Prospects for a sustained U.S. economic recovery through mid-1978 were rated "favorable" yesterday, but the outlook for inflation is "less comforting," according to the annual review of the Organization for Economic Cooperation and Development.
The OEGD urged not only anti-inflation measures, but "additional selective action" to reduce unemployment among young persons, and to stimulate additional business investment.
The report predicted that the U.S. trade and current account deficits would worsen, but suggested that this was a proper posture for the U.S. in present circumstances.
Red ink in the trade account was estimated at about $25 billion this year, while the current account deficit was forecast at "around $14 billion" in 1977, with little change in the rate in the first half of 1978.
"From an international point of view, it is desirable that the United States, together with other better-placed countries, should continue to lead world recovery, and that the U.S. current external account should remain in deficit for some time to come," the report said.
"The OECD, based in Paris, is composed of 24 industrial nations. The analysis of the U.S. economy took place on June 16, with top-level Carter administration officials present.The report published yesterday has been updated since.
According to the OECD estimates, real economic growth in the U.S. will be about 5 per cent for the next year, with final demand growing 5 to 5 1/4 per cent. This is substantially better than projections for European members of OECD.
But inflation is seen as "stuck in the 6 per cent range, with temporary factors worsening recent price performance." The report said further progress toward price stability depends on successful implementation of Carter's proposed anti-inflation program and improved productivity (which in the long run seems to be declining).
Prospects for reducing the unemployment rate were said to be clouded by uncertainties over labor force growth and productivity developments. Nevertheless, the OECD experts said that a 5 per cent-plus rate of GNP growth should be enough to reduce the unemployment rate, now over 7 per cent, to 6.5 per cent by mid-1978.
The report said that while the overall level of inflation in the economy might be held to 6 per cent, consumer prices may rise by close to 7 per cent, then decelerate early next year.
"A certain imbalance has developed in the sense that, even at full-capacity operation, the existing capital stock (in the U.S.) may not sifficient to employ all those able and willing to work," the report said.
"A strong increase in investment will therefore be needed to correct this imbalance and, in view of recent cyclical experience, it cannot be taken for granted that this will develop simultaneously," the OECD said.