The world faces a continuation of stagnation and high unemployment in most countries this year for the third year in a row, with nothing on the horizon to suggest improvement in 1983, according to an annual survey by the International Monetary Fund's staff published yesterday.
This bleak assessment of world economic trends forms the backdrop for the heads-of-government economic summit in Paris next week. Recession, the resultant protectionist mood and what if anything can be done about it are key items on the agenda.
Coincident with the IMF's dismal assessment, the Joint Economic Committee yesterday heard testimony from government and private experts who stressed the intractable nature of current economic problems. For example, Assistant Secretary of State Robert Hormats, in charge of summit preparation for the United States, told the JEC that "the inability of young people to find their first job continues to disillusion an entire generation."
Hormats warned that "both here and abroad, many are tempted to turn inward to try to solve their problems by increased protection" and other nationalistic methods. And John Sewell of the Overseas Development Council and Edward R. Fried of the Brookings Institution predicted that the summit would ignore the economic troubles of the Third World at a time when its debt problems are becoming increasingly critical.
The IMF report forecast that the real growth of the industrial world this year would be limited to 0.8 percent, down from 1.2 percent in 1981 and 1.3 percent in 1980. This represents a sharp decline from the 4-plus percent average growth 1976 through 1979, and is a far cry from the 4.7 percent average of the decade, 1963-72.
But the report urged national authorities to stick with austerity policies, despite high unemployment, because the major problems cannot "be handled quickly, easily, or painlessly." To move into an expansionary set of policies "would risk a reversal of hard-won progress against inflation without opening up a prospect of any sustainable reduction in unemployment."
Among the seven nations that will be meeting at next week's summit, only Japan will have a respectable growth rate for 1982--3 1/2 percent--according to the projections in the report. In declining order, the IMF forecast for the rest shows: Italy, 2.3 percent; France, 2.l percent; West Germany, 1 percent; England, 0.8 percent; Canada, minus 0.5 percent; and the United States, minus 1 percent.
For next year, the IMF report predicted only the most modest recovery for the United States--less than 2 percent--because of the exceedingly tight U.S. monetary policy. This is significantly more pessimistic than assumptions by the Reagan administration.
The report cited four main trends in the global pattern of current account balances. First, the OPEC surplus, which had been $71 billion in 1981 and only a year ago had been projected at $80 billion for 1982 may be no more than $25 billion as a result of shrinking demand for oil. Second, the seven major industrial nations, taken together, are swinging from deficit to surplus; third, the deficits of smaller industrial countries with a few exceptions will remain heavy; and fourth, the Third World countries that have no oil to export will have a deficit rising to $100 billion in 1982 and again in 1983, compared with only $39 billion in 1980.
What these shifts mean, essentially, as Fried pointed out to the JEC, is that the process of recycling OPEC money "is now coming to an end." It is being replaced "by the more usual surplus in the industrial countries and a counterpart deficit in the developing countries."
In a detailed analysis of the U.S. economy, the IMF staff also predicted that the U.S. current account (trade in goods and services, including official transfers) would shift from a $6.5 billion surplus in 1981 to an approximate balance this year, and then into "substantial deficit" in 1983.
The merchandise trade component of the current account would "deteriorate by $8 billion in 1982 and by another $16 billion in 1983," largely because of sharp appreciation of the dollar in the past two years. CHART(By Gail McCrory for the W.P.) shift from a $6.5 billion surplus in 1981 to an approximate balance this year, and then into "substantial deficit" in 1983.
The merchandise trade component of the current account would "deteriorate by $8 billion in 1982 and by another $16 billion in 1983," largely because of sharp appreciation of the dollar in the past two years.