The global economy remains "clouded by uncertainty" after volatile stock market activity in October and November, and faces the risk of recession and new "turbulence" in stock and foreign exchange markets unless the major powers promptly put "further policy changes" into effect.
That was the grim assessment offered yesterday in the annual world economic outlook by the Organization for Economic Cooperation and Development (OECD) in Paris. While citing, as it has before, the need for continued progress in reducing the American budget deficit, the report seemed to echo American complaints that West Germany is not meeting its global responsibilities. "Germany necessarily has a central role," it said.
Although West Germany has announced some expansionary measures, the OECD insisted that the Bonn government must take additional steps "to achieve more satisfactory performance." Almost immediately, a West German spokesman rejected the OECD pressure, adding that West Germany has already made a major contribution to global growth through monetary and fiscal measures.
The OECD conceded that the problems facing West German and other policymakers were difficult, and that "it would be natural" to try to delay new initiatives.
But "governments do not have that luxury," the report said. "They need to move promptly to restore credibility, and to strengthen market confidence that major problems are being addressed effectively and in an internationally cooperative manner."
The OECD analysis suggested that one of the main problems for the United States, a deficiency of domestic savings, would be lessened by the after-effects of the stock market collapse. Because of the decline in financial wealth, the report suggested, U.S. consumers will be inclined to increase their savings.
But it also said that the budget-deficit package adopted early yesterday morning may have to be followed by further measures, noting an analysis by the Congressional Budget Office saying that the 1988 and 1989 fiscal deficits would be essentially unchanged from the 1987 deficit.
Overall, the report estimated that the fall in equity prices would shave about one-half a point off economic growth prospects among the 24 industrial countries within the OECD, bringing the average for 1988 and 1989 down to about 2 percent from the 2.5 percent that had been projected just before the collapse.
There would be a wide variation in growth rates within the OECD for 1988, with Japan in the lead with 3.5 percent (maintaining its 1987 pace), followed by the United States with 2.5 percent and West Germany with only 1.5 percent.
For Europe as a whole, the OECD projected an economic growth rate of only 1.75 percent in 1988, slipping to 1.5 percent in 1989. That means unemployment, already a serious problem there, is expected to get worse.