To conclude, economic inequality as assessed by the WES experts has developed differently across the world in the last five years. Only a few countries, according to the WES experts, have seen a decrease in inequality. Interesting is Europe, where especially southern Euro- pean and Scandinavian countries reported an increase in inequality. This perceived development in Europe is reflects partly actual developments, as measured by the Gini coefficient (with the exception of Sweden and Norway). However, in Latin America economic inequal- ity as measured by the Gini coefficient is decreasing, this is not completely reflected in the WES experts’ answers. In addition, in Asia most experts report on average that economic inequality has stayed the same these last five years. However, according to the Gini coefficients there is also a declining trend in this region. Whether economic inequality actually hinders eco- nomic growth seems to depend on the level of devel- opment. Across all regions, however, the two preferred instruments to tackle economic inequality are the tax system and improving the education system.
Empirical Reassessment”, IW-Report 7/2016
13 OECD. (2015). In It Together: Why Less Inequality Benefits All. Paris: OECD
include regulating the labour market, increasing the minimum wage, improving the education system and strengthening unions. In some countries, such as Ger- many, Switzerland or Finland, the introduction of an unconditional basic income is being discussed in the media (Switzerland held a constitutional referendum on the introduction of an unconditional basic income in 2016). While some policies aim to redistribute resources (e.g. taxes and transfers), others try to improve equality of opportunity, e.g. by improving the education system. To get an idea on what is mostly preferred by economic experts, the last question asks the WES experts what instruments the government should use to address economic inequality, if any. Table 5 shows the results of this question. According to the WES experts, gov- ernments should use the tax system, labour market regulation and improvements in the education system to tackle economic inequality. Introduction of a basic income, although highest in the Middle East and North Africa as well as Sub-Saharan Africa, is in general the least favourable option.
The Ifo/ICC WorldEconomic Climate indicator closely tracks the growth of the world economy (see Figure). The WES WorldEconomic Climate indica- tor slightly improved in January 2003 after having weakened strongly in the preceding survey of October 2002. Nevertheless the most recent values for the economic climate remain well below the long-term average The im- provement in the indicator as a whole resulted exclusively from more positive expectations for the next six months, the assessments of the current economic situation remained unchanged. Despite the geopolitical uncertainties, on the whole the WES participants expect a slight recovery of the world economy. A regional breakdown shows that the economic climate stabilised at its low level particularly in Western Europe and marginally improved in North America and Asia. The new WES results indicate that growth in Europe in the next six months will continue to lag behind the world average.
In India, economic growth strengthened further com- pared to 2002. The macroeconomic stabilization and fiscal reforms, trade liberalization, industrial deregu- lation and privatization have led India to the fore- front in term of business sentiments among Asian countries covered by WES. Improved performance was seen across all sub-sectors: capital expenditure and private consumption as well as exports. Thus, the foundations for further growth in the coming six months are seen to be good, and growth is approach- ing the Chinese level. However, China retains its cen- tral position as the driving force of the economic growth in the region. The economic climate remained highly favourable, also in October. Apart from further growth of the export sector, private consumption is expected to strengthen further. Close to follow con- cerning the overall economic climate is Thailand, where the economy posted a solid economic growth of 5.2 percent in 2002. The current economic situation was assessed by WES experts to be at a highly satis- factory level and is expected to improve further in the beginning of 2004. Also WES experts from Vietnam and Malaysia reported that the present economic sit- uation as well as economic expectations remained at a high level, with capital expenditures, private con- sumption and the export sector set to grow in the course of the next six months. Though the assessments of the current economic situation in Hong Kong and
More experts than in the last survey expect short- term rates to fall in the coming months. A spectac- ular swing from formerly expected rate hikes to possible rate cuts can be observed in Hong Kong, Turkey and Western Europe (except Finland and Switzerland, where the upward trend is expected to continue). The downward trend of short-term interest rates is particularly pronounced in Eastern Europe with the exceptions of the Baltic states (Estonia, Lithuania and Latvia) as well as Hungary where the short-term rates are expected to rise in the coming months. In Russia and Kazakhstan no changes of interest rates are expected in the next six months, according to the WES experts. In Asian countries the prevailing view is that short-term interest rates will decline or remain unchanged in coming months. Exceptions are Malaysia, Vietnam and Republic Korea, where the interest rates are expected to rise somewhat. A downward trend of short-term interest rates with only a few excep- tions prevails also in the Near East; only in Israel and the United Arabian Emirates the WES experts expect an increase of short-term rates. In contrast, a continued upward trend of short-term interest rates is expected in Canada, Oceania and South Africa, as well as in most countries of Latin America, except Chile.
