Recovery ripples through industrial lands

The world economic recovery marches on. A survey earlier this month of some 45 economists by Blue Chip Economic Worldscan finds basic agreement that business activity in the world's major economies will grow at least through 1986.

Patrick Minford, an economist at the University of Liverpool, figures the recovery will continue ``well into the late '80s.''

Economist Howard Howe, of Wharton Econometric Forecasting Associates, projects ``steady but unremarkable growth'' for the rest of the decade. He figures growth in Western Europe will average no more than 2.3 percent a year, well below the 3 percent range that might dent high unemployment rates in that continent.

For a time earlier this year, there was a fear that the upturn in the United States economy would falter. But that concern has faded with the news that national output grew around 3.3 percent last quarter. But there is some speculation that the Federal Reserve System soon will have to restrain the rapid growth in the money supply, prompting a recession late next year or early in 1987.

In Western Europe, the growth parade is headed by the United Kingdom. The increase in the output of goods and services this year should be a little above 3.5 percent.

Strutting not too far behind is West Germany, with a growth rate in this second half of about 3 percent, but growth for the year averaging around 2.3 percent.

Bringing up the rear is France, with real gross domestic product up only 1.2 percent. A weak franc and international payments situation has forced the French government to restrain growth.

On the other side of the globe, Japan expects around 4.5 percent growth in output this year, well below its usual fast pace.

Why the relative optimism for the world recovery, soon heading into its fourth year and thus rather ancient by historic standards?

Liverpool's Mr. Minford offers two reasons.

``Usually,'' he explains, ``money supply accelerates in recoveries, causing rising inflation and an ensuing monetary crunch which brings recovery to an end. This time tough anti-inflation policies have caused prices to decelerate.''

So the money supplied to the major industrial nations by their central banks has been enough to keep business activity going. ``This has meant a slower sluggish recovery, but one with greater staying power,'' Minford says.

The other factor, he maintains, is the introduction by European governments of supply-side policies aimed especially at loosening rigid labor markets.

``They are having to dismantle welfare policies, and the high tax rates which pay for them, in order to get these rigidities to bend,'' he says. As examples, he cites the reform of trade union laws in Britain, and the cuts in unemployment support payments in Germany.

As these policies slowly work, Minford predicts, unemployment in Europe will fall, prompting more growth.

H. Erich Heinemann, chief economist of Ladenburg, Thalmann & Co., a brokerage house, warns, however, that the growth in the money supply is still running at ``a very inflationary pace'' in both the entire world and in the industrial nations.

Though the recovery will continue next year, it will move at a slower pace, according to the average forecast of the economists surveyed for the Blue Chip newsletter.

Here are a few of the more significant economic developments outside the US:

Britain's economy snapped back from the coal miners' strike this year.

Gavyn Davies, chief economist at Simon & Coates, a British brokerage firm, suspects the government is ``taking some risks with inflation, which may go wrong.'' He predicts growth of only 2.1 percent next year and rising unemployment.

Liverpool University's Mr. Minford is more optimistic, predicting growth about 3 percent next year, with inflation between 2 and 3.5 percent and unemployment declining slowly.

Minford holds that Prime Minister Thatcher's conservative, supply-oriented policies ``will bear observed political fruit in the next two years.'' Mr. Davies, who has worked for Labour governments in the past, maintains there is ``no solid evidence'' Mrs. Thatcher's policies are really working to cure the British economy of its malaise. Thus he believes the electorate will blame the Conservatives for high unemployment and other problems.

The German economy, to the relief of the Christian Democratic-Free Democratic government, has added almost 200,000 jobs in the last 12 months, the first addition since 1980. But some 2 million remain unemployed.

The economies of the Pacific Basin Asian nations have slowed. These countries include Taiwan, South Korea, Thailand, and Singapore.

The Chinese economy is overheating, with industrial growth running at a 20 percent rate in the first half of this year. Government policies aimed at slowing down growth should take hold later this year, Wharton Econometric Forecasting predicts.

Growth of the Soviet Union and its allies has picked up after a bad winter, but will still average only about 1.5 percent for the year, Wharton estimates.

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