How are most of the countries in the world resolving the economic problems?
Answers
The world economy began to show signs of improvement at the turn of the year. But inflation, accelerated by soaring prices of primary products due to a series of oil price increases by the OPEC countries and a slowdown in economic growth in industrially advanced countries, soon added to the trend of stagflation. The situation was compounded by other troublesome problems, notably increasing unemployment, slow improvement in productivity, and the widening balance of payment disequilibrium between the oil-producing and non-oil-producing countries.
The growth of the industrially advanced economies as a whole tended to slow down throughout much of 1979. While business continued to pick up in Japan and West Germany, the U.S. economy, which had continued growing for months without interruption, turned downward. Expansion began to lose momentum in Britain and France. According to an economic outlook of the Organization for Economic Cooperation and Development (OECD), the 1979 real economic growth rate of the member countries as a whole was estimated at 3.4% as compared with 3.9% in 1978.
Prices went up in all advanced countries, where inflationary pressures caused by domestic factors were aggravated by the soaring prices of oil and other primary products.
The employment situation generally fluctuated back and forth in the United States, kept on improving in West Germany, but tended to deteriorate in other major economies as the pace of business expansion slowed down.
Regarding the balance of payments, the OPEC countries chalked up an increased current account surplus, helped by the higher oil prices. But most industrially advanced countries and non-oil-producing developing countries suffered larger current account deficits. Meanwhile, the balance of payments disequilibrium evident between the advanced economies in 1978 was corrected in 1979, largely because of the gaps in business cycles and foreign exchange fluctuations which helped to reduce the payments deficit in the United States on the one hand and aggravated the current account balance in Japan and West Germany on the other.
Foreign exchanges stayed generally calm in the first half of 1979 owing to the improvement made in the balance of payments disequilibrium between the major economies and the occasional market interventions jointly carried out by central banks. After the middle of 1979, the U.S. dollar fell drastically in September following the oil price increases and the worsening inflation in the United States. The dollar later recovered after the Carter administration announced a set of measures aimed at curbing inflation and defending the value of the U.S. currency. The price of gold surged ahead in December 1979 following speculation that the oil-producing countries might turn away from the dollar in favor of other currencies .The new European Monetary System (EMS), inaugurated in March 1979, functioned without trouble. (The central exchange rates were adjusted in September and November.)
World trade continued to grow by several percentage points in 1978, but the growth was believed to have slowed down in 1979 mainly because of the deceleration of economic expansion in the industrially advanced countries.
The situation of oil demand and supply tightened at the beginning of 1979 in the wake of the Iranian revolution. The world faced soaring oil prices caused by successive markups by the OPEC countries and unstable oil supplies. To cope with the situation, the advanced countries held a series of meetings, including the ministerial conference of the IEA and the Economic Summit in Tokyo, and took decisions to cut oil consumption and promote the use and development of alternative and new energy sources. Meanwhile, the higher oil prices brought on inflation in oil-importing countries together with a deflationary effect through the transfer of income. The oil price increases also widened the current account imbalances between the oil-producing and non-oil-producing countries, giving rise to fears about how to recycle the dollars held by the oil-producing countries.