Better World Economic Outlook in Short Term, IMF Report Says

Article excerpt

Better World Economic Outlook In Short Term, IMF Report Says

WASHINGTON -- Falling oil prices and lower interest rates will boost global economic growth, keep inflation low, and improve world trade for the rest of the decade, according to the latest world economic forecast by the International Monetary Fund.

The brighter economic outlook, however, will not lift annual growth rate back to the levels of the 1960s and will look good only in comparison with the dismal record of the early 1980s, the IMF said.

Third World per capita incomes will be virtually unchanged in 1986 from their levels at the beginning of the decade, the IMF added.

In a revision of its annual World Economic Outlook, released as the 22 finance ministers of the policymaking IMF/World Bank interim committee meet in closed session here, the 149-member-nation IMF predicts an industrial country growth rate of 3% this year.

For oil-importing developing countries, economic output should improve 4.75% this year. Meanwhile, oil exporters, including heavily indebted Mexico, which have been buffeted by a 60% decrease in the price of oil since the end of 1985, will see their economic growth rates grind to a halt, according to the forecast.

The IMF said that global inflation rates will remain low, and world trade, which dropped off steeply in 1985, should revive as a result of cheaper money and the plummeting price of oil.

Nevertheless, this improved outlook will not translate into Third World growth rates that can keep pace with population growth, nor will it mean a significant lessening of the developing nations' $900 billion foreign debt.

The picture painted is one of a global economy that has returned to sustained, noninflationary growth in most of the world -- but whose improvements are still fragile and subject to reversals. The IMF warned that "considerable uncertainties exist concerning the international ecomomic environment," such as currency movements, the path of interest rates and oil prices, and the scope and impact of efforts to curb the United States' budget deficit.

The IMF called on the industrial nations to continue efforts to reduce their budget deficits, to avoid moves toward trade protectionism that can further hinder world commerce, and to build on the foundations of international cooperation.

Expansionary Fiscal Policy Could Spell Trouble

It cautions western European countries and Japan against picking up the slack from slower U.S. growth rates by following a more expansionary fiscal policy that might reignite earlier economic problems with inflation. …