustainability of current account deficits

172

(v)   Short-term funds, macroeconomic instability and sustainability

179

Chapter 4   FERTILITY DECLINE IN THE TRANSITION ECONOMIES, 1982-1997: POLITICAL, ECONOMIC AND SOCIAL FACTORS

181

4.1   Introduction

181

4.2   Fertility decline to the lowest levels yet observed

182

4.3   Shifts in the age structure of fertility

185

4.4   The spread of extra-marital fertility

186

4.5   Causes of fertility decline

187

(i)   From one-party rule to democracy

187

(ii)   From slow growth to economic downturn

189

(iii)   The spread of western behaviour

191

4.6   Conclusions

193

STATISTICAL APPENDIX

195

LIST OF TABLES

Table

   Page

2.1.1   World commodity prices, 1995-1998

14

2.1.2   Annual changes in real GDP in east Asian countries, 1996-1999

19

2.2.1   Real GDP in the developed market economies, 1996-1999

21

2.2.2   Major components of demand in the ECE market economies, 1997-1998

25

2.2.3   Total employment in the ECE market economies, 1995-1998

26

2.2.4   Standardized unemployment rates in the ECE market economies, 1995-1998

27

2.2.5   Consumer price indices in ECE market economies, 1996-1998

29

2.3.1   Comparison of economic indicators for the euro area, Japan and the United States

38

2.3.2   Selected economic indicators for the euro area

42

3.1.1   Basic economic indicators for the ECE transition economies, 1996-1999

50

3.1.2   International trade and external balances of the ECE transition economies, 1996-1998

53

3.2.1   Short-term interest rates in selected transition economies, 1995-1998

64

3.2.2   Monetization in selected transition economies: share of monetary aggregates in GDP, 1995-1998

65

3.2.3   Monetary ratios for selected transition economies, 1995-1998

66

3.2.4   Macroeconomic indicators of Romania, 1990-1998

73

3.2.5   Fiscal and quasi-fiscal deficits of Romania, 1993-1997

76

3.2.6   Government revenues in selected east European economies, 1990-1996

80

3.2.7   Levels of strain in labour market adjustment

81

3.3.1   GDP and industrial output in the ECE transition economies, 1997-1998

83

3.3.2   Share of major sectors in GDP in eastern Europe and the Baltic states, 1993-1998

86

3.3.3   Share of major sectors in GDP in the CIS economies, 1993-1998

87

3.3.4   Growth of industrial output by branch in eastern Europe and the Baltic states, 1997-1998

89

3.3.5   Growth of industrial output by branch in the CIS economies, 1996-1998

96

3.3.6   Gross output of agriculture and construction in the transition economies, 1993-1998

97

3.3.7   Contribution of final demand components to real GDP growth in eastern Europe and the Baltic states, 1994-1998

101

3.3.8   Contribution of final demand components to real GDP growth in selected CIS economies, 1994-1998

102

3.3.9   Composition of final demand in current prices in selected transition economies, 1996-1998

105

3.3.10   Real consumption in selected transition economies, 1995-1998

106

3.3.11   Retail trade in the transition economies, 1996-1998

107

3.3.12   Investment in selected transition economies, 1995-1998

109

3.4.1   Consumer prices in the transition economies, 1997-1998

111

3.4.2   Relative rent changes within the consumer price index in selected transition economies, 1990-1997

118

3.4.3   Producer prices in industry in the transition economies, 1997-1998

120

3.4.4   Wages and unit labour costs in industry in the transition economies, 1997-1998

121

3.5.1   Total employment in transition economies, 1995-1998

127

3.5.2   Registered unemployment in the transition economies, 1997-1998

129

3.5.3   Growth rates of labour force and employment in selected transition economies, by sex, 1985-1997

136

3.5.4   Gender specific labour market indicators in selected transition economies, 1985 and 1997

137

3.5.5   Share of women in labour market indicators in selected transition economies, 1985 and 1997

138

3.5.6   Share of women in total employment by industry in selected transition economies, 1992-1997

141

3.6.1   Trade performance and external balances in the east European and Baltic countries, 1998

144

3.6.2   Foreign trade of the ECE transition economies by direction, 1996-1998

145

3.6.3   Trade balances of the ECE transition economies, 1993-1998

146

3.6.4   Changes in the volume of foreign trade in selected transition economies, 1995-1998

147

3.6.5   Effect of Russia’s August 1998 market collapse on export performance in selected east European and Baltic countries

