Though jobs are scarce, Europe chalks up economic gains
Zurich — Bleached by the sunshine of world economic recovery, ''Euro-pessimism'' is fast fading. Indeed, some economists expect Western Europe to grow modestly faster than the United States in 1985.
''This Continent's record is better than its reputation,'' says Dr. Hans J. Mast, economic adviser of Credit Suisse, here.
In Frankfurt, West Germany, Herbert Wolf, chief economist of Commerzbank, says, ''We feel rather positive for the next few years. Euro-pessimism is weakening. Our industrial companies were very busy bettering their overall position in the recession.''
Another German bank economist, Dr. Eberhard Dettweiler of Bank fur Gemeinwirtschaft, predicts a ''stable upswing'' in 1985, with West Germany's economy growing about 3 percent and inflation running around 2.5 percent.
Even in France, where the Socialist government was forced by balance-of-payments problems to impose an austerity program, economists talk of output rising 1.5 to 2 percent. The French growth rate, said a Finance Ministry economist, perhaps with a little exaggeration, ''will be about the same as our principal trading partners.''
Here are some of the reasons offered for a growing optimism in Europe:
Dr. Mast notes that West Germany has recovered from the slowdown prompted by the metalworkers strike there earlier this year, and, to some degree, Britain from the continuing coal-miners strike. In the second half of 1984 the aggregate gross national product of the nine major West European countries rose at a 2.5 percent annual rate. (Growth, however, varied greatly between countries.) That was twice as fast as the same period in 1983.
Unemployment, he admitted, remained high at 11 percent of the work force. However, Dr. Mast does not see this as a sign of weakness - as some critics in the US have suggested. Rather, he regards high unemployment as a sign of substantial improvement in European productivity. Business, especially in Germany and Britain, has made major adjustments to industry to meet world competition.
Credit Suisse estimates that productivity in Europe rose an average 3.5 percent a year between 1982 and 1984, as against only 2 percent in the US.
Europe's recovery, Dr. Mast adds, is based on a strong upsurge in exports. He expects the surplus in Europe's international current account this year to be $7 billion. That compares with a balance-of-payments deficit for the US of more than $100 billion.
Moreover, government deficits in Europe are ''fairly moderate'' - with the important exception of Italy, he notes. They average 2.9 percent of gross national product, compared with more than 5 percent in the United States. Further, since the savings rate is higher in Europe, the financing of the deficits is less of a problem for the capital markets. This has meant that interest rates in Europe are also less extreme than in the US.
Dr. Mast expects real output in Western Europe to rise at a 2.7 percent annual rate in the first half of 1985, slightly faster than the US. For the year as a whole, he predicts 2.6 percent European growth. The average European rate of inflation, he continues, should fall below 5 percent - under that of the US.
However, the Organization for Economic Cooperation and Development (OECD) - the Paris-based organization of noncommunist industrial nations - forecasts 2.5 percent real growth in Europe and 3 percent in the US.
Commerzbank's Mr. Wolf points to the sharp rise in corporate profits in much of Europe as a good sign for the economy. German industrial companies listed on the stock exchanges enjoyed a 33 percent boost in profits last year and a further 20 percent increase this year.
He is also cheered by the formation of a conservative government in Germany. It has made a major effort to shrink bud-get deficits.
Mr. Wolf even feels optimistic for German industry, saying it is the strongest in Europe. Germany's powerful electrical and machine tool industries have bettered their situation, he adds. Smaller industrial firms have modernized with computers.
''We are in a good second place in the computer business,'' he claimed. The US ranks No. 1. Moreover, he figures the technological gap with the US in the electronics industry has shrunk in the last three years and will shrink further in the next few years.
Dr. Dettweiler predicts ''a new wave'' of investment in all German industries , especially in banking, communications, and the modernization of offices with electronics.
He finds the younger generation of Germans ''very realistic. They know what they can do. They know it is hard to find a job, but not impossible. They have no illusions.''
Unfortunately, not all is hunky-dory in Europe. The OECD says unemployment in Western Europe will rise to 11.75 percent in the next two years. Economists talk about the insufficient creation of new small businesses, the type that create jobs. European businessmen still feel they are burdened by too-high taxes and too much regulation.
However, Dr. Mast concludes: ''All told, Europe does not present the picture of a sick economy.''