euro and the British pound remain somewhat
overvalued. The Japanese yen, after almost two years of slight undervaluation, appears to be approaching its equilibrium range according to WES experts (see Figure 6). This overall pattern of currency assessments characterizes most coun- tries. The own currency was again seen generally overvalued vis-à-vis all four foreign currencies under consideration (US dollar, euro, yen and pound) in some Latin American countries (Bolivia, Mexico, Peru, Uruguay and Venezuela), and also in Turkey, Israel, South Africa and Egypt. According to the responses to the supplementary survey question on the development of currencies, the US dollar is expected to increase slightly vis-à-vis most currencies in the course of the next six months. Exceptions from this general trend are mainly some Asian countries like Singapore, Taiwan – and for the first time mainland China – where the US dollar is expected to lose in value against these countries’ currencies; this trend of a weakening US dollar exchange rate also prevails Canada and New Zealand.
Interest rates: not much scope left for further cuts Significantly fewer experts than in the previous survey expect the downward trend of short-term interest rates to continue in the coming months. A spectacular swing from expected rate cuts to possible rate hikes can be observed in the United Kingdom, in Taiwan and in New Zealand. In the United States, where after 11 cuts short-term rates have reached low levels (1.75%), a stable development is expected in the course of the next six months. On the other hand, in Latin America expectations switched from an increase of short-term interest rates to a decrease; this swing is particularly pronounced in Brazil. In Venezuela, Costa Rica and Uruguay the trend of short-term interest rates will remain upward, however. Further cuts of short-term rates are particularly expected in Eastern Europe and to a lesser degree in the Euro area. With regard to the long-term interest rates, a sta- bilisation or even a slight increase is expected in the course of the next six months. Thus, the down- ward trend which started in early in 2000 appears to have come to an end. Long-term interest rates are expected to increase in the next six months par- ticularly in the United Kingdom, Canada, the United States, Australia, Venezuela, Taiwan and also Japan, though here from a very low level.
Also in the case of long term interest rates a fur- ther rise is seen by fewer WES experts than in the previous five survey rounds. This decline in expec- tations characterizes nearly all markets. It is most pronounced in the euro area and in Denmark, Sweden and the United Kingdom. In the UK for the first time since the end of 2004 not only a slow- down of the upward trend but even an absolute decline of long-term interest rates is now expect- ed. In most Eastern European countries, capital market rates will remain more or less unchanged in the next six months. On the other hand, in the United States the expected upward trend of long- term interest rates is hardly losing momentum, and in Canada this trend appears to be even reinforced according to the latest WES results. In Latin America, on average, stable or even slightly shrinking long-term interest rates are expected in the course of the next six months; however there are significant differences by county. In Brazil and to a lesser degree also in Mexico capital market rates are seen by the WES experts as declining in coming months, whereas particularly in Chile but to a lesser degree also in Argentina the upward trend of long-term interest rates will continue. Also in Asia, capital market rates will increase fur- ther in coming months according to WES experts’ expectations. The upward trend is particularly pro- nounced in Indonesia, Hong Kong, Singapore, Thailand, Taiwan and South Korea. On the other hand, in China, Malaysia and the Philippines the expected upward trend has slowed down signifi- cantly according to the new survey results.