149

3.6.6   CIS countries’ total trade, 1996-1998

153

3.6.7   CIS countries’ trade with CIS and non-CIS, 1996-1998

155

3.6.8   Russian Federation’s merchandise trade, July-November 1998

156

3.6.9   Non-CIS trade of the Russian Federation by selected commodities, 1994-1998

157

3.6.10   CIS countries’ progress in acceding to the World Trade Organization

159

3.6.11   Status of World Trade Organization accession and major outstanding bilateral issues, as of 30 September 1998

161

3.7.1   Current account balances of eastern Europe, the Baltic countries and European members of the CIS, 1996-1998

163

3.7.2   Foreign trade in goods and non-factor services of eastern Europe, the Baltic countries and European members of the CIS,

   1996-1998

164

3.7.3   International credit ratings of eastern Europe, the Baltic countries and the CIS

169

3.7.4   Indicators of foreign direct investment in east European, Baltic and European CIS countries, 1997-1998

170

3.7.5   Net capital flows into eastern Europe, the Baltic countries and the European members of the CIS, 1995-1998

171

3.7.6   Net capital flows into eastern Europe, the Baltic countries and the European members of the CIS, by type of capital,

   1996-1998

172

3.7.7   Changes in real exchange rates and current account balances, by type of exchange rate regime, 1993-1998

175

3.7.8   Selected external financial indicators for eastern Europe, the Baltic countries and European members of the CIS, 1997-1998

177

A.1   Real GDP in the ECE market economies, 1984-1998

196

A.2   Real private consumption expenditure in the ECE market economies, 1984-1998

197

A.3   Real general government consumption expenditure in the ECE market economies, 1984-1998

198

A.4   Real gross domestic fixed capital formation in the ECE market economies, 1984-1998

199

A.5   Real total domestic demand in the ECE market economies, 1984-1998

200

A.6   Real exports of goods and services in the ECE market economies, 1984-1998

201

A.7   Real imports of goods and services in the ECE market economies, 1984-1998

202

A.8   Industrial output in the ECE market economies, 1984-1998

203

A.9   Total employment in the ECE market economies, 1984-1998

204

A.10   Standardized unemployment rates in the ECE market economies, 1984-1998

205

A.11   Consumer prices in the ECE market economies, 1984-1998

206

B.1   Real GDP/NMP in the ECE transition economies, 1980, 1985-1998

207

B.2   Real total consumption expenditure in the ECE transition economies, 1980, 1985-1998

208

B.3   Real gross fixed capital formation in the ECE transition economies, 1980, 1985-1998

208

B.4   Real gross industrial output in the ECE transition economies, 1980, 1985-1998

209

B.5   Total employment in the ECE transition economies, 1980, 1985-1998

210

B.6   Registered unemployment in the ECE transition economies, 1990, 1994-1998

211

B.7   Consumer prices in the ECE transition economies, 1989-1998

212

B.8   Producer price indices in the ECE transition economies, 1989-1998

213

B.9   Nominal gross wages in industry in the ECE transition economies, 1990-1998

214

B.10   Merchandise exports of the ECE transition economies, 1980, 1986-1998

215

B.11   Merchandise imports of the ECE transition economies, 1980, 1986-1998

216

B.12   Balance of merchandise trade of the ECE transition economies, 1980, 1986-1998

217

B.13   Merchandise trade of the ECE transition economies by direction, 1980, 1986-1998

218

B.14   Exchange rates of the ECE transition economies, 1980, 1986-1998

219

B.15   Current account balances of the ECE transition economies, 1990-1998

220

B.16   Inflows of foreign direct investment in selected ECE transition economies, 1990-1998

