O.E.C.D. finds ‘no royal road’ to economic recovery

Press, 29 July 1978, Page 9

O.E.C.D. finds ‘no royal road’ to economic recovery

NZPA staff correspondent London Pew chances of significant world economic improvement during the next 12 months are forecast by the Organisation for Economic Co-operation and Development.

In its latest “Economic Outlook,” published yesterday, the Paris-based grouping of virtually all the world’s developed Western nations said without significant policy changes, inflation seemed likely to continue at a rate which was high by historical standards. Gross national product would probably remain at las' year’s average of about 3.5 per cent. The O.E.C.D. — sometimes called “the rich men’s club" — said even though the inflation rate was dropping in countries where it had recently been worst, it was still averaging around 7 per cent throughout the group of 24 nations Price rises for most countries reflected the growth of wages in large part, and commodity prices were expected to remain weak.

Unemployment trends for the O.E.C.D. as a whole were "particularly hard to forecast.” but could increase by more than 500.000 spread over the O.E.C.D. as a whole.

“The course of unemployment over the next 12 months may depend crucially on productivity growth.” the survey said.

"The O.E.C.D. Ministerial meeting in mid-June showed clear recognition by all Governments that very difficult problems will arise if the necessary conditions for self-sustaining growth at significantly higher rates cannot be restored,” the survey said.

“The problems resulting from slow growth would impinge especially on the less

developed countries inside and outside the O.E.C.D. who are dependent on a faster increase of world trade if they are to realise their own growth plans and reduce unemployment. “But the experience of the last decade suggests there is probably no royal road back to higher growth.

“Governments face constraints on their policies, and private-sector reactions to Government policy are uncertain.”

The New Zealand economy was not examined in isolation by the .0.E.C.D.. but was grouped as “other O.E.C.D. countries” with all the members other than the United States, Japan, West Germany, France, the United Kingdom. Canada, and Italy, — the seven largest members.

Price and wage inflation in the “other” group was likely to slow down, but would still remain higher than the average of the Seven. Progress in reducing current external deficits could remain limited, as half the forecast improvement in the smaller countries’ current balance was expected to accrue to three surplus countries.

The survey said domestic 'demand levels had fallen over the last year in Fini land, Sweden, Denmark, I Spain, and New Zealand, j “where the only source of any strength came from the ■ foreign balance.” The number of housing i completions in Denmark, ! Sweden, and New Zealand ih a d been falling ■significantly, “depressed by I lower real disposable income.”

Unemployment had continued to increase in most of ! the smaller countries in recent months, but “in New Zealand, and, to a lesser extent, in Ireland, net emigration is having a favourable' effect on unemployment rates.”

Wages had generally grown moderately in the

face of record high unem-i Iployment rates and the weak! |over-all demand situation,] I and the deceleration of] ; wages had probable' been] moderately helped by income agreements in some! nations, and by income-tax] reductions in others — including New Zealand. The O.E.C.D said the growth of the gross domes-: itic product of the smaller] [countries was likely to be] around 2 per cent for the; period. i In most of the smaller; I countries the ' recovery of] [domestic demand was not] expected to be strong in] either private consumption [ or private investment. Such recovery as did] occur “may only represent a] ’ return to positive from. negative growth rates . . the survey said.