Amid Gloom, Rays of Hope Shine WORLD ECONOMY

September 27, 1992|By GILBERT A. LEWTHWAITE

WASHINGTON — Could it be that the first rays of real hope are beginning t shine through the enduring gloom of the longest global economic downturn in recent memory?

This may seem a strange observation with the world's currency markets in turmoil, European union in limbo and the Bush re-election campaign in trouble.

But though we may not be at the new dawn just yet, we could now be witnessing the early signs of better times ahead, probably starting next year.

There are immense problems still at home and abroad. Unemployment has become a stubborn almost universal affliction. Consumer confidence in most industrial nations is in the cellar.

There is wide divergence between countries over the best way to achieve recovery at the very time when international co-ordination is more important than ever in an increasingly interdependent world. To take a prime example: The United States advocates low interest rates to stimulate growth; others, including the economically powerful Germans, think interest rates should be kept high to counter inflation.

The cost of converting the communist nations to capitalism is proving greater than anyone anticipated. And the developing nations are demanding freer trade to improve their prospects even as workers in the industrial world urge protectionism to save their jobs.

Little scope for optimism, you might think. But when the finance ministers and central bankers of 172 nations met here last week, their inevitable concern over so many depressing developments was lessened by the hope that the tide of economic ebb may finally be turning.

Among industrial countries there is a fixation on creating growth without inflation. In the formerly centrally planned economies, fundamental reforms are under way that will eventually add the vitality of competition to economies stifled for decades by government dictat.

The developing nations have been making impressive progress against the tide and have actually offered the helping hand of increased trade to the industrial nations. U.S. exports have been one of the few bright spots over the past two years, and the most rapidly growing market has been the developing world.

In its latest "World Economic Outlook," the International Monetary Fund detected "signs of revival" which should expand world output by one percent this year. It expects the rate of gain to triple next year to 3 percent -- about the average annual growth rate for the past two decades.

It acknowledged that recovery in industrial nation remains "slow and uneven," and added: "The balance of risks remains on the downside."

That said, there is still some basis for optimism. This has been a worldwide recession, and it will take international effort to achieve anything like lift-off. There are three economic powerhouses in the world today -- North America, Europe and Japan. In all of these, recent changes could augur well for the near future.

* North America

Here, the major factor is the U.S. general election. The economy has been hostage to politics this year, with a Republican president and a Democratic Congress each favoring their own way of doing things, and, as a result, getting little actually done.

Once the election is over, the winners at both ends of Pennsylvania Avenue will have to come to firmer grips with the problem. Whoever introduces the next budget and in whatever form it is passed by Congress, one thing is certain: It will be pro-growth, crafted to create jobs either through private or public investment.

The federal deficit, of course, will remain colossal, but the domestic and international clamor for its reduction must surely produce some prompt action from one party or both, depending who wins the White House.

If there was one economic mantra at the IMF-World Bank meetings last week it was "reduce excessive deficits." The reason: servicing the debt erodes savings and investments, hampering pursuit of the holy economic grail of growth. The main targets were the United States and Germany.

One crucial area where progress has already been made is the enormous private and corporate debt overhang from the profligate 1980s which has crimped the spending style of companies and individuals. It has been reduced substantially. Pent-up demand is presumably only waiting for the right moment to start the sort of shopping spree that is needed to revive a national economy which depends on the ordinary consumer for two-thirds of its activity.

* Europe

Currently, the 12-nation European Community is in political and economic turmoil after the worst currency crisis in decades left its exchange rate system in tatters and its member states at each other throats.

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