221

LIST OF CHARTS

Chart

   Page

2.1.1   Changes in world output, 1990-1999

14

2.1.2   Changing forecasts of world output growth, 1998-2000

14

2.1.3   Changes in international energy and non-energy commodity prices, 1970-1998

15

2.1.4   International share prices, January 1994-February 1999

16

2.1.5   The exchange rate of the yen against the dollar, January 1994-February 1999

18

2.2.1   Quarterly changes in real GDP, 1995-1998

20

2.2.2   Business cycle indicators for the European Union and the United States, January 1994-February 1999

22

2.2.3   Manufacturing output and capacity utilization in the euro area and the United States, January 1996-January 1999

23

2.2.4   Quarterly changes in real GDP and major demand components in western Europe, 1995-1998

24

2.2.5   Changes in total employment in industrialized countries, 1990-1998 .

27

2.2.6   Unemployment rates in industrialized countries, 1990-1998

28

2.2.7   Inflation in four major European countries, 1994-1998

28

2.2.8   Inflation rate differentials in the euro area, 1996-1998

29

2.2.9   Quarterly changes in real GDP and major demand components in the United States, 1995-1998

30

2.2.10   Inflation in the United States, 1994-1998

31

2.2.11   Nominal interest rates, January 1997-March 1999

33

2.2.12   Euro reference rates, January 1999-March 1999

34

3.2.1   Nominal and real lending rates in selected transition economies, 1996-1998

69

3.2.2 Remonetization vs. demonetization in Romania, 1994-1998

75

3.3.1   Gross industrial output in selected transition economies, 1995-1998

84

3.3.2   Volume of retail sales in selected transition economies, 1996-1998

91

3.4.1   Consumer price of food, non-food goods and services in selected transition economies, 1995-1998

116

3.4.2   Average annual rate of change in GDP and consumer prices in selected transition economies, 1993-1998

119

3.4.3   Real product wages and unit labour costs in selected transition economies, 1993-1998

123

3.4.4   Average annual rate of change in industrial production and real unit labour costs in selected transition economies, 1995-1998

125

3.5.1   Registered unemployment rates in selected transition economies, 1993-1998

130

3.5.2   Registered and labour force survey unemployment rates in selected transition economies, 1998-QII

134

3.5.3   Relationship between registered and survey-based unemployment rates in selected transition economies, 1998-QII

134

3.5.4   Unemployment rate, share of women, youth and long-term unemployed in total unemployment in selected transition economies, 1998-QIII

135

3.5.5   Relative total and gender specific employment growth index by sectors in selected transition countries, 1992-1997

139

3.6.1   Specific western demand for selected transition economies’ exports, 1994-1999

143

3.6.2   Quarterly changes in east European and Baltic exports and imports, 1997-1998

148

3.6.3   Changes in east European and Baltic exports by commodity, 1993-1998

150

3.7.1   Real exchange rates based on unit labour costs for selected transition economies, 1994-1998

166

3.7.2   Premia on selected transition economy bonds, September 1997-February 1999

168

3.7.3   Net capital inflows into eastern Europe and the Baltic states, by type of capital, 1997-1998

173

4.2.1   Shifts in total fertility rate, 1982-1996

183

4.2.2   Total fertility rate, 1980 and 1996

184

4.2.3   Trends in total fertility rate in selected transition economies, 1982-1996

185

4.3.1   Shifts in mean age of childbearing, 1982-1995

186

4.4.1   Shifts in proportion of non-marital births, 1982-1996

187

4.5.1 Changes in the number of monthly births and 11-month moving averages in the former German Democratic amd R Republic and Romania, 1982-1996

189

4.5.2   Relationship between total fertility rate and net material product/gross domestic product, 1985-1997

190

4.5.3   Relationship between mean age of childbearing and the proportion of non-marital births in selected market economies, 1965-1996

191

4.5.4   Relationship between mean age of childbearing and the proportion of non-marital births in selected transition economies, 1965-1995

192

LIST OF BOXES

Box

   Page

2.3.1   Exchange rate target zones for major currencies

45

3.5.1   Goskomstat revision of Russian unemployment

132