At summit of seven, the mood is upbeat. Despite glitches, economic growth is expected to continue at steady clip

The economic sun shines bright on the Toronto summit. Shared prosperity promises a relatively cheery get-together for the leaders of the seven most powerful industrial nations of the West.

On a normal Sunday, downtown Toronto is rather quiet. But yesterday, groups of tourists had to negotiate blocked-off streets, thousands of police, and closed parking lots as the city prepared for the start of the summit.

At their first meeting yesterday in Canada's industrial and financial center, the presidents and prime ministers discussed the world economy. Undoubtedly to their relief, business activity has emerged nearly unscathed from the October plunge in world stock markets.

``The current economic situation is better than expected six months ago,'' the economists of the Paris-based Organization for Economic Cooperation and Development (OECD) noted earlier this month.

The recovery in the United States is halfway through its sixth year, an age at which economists get anxious about a possible recession. But at the moment the US economy, which accounts for 40.6 percent of the total output of the 24 OECD nations, is moving along briskly. Real gross national product rose at a 3.9 percent annual rate in the first three months of this year.

On average, the economies of OECD nations grew by 3.1 percent in 1987 and, OECD economists predict, should manage another 3 percent growth this year and 2.5 percent in 1989.

The improvement in growth rates and some progress on deficits should soften the criticism that marked the last summit, held in Venice. Last year, for example, the US and some others among the seven were urging West Germany to step up the pace of its economy so as to encourage imports and reduce its international payments surplus.

In Toronto, West Germany's chancellor, Helmut Kohl, can note that his nation's output in the first quarter stood 4.2 percent above the same quarter in 1987.

``Germany's performance compares reasonably well with that of other countries,'' Karl Otto P"ohl, president of the Deutsche Bundesbank, told a Chicago audience June 8.

Japanese data also show economic strength. The Economic Planning Agency in Tokyo last week reported that economic expansion accelerated in the quarter ended March 31 to the fastest rate in a decade - an annualized rate of 11.3 percent - assisted by strong consumer and corporate expenditures.

Further, the Japanese trade surplus has begun to decline. In the Japanese fiscal year ended March 31, the surplus amounted to $76 billion, compared with $89.7 billion the year before.

In Washington, the Department of Commerce reported last week that the US merchandise trade deficit in April fell to its lowest in three years - $9.89 billion. The favorable trend should give President Reagan a good talking point.

On the other hand, the President could hear negative comments about the US trade bill, which currently contains provisions US trading partners strongly oppose.

The OECD economists expect the somewhat broader current-account deficit (which includes tourism and investment earnings) to fall from an annual rate of $165 billion in the second half of 1987 to about $130 billion in the second half of 1989. They project little change in the Japanese and German current surpluses in that period.

Such persistent surpluses, the economists say, ``pose a continuing problem of whether the private sector will be willing to finance them at something like present exchange rates - or at least with orderly exchange-market conditions - and without excessive upward pressure on US interest rates.''

It is not certain yet whether the other US deficit, the budget deficit, will decline this year. The Treasury is due to report tomorrow - the last day of the summit - on the May figures for federal income and spending. Almost certainly, Mr. Reagan will have been asked by his six colleagues to do what he can to see that the Congress and the new administration tackle that deficit next year.

``Increased taxes appear inevitable, while growth in spending must be further curtailed,'' according to economists Sherry Atkinson and Paul Kovacs at Burns Fry Ltd., a Toronto brokerage house.

Italy's prime minister faces even more severe budgetary problems. The Italian budget deficit is expected to amount to 10.2 percent of national output this year, compared with 2.3 percent for the US.

Germany's rapidly growing deficit, according to OECD projections, will reach 2.6 percent of output in 1988.

Another favorable development has been the stability of the US dollar on the foreign-exchange markets in recent months. It has been strong enough that West Germany and some other central banks have been able to unload some of the surplus dollars piled into their reserves while defending the dollar on foreign-exchange markets earlier this year.

Less upbeat has been a strong surge in commodity prices, raising the risk of higher inflation. The seven leaders hope their discussions can encourage decisions leading to balanced global trade without prompting another stock market plunge.

You've read  of  free articles. Subscribe to continue.
QR Code to At summit of seven, the mood is upbeat. Despite glitches, economic growth is expected to continue at steady clip
Read this article in
QR Code to Subscription page
Start your subscription today