World economy still isn't riding coattails of US recovery
Boston — The world economy is experiencing ''a kind of warped recovery.'' That is because the United States economy is coming out of a deep recession at a normal husky rate, while business activity in Western Europe is almost flat , says economist Roger C. Bird. Japan's economy is also moving ahead, he says, though not at its usual rapid pace.
''There is not the simultaneous feedback of one country helping another,'' notes Mr. Bird, chief international economist of Wharton Econometric Forecasting Associates in Philadelphia. In some earlier world economic recoveries, the upturn of business in the major industrial countries was more synchronous. Each country ordered more imported goods, stimulating sales in their trading partners.
But this time, Bird says, ''the US is the lone locomotive.''
Thomas Kevin Swift, chief economist of Predicasts, a Cleveland forecasting-information service, calls the situation ''one of the most moderated recoveries in modern history.''
Nonetheless, the recovery is welcome. President Reagan waxed almost poetic when addressing the central bankers and finance ministers at the joint annual meeting in Washington of the International Monetary Fund and World Bank in late September.
''Economic recovery is spreading its wings and taking flight,'' he said.
With the world economy becoming increasingly internationalized through growing trade and the spread of multinational companies during the past several decades, many more economists in the US now spend much time studying the global scene instead of just the domestic American business cycle.
Shea Smith III, in his newsletter Blue Chip Economic Worldscan, tracks about 40 forecasting sources, including economic services (such as Wharton Econometrics), companies, and brokerage houses.
Here are those economists' latest average forecasts for growth in national output in real terms (after removing inflation) next year: Nation Percent United States 4.8 Canada 4.3 Japan 4.1 Australia 3.0 West Germany 2.6 United Kingdom 2.1 Italy 2.0 Mexico 1.2 France 1.0 Brazil-0.7
Since the US economy is so important, accounting for some 20 percent of global output, Mr. Smith asked the opinions of his group of international economists on the length and strength of the current American economic expansion.
Their consensus was that it would expire three years from the start of the recovery a year ago, and that output would be 13 percent higher at that time. Half of the economists thought there would be a recession at the end of those 36 months; half predicted only a slowdown.
Joseph Yun, an international economist with Data Resources Inc. (DRI) of Lexington, Mass., figures that if the US economy can grow about 5 percent a year , ''then there is no doubt other countries will come along with it.''
One drag on the world economy is the massive debts of developing countries - more than $600 billion. If interest rates stay high in the US and thus the world , it will be tougher on major debtor nations such as Brazil, Mexico, and Argentina.
DRI forecasts the collective economies of Latin America will see a 2 percent drop in output this year, compared with 2.6 percent drop last year and a slight upturn next year of 0.7 percent.
For the world as a whole, Wharton Econometrics predicts real growth this year of 2.2 percent and 3.4 percent next year. Developing countries as a whole will see growth rise from minus 0.6 percent this year to 3.3 percent in 1984, Wharton Econometrics predicts.
That growth would reflect a slight recovery in Latin America and solid growth in the Pacific Basin countries (South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, and the Philippines) of 6.2 percent in 1984, compared with 4.9 percent in 1983.
Africa, according to the Wharton service, will experience real growth of 2.3 percent next year, compared with minus 0.7 percent this year. The communist nations will have 3.3 percent growth in 1984, down from 3.9 percent this year.
Predicasts' Mr. Swift says Eastern Europe is ''in the midst of economic entropy'' because of its shortage of Western currencies, rigid ideology, and extensive planning.
One positive side of the fading world recession is the sharp decline in inflation in many countries. But Mr. Bird maintains the good news on prices is ''more or less behind,'' with inflation moving up modestly in many industrial nations.
He figures the US inflation rate will average 5.4 percent a year in the 1983- 88 period, compared with 3.7 percent this year; in Western Europe, a 7.2 percent annual rate vs. 8.9 percent this year.
A negative element of the recession is high unemployment. Here Bird sees a reversal of the pattern of the 1960s and '70s, when Western Europe usually had a lower jobless rate than the United States.
Because Europe's baby boom occurred about five years after that in the US, and because of rising employment of women, he expects this year's 11.1 percent unemployment rate for Europe to rise to an average of 11.3 percent over the 1983 -88 period.
By contrast, the average US jobless rate of 9.6 percent for 1983 will drop to 8.1 percent over the 1983-88 period, reaching about 7 percent in 1988. In this country, wages in some industries have actually dropped.
These numbers, he said, show why there is so much ''Euro-pessimism'' on the other side of the Atlantic. Europe, he explains, has much less flexibility in wages than the US.