Old man recovery to keep rolling -- with a few waves -- in '86
Boston — That old man recovery keeps rolling along, as Paul Robeson did not quite sing. Economists expect business expansion in the United States and most of the remainder of the world to continue well into or through 1986.
Indeed, Dr. Geoffrey H. Moore, director of the Center for International Business Cycle Research at Columbia University's Business School, talks of a ``more rapid pace'' in the US next year, a ``better performance'' in West Germany, France, and Italy, ``a little on the somber side'' in the United Kingdom, and a slowdown in the economic pace in Japan.
Dr. Moore has plenty of company in his relative optimism.
For example, the Organization for Economic Cooperation and Development (OECD) in Paris says that the international economic recovery ``looks . . . as if it may have a greater chance of proving sustainable than appeared the case six months ago.''
In its semiannual Economic Outlook, the OECD further says ``economies may well be becoming more flexible and less inflation prone.'' In Europe, especially, there are ``improving prospects for a better economic performance.''
Real growth in the OECD area of 24 mostly industrial nations will average 2.25 to 2.75 percent through mid-1987, the Economic Outlook indicates.
The European Community forecast is similar -- 2.5 percent average real growth in domestic product in the 12-nation Community, compared with 2.3 percent this year and 2.2 percent in 1984.
Bank of America says real gross domestic product in the world will grow by 2.8 percent in 1986, compared with 3 percent in 1985 and 4.7 percent in 1984.
Because of slower growth in US demand, protectionist threats, and continued weakness in commodity prices, the California bank sees a decline in Asian and Pacific Rim growth. This will force the region to diversify its export markets and products, the bank adds.
Surveying predictions by 47 forecasters around the world, Blue Chip Economic Worldscan finds the recovery continuing in all the major industrial nations, plus Mexico and Brazil, next year.
In other words, there is an unusually strong consensus among world economic observers that the expansion will continue and may even pick up next year. That is good news for business and its employees, as well as the governments that tax them.
In the United States, economic recovery began in November 1982 and is now 37 months old. The eight postwar recoveries have averaged 44.6 months in age before slipping into recession.
So, if economic forecasters are right, the current recovery has excellent prospects for surviving longer than average. The longest postwar expansion, starting in 1961, lasted 106 months.
The Blue Chip panel, surveyed before the latest revisions in the gross national product data, forecasts 2.8 percent growth in the United States next year.
But some analysts are more chipper.
Lawrence A. Kudlow, a Washington economist, talks of 5 percent real growth in the US next year, 5 to 6 percent inflation, and 2 to 3 percent higher interest rates by the end of the year.
Citibank, looking at the 3.2 percent flash estimate for real growth of gross national product at an annual rate in the fourth quarter, says GNP should rise at around a 4 percent rate in the first half of 1986. Michael D. Levy of Fidelity Bank, Philadelphia, predicts 3.6 percent real growth next year.
In its analysis of the 1986 outlook, the OECD economists see developing-country debt and international currency account imbalances as ``causes for concern.''
They approve the ``clearly expressed cooperative intent among the major countries to address these issues.'' This is a reference to the September meeting of the Group of Five industrial countries and the October initiative of US Secretary of the Treasury James A. Baker III.
The September session was aimed at reducing the value of the dollar; the Baker initiative at pumping more money into the major debtor nations to reduce the risk of further financial and political troubles in these countries.
Writing before passage of the Gramm-Rudman deficit-cutting bill, the OECD economists once more speak of a need for the US to bring down its budget deficit. And they urge Japan ``to achieve a better utilization of domestic savings in promoting domestic expansion, as yen appreciation weakens the expansionary thrust generated by exports.''
With the money supply growing at a high rate in the US, the OECD economists warn: ``If the risk of a reawakening of inflation in the United States is to be avoided, there is little doubt that rapid money growth will need to be restrained at some stage.''
Looking at Europe, the OECD worries that growth may be insufficient to bring down the current high rate of unemployment there over the next year or so.
Thus the Economic Outlook suggests that the ``most acceptable and indeed desirable route'' for obtaining somewhat faster growth would be a reduction in interest rates. This would have the side benefit of lowering charges on national debts.
``In few if any European countries do budget positions afford a significant room for maneuver at present; likewise, significantly higher demand from the export side seems unlikely,'' the OECD adds.
From a growth standpoint, the most worrisome situation for the economists is Japan.
Citibank, for example, sees real growth next year of about 3.5 percent compared with almost 5 percent this year. That 1986 figure is slow by Japan's standards.
This, Citibank states, ``will make it difficult for Japan to succeed in reducing the enormous surplus which continues to pile up in its current account and which exasperates US protectionists.''
So 1986 looks like a basically happy year economically, but with some of 1985's troubles continuing. CHART: 1986 economic outlook Japan Germany OECD Europe Real GNP Inflation Unemployment 2.75 3.50 3.25 2.25 3.25 1.50 1.25* 4.50 7.25 2.75 8.00 11.00 * France, Britain, Italy, and Canada Source: OECD