JOINT ACTION SAID VITAL TO BOOST WORLD GROWTH
Prospects for world economic growth remain
very sluggish, and coordinated action by western governments is
urgently needed to restore business confidence, stabilize
currencies and encourage investment, the Organization for
Economic Cooperation and Development (OECD) said here.
    "The economic situation has deteriorated in recent months,
and ... Slow growth, high unemployment and large payments
imbalances are likely to persist," it said in one of its
gloomiest reviews of the world economy in recent years.
    The gross national product (GNP) of the 24-nation bloc of
western industrialised countries is forecast to grow by only
2.25 pct both this year and next, even slower than last year's
2.5 pct growth rate.
    "We would like to see the aggregate for the OECD area
comfortably exceeding three pct," David Henderson, head of the
OECD's economics and statistics department, said.
    The OECD said that the dollar fall had led to rising
inflation expectations and higher interest rates in the U.S.,
Combining with world trade imbalances and the huge third world
debt problem to increase the risks of a world economic
downturn.
    "At the same time, many of the conditions for faster growth
remain favorable," it said, citing low inflation in most major
countries, healthy corporate finances, generally lower interest
rates, improvements in state budget positions and more flexible
labor markets.
    But private sector confidence had been undermined by
uncertainties over exchange rates, it said, and warned that "for
confidence to be restored, it is important for governments
swiftly to implement internationally-agreed commitments."
    This was a clear reference to last February's Louvre accord
of the Group of Five nations plus Canada, analysts said.
    The OECD said that apparent disagreements among major
countries on implementation of the Louvre accord had helped to
undermine business confidence, and called on more active fiscal
policies from the U.S., West Germany and Japan to slow demand
in the U.S. And raise it in the other two countries.
    Henderson said the 6,000 billion yen package announced
recently by the Japanese government to encourage public works
and cut taxes would make a significant contribution to this
process, though it was too early to estimate its precise
impact.
    He said the measures will help strengthen Japan's domestic
demand significantly, quite possibly exceeding one pct of GNP.
    The inflation outlook, while broadly satisfactory, has
worsened in recent months, with OECD consumer prices forecast
to rise 3.5 pct this year and 3.75 pct in 1988 after a 2.8 pct
increase in 1986.
    There is no prospect for any significant improvement in the
unemployment situation over the next 18 months, with the
average rate expected to stabilize at 8.25 pct, similar to last
year.
    The OECD called for efforts to liberalize world
agricultural markets through switching farm subsidies away from
price guarantees and other measures linked to production
towards direct income support for farmers.
 Reuter