Serbia and Montenegro despite the fact that expecta-
tions have been revised downwards somewhat (11.6 percent after 12.7 percent according to the sur- vey in April). Also in Romania, Latvia and Bulgaria inflation expectations of around 7 percent are clear- ly above the average in the region. The lowest rate of this year’s inflation is seen in Slovenia (2.2 percent which is even slightly lower than the expected 2.3 percent in the previous survey). In Poland the inflation outlook for 2006 has deteriorated some- what (from 1.8 percent to now 2.7 percent) but is still significantly lower than the average of the region. In the CIS countries the inflation outlook in 2006 will - according to the WES experts - remain around 10 per- cent. In Russia the trend of downward revisions of inflation expectations has continued (9.9 percent after 10.2 percent in April and 11.8 percent in 2005). On the other hand the inflation outlook in Uzbekistan has clearly worsened (12.0 percent after 7.0 percent expected in the spring survey).The relatively best infla- tion performance in the region will prevail this year again in Kazakhstan (8.4 percent), though this estimate is one percentage point higher than in the April survey. In Central and Latin America 2006 inflation expecta- tions have been revised downwards in the majority of countries in this region. Particularly pronounced was the improved inflation outlook in Argentina (from 15.3 percent in April to now 11.3 percent) and in
United Arab Emirates, Kuwait and Saudi Arabia
the present economic situation is assessed as high- ly favourable. Economic expectations for the first half of 2008 remained optimistic. In Iran, in con- trast, the economic climate continues to deterio- rate. The present economic situation is now assessed as bad. WES experts expect further eco- nomic deterioration in 2008. In Lebanon the sur- veyed economists are fairly optimistic regarding an economic recovery in the near-term future. They expect strengthening of capital expenditures, pri- vate consumption and the export sector in the next six months. The economic climate also improved somewhat in Turkey, according to WES experts, although the present economic performance is still regarded as below the “satisfactory” level. In
Ireland is expected to weaken in
the next six months. Also in the
Netherlands the economic out-
look for the coming six months has been downgraded somewhat, but remained positive. Private consumption and exports are expected to strengthen some- what. In Germany the economic climate remained stable over the previous survey and is now described as good by the majori- ty of surveyed economists. The economic expectations for the next six months continue to be positive. Capital expenditures and exports are expected to sta- bilize at a high level and private consumption is poised to gain strength in the coming months. Also in Austria the present economic per- formance has improved somewhat, according to the WES experts. Although the economic prospects for the next six months have been downgraded some- what, the surveyed economists are projecting stable economic performance in 2007. In Slovenia, the most recent member of the euro area, a favourable eco- nomic climate prevails. In the current quarter the surveyed economists judged the present economic situation as very good. The economic outlook for the next six months remains bright. In Belgium the eco- nomic climate has improved somewhat compared to the last quarter's survey: In the July survey the over- all economy has been described as very good. The economic forecasts for the overall economy are pointing to stronger growth in the second half of the year. Also in France the economic climate improved.
rates’ offshore cash holdings amounted to $1.4 trillion in 2017.12 Also considering re-invested profits, the Joint Committee on Taxation estimated that undistrib- uted offshore earnings and profits even amounted to $2.6 trillion in 2015.13 With the reform constituting a shift from a global towards a territorial tax system, future offshore earnings will generally be taxed in the country where the income is generated, and not be sub- ject to US taxes. However, a repatriation tax of between 8 and 15.5% - depending on the liquidity of assets – will be charged on pre-reform offshore earnings. This tax will be charged regardless of whether those earnings are repatriated or not, resulting in large one-time tax payments for many companies. As a result, around 80% of US respondents expect an increased repatriation of offshore profits to the United States, as shown in Figure 5.3.Across the world, decreasing offshore profits are expected by 23% of experts, while 14% expect off- shore profits to rise in their country. Negative percep- tions are particularly high in some states. According to a Congressional Research Service Report14, 43% of US corporations’ overseas profits were reported in Ber- muda, Ireland, Luxemburg, the Netherlands, and Swit- zerland. Unsurprisingly, experts in those countries anticipate a particularly large impact, with 43% pre- dicting a decrease in offshore earnings in their country. Amongst the remaining countries, experts in advanced economies and Asian countries tend to most often expect a negative outcome. Overall, negative anticipa- tions are most frequent in countries with very low mar- ginal effective tax rates, as well as countries with mod- erate tax rates that now exceed those of the US.
The IfoWorldEconomic Climate improved in January 2002 and is now at the same level as in July 2001, i.e. before the terrorist attacks in New York and Washington (84.1 after 70.7 in October 2001 84.1 in July 2001 and 117.2 at the peak in this cycle in April 2000; 1995=100). However, it is too early to interpret this improvement as the onset of a world- wide recovery. For such an assertion experience dic- tates three consecutive, positive survey results. At this stage it cannot be ruled out that as in the early 1990s, an initial improvement of the indicator will be followed by a renewed setback before finally a longer lasting recovery phase starts. Thus, the next two surveys in April and July will be crucial for pre- dicting the timing and the strength of the recovery.
North America – in Canada even more pronounced
than in the USA – more WES experts than in the January survey expect short-term rates to pick up slowly in the course of the next six months. In Australia where short-term interest rates are signifi- cantly higher than in the USA (4.75% compared to 1.25%) the trend of rising rates is slowing down and is expected to level off in the course of the next six months. In Western and Eastern Europe the down- ward trend of short-term interest rates is still intact and expected to continue in coming months. In Western Europe even more experts than in the January survey expect short term rates to decline further. Amongst the participants from the euro area a further monetary easing by the European Central Bank appears to be likely. This opinion is particular- ly shared by WES experts in Portugal, Belgium and Germany. In Africa, particularly in South Africa, there is still a high likelihood for rate cuts in coming months. In Latin America the trend of rising short- term interest rates is leveling off. Only in some Latin American countries like Mexico, Colombia, Costa Rica and Paraguay is a further rise of rates expected. In Brazil and Argentina interest rates will remain stable or even decline somewhat.
