OECD URGES ACTION TO CUT U.S. BUDGET DEFICIT
The United States should take urgent
action to cut its crippling budget deficit, including possible
reductions in non-defense spending, higher taxes and curbs on
growth of the defense budget, the Organization for Economic
Cooperation and Development said.
    The OECD, in its semi-annual review of the world economy,
said a failure of the Reagan Administration and Congress
quickly to agree on measures to cut the deficit "could seriously
affect confidence, both in the United States and elsewhere."
    It predicted that the federal deficit in fiscal 1987,
running until September 30 this year, would substantially
overshoot both the Balanced Budget Act's target of 144 billion
dlrs and official U.S. Estimates in February of 175 billion.
    "The OECD projection, which is based on assumptions of
slower growth, higher interest rates and actual data for the
first half of the financial year, is for a deficit of about 190
billion dollars," it said.
    While this would be 30 billion lower than last year's
deficit, much of the improvement would be due to corporate tax
increases being introduced before income tax cuts take effect.
    The U.S. Economic growth rate is expected to edge up to
2.75 pct next year from 2.5 pct this year and last.
    In contrast to the last two years, more competitive exports
boosted by the fall in the dollar should help GNP growth.
    Unemployment should continue to fall slowly as the service
sector continues to create jobs. But inflation appears to be
heading higher, partly due to the lower dollar, with consumer
prices forecast to rise four pct this year and 4.5 pct next
year after just 2.1 pct in 1986.
    "Monetary and fiscal policy appear to be the key factors
behind the avoidance of recession," the report said.
    The current account balance of payments deficit is expected
to be still around a high 125 billion dlrs next year, after
hitting a projected record 147.25 billion this year, it said.
    In Canada economic growth is expected to pick up slightly
to around 2.75 pct in 1988 from 2.5 pct this year, but will
still be below levels seen in recent years. Inflation is
expected to slow to 3.5 pct next year from 3.75 pct this year,
unemployment should edge down to nine pct in 1988 from 9.25 pct
this year.
    Canada's current account deficit is projected to shrink to
around four billion U.S. Dlrs this year and to remain at about
that level in 1988.
 Reuter
