Real economic growth in the industrial countries will amount to only 3 3/4 percent this year and in the first half of 1979, not enough to make any important reductions "in the substantial amount of prevailing economic slack."
This is a key conclusion of "World Economic Outlook," an International Monetary Fund staff paper circulated confidentially to the members of the IMF Executive Board just prior to this week's annual meeting, which will conclude today.
The prediction of 3 3/4 percent growth contrasts with a more ebullient 5.2 percent growth rate in 1976. Real growth then dropped to 3.7 percent in 1977 and seems to be stuck at that level.
On the other hand, the staff paper makes some optimistic projections for 1979 of reductions in the U.S. current account deficit (goods and services transactions) and in the Japanese current account surplus - projections that have formed the basis of mild optimism about strengthening the foreign exchange rate of the dollar.
This optimisim is not universal. Economist Edward M. Bernstein, whose private views are distributed regularly to central bankers, says that "markets can't wait for the trade balance to improve." Bernstein argues that an import surcharge may be necessary to curb excessive Japanese sales here.
Bernstein said that a key reason for the dollar weakness is that oil-cartel countries for the first time have sold assets held here and invested them elsewhere, According to Bernstein, the oil group sold about $2.7 billion in U.S.-held assets, mostly Treasury bills, in the second quarter.
In an interview at the IMF-Bank meeting, Rene Larre, director-general of the Bank for International Settlements at Basle, said "markets are impressed by the fact that the statistics do not show the tendency to equilibrium" generally forecast during the sessions here.
Larre said that the market "has been gambling against the dollar, selling short, and this has been rewarded. It seems to feel that it can go on indefinitely." Larre said the big U.S. deficit "will be mended" eventually and the dollar weakness will end.
Meanwhile, the IMF Executive Board underwent some major shifts and realignments in its first expansion, from 20 to 21 executive directors. The new seat went to Mahsoun B. Jalal of Saudi Arabia, which is entitled to a seat of its own as the second-largest provider of funds to the IMF. Jalal is director of the Organization of Petroleum Exporting Countries' special fund.
Saudi Arabia thus becomes a member of the Big Six of the IMF who have their own seats. The others are the U.S., Great Britain, West Germany, France and Japan.
But although the new and prestigious post for the Saudis had been well advertised, the election of the 15 directors who represent, in clusters, the other 129 nations, contained a few surprises.
Chief among them was Spain's decision to leave the Italian-led bloc, and join a group of 7 Latin American countries, giving that bloc the fourth-largest voting power in the IMF, behind only the U.S., Great Britain and West Germany.
For the moment, a Spaniard, Joaquin Muns, becomes executive director of the enlarged group. Normally, this would have been the turn for Nicaragua to nominate the executive director, which would have caused an embarassment for two larger South American countries in the bloc, Mexico and Venezuela, who oppose the Somoza regime. Muns, a former IMF staff members, is an economics professor.
The IMF staff paper took into account new policies adopted at Bonn on spurring Japanese and German economic growth. But even assuming adoption of a supplemental Japanese budget (as is now planned by the Japanese government), the IMF estimated that real gross national product will be at an annual rate of only 6 percent in the first half of 1979, or one percent less than the government's target.
Perhaps ironically, the shortfall is attributed to the impact of the sharply appreciating yen on the Japanese trade balance. A "rather low" 3 percent growth rate is forecast for Germany, despite the post-Bonn expansion.
The projections for the U.S. are roughly comparable to the Carter administration's: about 3.5 percent in the first half of 1979. The report labeled that lowered rate "not undesirable."