Asia’s high-tech economies, Taiwan, Malaysia, Singapore and South Korea, correspondingly expect high growth rates in export volumes during the next six months. These countries’ imports are largely used for export production. To meet the growing external demand they are anticipating a surge in domestic ca- pital expenditures. Increasing industrial production and employment will then trigger off private consumption. Thus, their recovery will be broadly based. Less tech-oriented countries in that region, such as the Philippines or Indone- sia, are expected to follow. As for Japan, growth momentum is seen solely as export-led. Traditionally, Japanese companies have sold throughout Asia and to the United States, where high import growth is on the horizon. Japanese ca- pital and consumer spending as well as imports are expected to stabilise around neutral levels. Japan may at last get out of the doldrums in the near term. In China, improvements are also mainly led by better export prospects. Western Europe as a whole is displaying a more balanced pattern. Capital ex- penditures as well as private consumption (to a slightly lesser extent) indicate a pickup by the end of the next six months. Import and export volumes are ex- pected to rise at a similar pace. In the euro area the same scenario is observed. The striking exception is Germany, the largest economy in the euro region. Ex- pected growth of German consumer spending remains even weaker than that of capital spending. Consequently, Germany’s recovery will strongly depend on rising exports. External demand is likely to come from traditional export markets such as the United States and Western and Eastern Europe. More- over, the Baltic and the CIS states are heavy importers. The United Kingdom also displays a pattern differing from that of Western Europe at large. There, economic growth is predicted to shift from consumer spending to business in- vestment, stimulating manufacturing activity in the near term.
context WES experts in Russia also emphasized the
lack of international competitiveness of the domes-
tic industry, which may prevent the export sector from depending less on the raw material market and becoming more dynamic. Though the major economic indicators in Russia point to further eco- nomic growth and stabilization, the recent crisis, caused by the attack on the Yukos Oil Company and the arrest of its chief executive Mikhail Khodorkovsky, created a stir in the Western press. Economists fear that the achieved dependability of the economy and a sustained private capital inflow to the country (only in October, Moody’s con- firmed the stability of Russia’s investment rating) are threaten by the Yukos action, also accompanied by cabinet reshuffle (Prime Minister Mikhail Kasyanov already resigned from office). Further developments will show whether the Yukos affair will led to a significant outflow of capital or be pos-
China, where the most optimistic responses were given in the previous survey – both with regard to the current as well as the expected situation – is now taking second place in the assessment of the present economic condition behind the Republic of Korea and only a place in the middle field with regard to expected future developments. Countries like Taiwan and to a slightly lesser degree also Malaysia see more dynamic economic growth ahead and award top grades to the eco- nomic outlook. In India, the current economic situation has not improved further, but is still regarded as almost satis- factory after having been in negative territory for quite a while. Expectations still signal that the recovery process – both in the capital expenditure as well as the private consump- tion sector – will continue in coming months. The economic recovery in Singapore and the Philippines slowed in recent months, but expectations for the next half year remain clearly positive. Japan is still
in the economic outlook, with experts scaling back their assessments. They are now still optimistic, but more cautious. 60.0% of respondents reported that the banks’ condition was hindering the availability of loans to firms. Australia’s economic climate indicator dropped slightly, as economic expectations clouded over somewhat. Although capital expenditure is expected to increase further, survey participants do not anticipate any further upturn in private consump- tion. The Japanese yen and Sterling are seen as slightly overvalued vis-à-vis the Australian dollar, while the other currencies (euro and dollar) are deemed to be at their proper value. In Australia a small majority of WES experts also reported that the supply of bank credit to firms is constrained by bank specific factors. The eco- nomic climate among the Asian Tiger countries improved sharply, as both components were consid- ered more favourable than in previous survey. The eco- nomic upswing that started in the second quarter of last year looks set to continue. The main driver behind this uptake is domestic consumption, which was assessed as far better than in the previous survey. Trade is also expected to pick up further (see Figure 7). Inflation expectations for 2018 are set at 1.8%, marking an increase of 0.4% versus 2017. Inflation expectations in 5 years were pegged at 2.5% (see Table 1). 59.4% of WES experts in this region reported constraints on bank lending to businesses (see Table 2).