The world's economy faces a "potentially dangerous situation" without "a very significant shift in strategy" stressing faster growth, according to an assessment given privately to key world leaders here by H. J. Witteveen, managing director of the International Monetary Fund.
He warned that, without a concrete effort, already existing tendencies to restrictive and protectionist trade policies could worsen, unemployment could rise, and that, in effect, the world would face a serious recession.
"The spread of protectionist trade measures . . . I regard as one of the most ominous features of the world economic scene," he said.
Witteveen spelled out a "scenario" calling for current account surplus reductions of $9 billion by Japan and $7.5 billion by West Germany in two years, allowing the United States to trim its current account deficit by $11 billion. Other nations would make smaller shifts up and down.
Witteven's paper provided the general thrust for an agreement announced yesterday by the IMF Interim Committee to stress the need for economic growth above other goals. But the language was more muted than Witteveen's more serious tone, and did not mention the official's specific targets for individual countries. A copy of Witteveen's assessment, based on IMF staff work, was made available to reporters at the end of the session.
Witteveen named individual countries and commented on their success and failure in meeting their announced targets, instead of lumping them together in more generalized, diplomatic language.
For example, his projection bluntly forecast the Japanese growth rate this year at 5.7 percent compared to the 7 percent target pledged by the Japanese government. He suggested a two-year 7.5 percent average growth rate for 1979-80, with a reduction of the Japanese current account surplus from $11.2 billion in 1977 to $2.2 billion in 1980.
For West Germany - another major country whose policies are a source of contention - Witteveen estimated a 1978 growth rate at 3.1 percent. His scenario called for a reduction in the $7.6 billion German current account balance in 1977 to about zero in 1980.
For the United States, whose growth results have been better than Europe's, Witteveen projected a slight reduction in annual real expansion to 4 percent through 1980, with a reduction in the U.S. current account deficit from $17.4 billion in 1977 to [WORD ILLEGIBLE] billion in 1980. (IMF data on current account differs in some detail from tallies published by individual countries).
With no change in policy, Witteveen predicted that the West German current account surplus would increase to $8.5 billion this year, while Japan's would be steady at $11.5 billion.
Witteveen estimated that the industrial countries as a group would return to a surplus of $4 billion on current accounts this year compared to a deficit of $7.6 billion last year. Members of the Organization of Petroleum Exporting Countries (OPEC) are expected to show a surplus of only $23 billion this year, a decline from $34.6 billion last year. And the less developed countries are expected to have an increase to their deficit as a group from $22.1 billion last year to $30 billion this year.
Although each country must be free to choose its own mix of policies leading to a higher growth rate, Witteveen clearly came down on the side of tax reduction rather than increased expenditures.
But one form of increased spending that he urged was a greater flow of low-interest loans to the non-oil-developing countries, which he said not only would help the recipients, but would tend to boost the exports from the rich nations to the poor ones.