Policies may aid recovery, IMF says


September 23, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- After two years of marching out of step, the major industrial countries have finally fallen together in a pattern that could reinforce a still-sluggish international recovery, according to the International Monetary Fund.

With the U.S. economy growing slowly, with Europe lowering interest rates, and with Japan trying to boost domestic demand, the policies of the world's three economic powerhouses appear to be converging. These "mutually reinforcing" measures should spread across the industrial world later this year or, more likely, next year.

"We see growth of the industrial countries somewhat stronger than it has been for the last four years," said Michael Mussa, the IMF's director of research.

In its latest "World Economic Outlook," which was issued yesterday, the IMF projected next year's global economic growth rate at 3.2 percent, compared with 2.2 percent this year.

Growth in the industrial nations will be 2.2 percent next year, compared to 1.1 percent this year. Those projections were reduced from earlier expectations of 2.9 percent for 1994 and 1.7 percent for 1993.

The report also painted a gloomy picture on unemployment, estimating 32 million workers would be without jobs in the industrial world this year -- 9 million more than in 1990, when the U.S. recession began. The number did not include discouraged workers or those forced into part-time jobs, estimated by the Organization of Economic Cooperation and Development to be an additional 13 million people.

"Chronic unemployment is disrupting the social fabric in many countries, regions and communities," said the report, adding that increases in the jobless rate coincided with increases in xenophobia and protectionism. The report projected U.S. unemployment to be 6.8 percent this year and 6.5 percent in 1994, below the average rates for industrial nations of 8.3 percent and 8.4 percent, respectively.

The U.S. economy should grow at 2.6 percent next year, down from 3.3 percent, which the IMF previously forecasted and slightly below this year's projected 2.7 percent growth rate. The downward revision of U.S. growth was largely because of a weaker-than-expected performance in this year's first half.

dTC The IMF called President Clinton's budget "a significant effort to cut the deficit, but it warned that, unless the growth in entitlement spending was curbed, the deficit would start to widen again.

Mr. Mussa said the impact of lower interest rates in the United States should offset the negative impact of the budget, and U.S. growth next year could turn out to be stronger than the IMF projects, perhaps even 4 percent.

Explaining why the industrial world's economic malaise has beenso prolonged, Flemming Larsen, the IMF's assistant research director, said two groups of major industrial nations entered recessionary periods consecutively.

The first into -- and out of -- recession were the United States, Canada and the United Kingdom. But as their economies began to strengthen, Japan and continental Europe entered recession, undercutting the first group's recovery.

With all major countries now stimulating their economies together, there was "a reasonably good basis for expecting the recovery to gain momentum," said Mr. Larsen.

But the IMF report was cautious on prospects for a return to rapid growth.

The economic drag from the Clinton administration's deficit-cuttingpackage will hamper expansion here next year, it said. The Japanese government's efforts to stimulate domestic demand are hostage to the value of the yen, which recently hit a peak of almost 100 to the dollar before retreating. And Europe, still hurt by the impact on Germany of its reunification, could contract further this year as governments try to cut budget deficits, with unemployment reaching 12 percent.

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