Newspaper article THE JOURNAL RECORD

World Economy Displaying Unexpected Weakness Signs / despite Oil Prices, Low Inflation

Newspaper article THE JOURNAL RECORD

World Economy Displaying Unexpected Weakness Signs / despite Oil Prices, Low Inflation

Article excerpt

PARIS - The world economy is suddenly displaying unexpected signs of weakness just when falling oil prices and low inflation appear set to strengthen recovery.

The weakness reflects an unforeseen slowdown in the rate of economic expansion in the United States, West Germany and Japan during the opening three months of the year, and signs the slower trend has continued through the second quarter as well. Businesses and consumers simply are not spending at levels that will stimulate strong growth either in their own countries or in less-developed nations that depend on foreign demand for their goods.

Production from factories and mines in these three major industrial powers - which together account for almost half of the world's gross national product - has been particularly weak, leaving prospects for the global economy as a whole looking flat.

At a time of growing interdepencence of world economies, the slowdown in the world's three major economies is dampening expectations throughout the rest of the developing and industrial world. As aresult, many economists fear that heavily indebted poorer countries, already suffering from a collapse in raw material prices, could be pushed closer to default on their debt, raising renewed fears of an international banking crisis.

""A sense of anxiety is developing about where we are going,'' said Lord Lever, the British financier who served as economic advisor to the last Labor government of Sir Harold Wilson.

""No one foresaw the downturn,'' said Monique Fouet, a senior economist at the Observatoire Francais des Conjunctures Economiques, a French economic forecasting unit. ""This is unsettling, though we still expect an improvement later.''

Alan Greenspan, the chairman of President Ford's Council of Economic Advisers, now of Townsend-Greenspan & Co., a New York economic consultant, warned, ""There is a general expectation of recovery in the air for which the supporting evidence doesn't exist.''

To be sure, economists are not forecasting severe hard times because the benefits of the sharp drop in energy prices should provide a lift in the second half. And, despite the sluggish growth of the first half, the world's major economies are still better off than during the early years of this decade, following the second shock from higher oil prices in the late 1970s.

But the boost from lower energy prices has been slow in developing, and a Western economic growth rate of at least 3 percent a year is widely considered necessary to prevent an aggravation of the Third World's debt problems and head off a further rise in Western unemployment. Economists at the Organization for Economic Cooperation and Development in Paris now doubt whether their bellwether prediction that the world will just reach the magic three percent threshold this year can now be realized. …

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