OECD more optimistic

Press, 28 December 1988, Page 25

OECD more optimistic

NZPA-Reuter Paris The leading non-Com-munist industrial economies, which looked on the brink of a recession a year ago are now at their most buoyant since the early 19705, the Organisation for Economic Cooperation and Development has said.

A half-yearly report by the OECD, a Paris-based economic affairs “think tank,” said industrial output in its 24 member nations had grown at

more than 4 per cent a year since mid-1987. The brisk expansion had been widespread. Investment in industry had been growing especially fast. “This unusually favourable conjuncture provides national authorities with the opportunity to push ahead with policies which would underpin and sustain the improvement in the economic climate,” the OECD said. But, it said, unemploy- — ment would generally remain high while another cloud was that global inflation was edging up, t running about 4 per cent. ' That should be dampened by some slowing of the expansion which the OECD Dredicts. I ' The OECD said unceri tainty also persisted about further correction of the trading imbalances of the I three largest economies,

the United States still running huge deficits and Japan and West Germany dramatically in surplus. The OECD raised its growth projections for all major industrial economies from predictions made in June. It forecast they would expand 4 per cent this year and 3.25 per cent in 1989. Earlier this year it had foreseen growth of only 3 per cent and 2.5 per cent. For 1990, the agency’s first estimates are that the global expansion will slow to 2.75 per cent. The outlook differs dramatically from a year ago when, just two months after the worst sharemarket crash since 1929, the OECD said that “prolonged or acute financial market turmoil could even carry the risk of a recession accompanied by higher interest rates.” The OECD now gives high marks to governments for co-

operating to improve business confidence. A strong gain in industrial investment was “an indication that ‘animal spirits’ have been raised in most OECD countries.” But it said: “The dollar nevertheless remains vulnerable to pressures in exchange markets and a sharp cumulative decline ... would threaten the improved economic situation.” The OECD said persistent global trading imbalances "could damage market confidence and stability — especially if, as is possible, the trend in monthly trade figures becomes less favourable.” On inflation, it said risks were particularly great in North America, Sweden and some other smaller European countries where both labour and product markets remained tight. In Britain and some other European nations the inflation risk was not so much that of a spectacular resurgence “but rather of a more insidious development ...”