World economic recovery will continue to be sluggish next year because of questionable progress in the three leading industrial nations - the United States, West Germany and Japan, according to a sober assessment by key finance ministers meeting here yesterday.
The ministers are not predicting recession, but they see little likelihood that economic growth will increase more than fractionally over this year's 4 per cent rate in the industrial world. This would not be enough to make a significant dent in worldwide unemployment.
They recommended, as a result, that all industrial countries, including smaller ones, make an effort to contribute to expansion without ignoring their efforts to control inflation.
These main conclusions emerged from a day-long meeting of the so-called Interim Committee, the policy-making body of the International Monetary Fund, preliminary to the annual joint meeting of the IMF and World Bank opening here on Monday.President Carter will address one of the Monday sessions.
The 20 finance ministers who comprise the Interim Committee named as their new chairman British Chancellor of the Exchequer Denis Healey, who succeeded former Belgian Minister of Finance Willy deClercq.
A main topic of the Interim Committee was the prospective economic growth rate among the 24 industrial nations who are members of the Organization for Economic Cooperation and Development.
A communique from the committee issued last night spoke bluntly of "the faltering of economic activity during recent months in a number of industrial countries."
At a press conference, Healey said there is great concern over prospect, for growth based on existing policy," even when allowing for recently announced measures in West Germany and Japan to stimulate their economies.
Healey said that "for the first time since I have been attending these meetings, there is a perceptible shift in emphasis. Most speakers took more seriously the chance that the present recovery might peter out, and [consumer] demand might not be sufficient to reduce unemployment."
Among the countries that are expected shortly to join in a new expansionary cycle are the Netherlands and Switzerland, Healey said.
Asked if the ministers had agreed on any proposed or suggested form that expansion should take, Healey said they had not, because "different countries have different problems, and they will do it in their own way." He added, however, that countries with balance-of-payments surpluses should take measures that would tend to increase imports from their trading partners.
The British chancellor of the exchequer also noted, as did the communique, that worrisome "tendencies toward protectionist trade policies" are beginning to appear. The committee termed such policies "unacceptable" and noted that protectionism will be even a larger concern for the world economy as less developed countries begin to rely more on exports of their own manufacturers.
In a meeting on Friday, details of which were reported in a communique yesterday, the poor nations among the 131 IMF members, represented by the Group of Twenty-Four, raised a warning about sluggish activity in the industrial world. They said the weak trend, coupled with growing trade restrictions, would put a further economic squeeze on the less developed countries.
At the Interim Committee meeting it was learned, IMF Managing Director H.J. Witteveen and others raised the question of whether announced by West Germany and Japan would be adequate to help stimulate world recovery.
Witteveen remarked a shortfall in government budget expenditures in the German economy, similar to that which has occurred in the United States, which might prevent the Germans from fulfilling their 4.5 per cent growth goal. And despite assurances from Japan, others at the meeting suggested that a new fiscal stimulus, as announced, would not be enough to prod that country toward the 6.7 per cent growth rate earlier set out.
Until now, the United States has been the acknowledged front-runner in world recovery, with an annual growth rate of close to 7 per cent. But Carter administration officials concede that that level of expansion cannot be maintained. Treasury Secretary W. Michael Blumenthal told the meeting that the United States anticipates a 5 per cent growth target in 1978.
All three of the major industrial nations have been inbibited in pushing their economic expansion to even higher levels, lest they stimulate inflation without providing any long-term reduction in the rate of unemployment. But these three countries' trading partners consistently suggest higher rates of growth, because expanded activity in the industrial world provides a market for their exports, hence improving their economies.
Sources at the Interim Committee meeting said OECD Director General Emil van Lennep commented that even if West Germany and Japan managed to hit their promised growth targets, the reduction in expansion in the United States over the next 18 months, compared with the early-1977 pace, indicated that 1978 would not be a banner year.
By way of response, Blumenthal told his fellow finance minister that there is a limit to the expansion the United States could undertake as a contribution to the world economy. He also mentioned that a significant part of the estimated $25 billion U.S. trade deficit arises out of relations with non-oil producers.
The Group of Twenty-Four, chaired by R.K.A. Gardiner, commission of economic planning for Ghana, said in its communique that the developing countries as a whole enjoyed an improved economic performance this year because of better harvests, a better relation of their export prices to import prices, and internal austerity measures taken in view of their growing load of financial debt.
But they said a continuation of belt-tightening woudl "jeopardize their growth prospects." They noted "with dismay" that the flow of development assistance, adjusted for inflation, appeared to have declined 1 to 3 per cent in 1976.
The G-24 ministers urged a wide range of additional supporting programs, including quick action on a general capital increase for the World Bank. This has been approved in principle by the bank's executive directors and will be a major topic of discussion this week.
Healey said the Interim Committee discussed a new quota increase for the Interntional Monetary Fund. As expected, no decision was reached yesterday, but there is a commitment, he said, to settle the quota issue at the committee's meeting in Mexico next March.
Healey and other ministers paid high tribute to Whitteveen, who announced last week that he would not seek reappointment next September to a second five-year term.