OECD: Economies Are Healthy

PARIS -- The economies of the world's richest nations are in good health and look set to stay that way as unemployment falls from recent records and inflation remains under control, the OECD said Tuesday.


In an unusually upbeat report, the think-tank said this upturn was a "golden opportunity" for politically difficult reforms that would guard against future boom and bust cycles.


The Organization for Economic Cooperation and Development said the growth rate of its 25 members' economies should quicken to 3 percent in 1995 from 2.8 percent this year.


Growth should continue almost unabated into 1996, with Japan and Europe filling a gap in output left by the slow down in the U.S. economic recovery.


"Economic prospects for the area are now better than they have been for many years," said OECD's chief economist Kumiharu Shigehara at a news conference to present the latest semi-annual Economic Outlook.


But the OECD report stopped short of congratulating policy-makers and warned of risks ahead.


"The challenge now facing policy-makers is to sustain the current revival of non-inflationary growth and of employment as effectively as possible," it said.


In the United States, where the economy was running at close to capacity, monetary policy might not have been tightened enough.


The OECD said this year's rises in U.S. short-term interest rates, which have spooked markets, should continue next year. By 1996 U.S. three-month money should stabilize at about 6.75 percent compared with a little over 5.5 percent now.


Forecasting a climb in U.S. inflation to 3.3 percent from an average of 2 percent this year, it called on the Federal Reserve, the U.S. central bank, not to be shy about tightening policy further.


"Preparedness to apply further restraint would appear to be the best policy posture at this point in the business cycle, as the risks from remaining too restrictive for a short period are less than those of allowing inflation to reignite," it said.


Britain, Australia and New Zealand, whose recoveries were also fairly well advanced, might also have to tighten monetary policy further to be sure that overheating was avoided.


Continental Europe, on the other hand, was unlikely to run into the economic buffers in the near future. The OECD said growth in Europe as a whole should rise to 3 percent next year from 2.3 percent and then nudge up to 3.2 percent in 1996.


Still, the inflation-wary German Bundesbank -- whose stance has a key influence on those of its neighbors -- had limited room to ease its policy further because inflation looked set to stick at 2 percent or a little higher next year and in 1996.


Japan, lagging behind its competitors in the economic cycle, would not top average annual growth of 3 percent until 1996. Unemployment would decline almost everywhere in the OECD as new jobs were created by increasing output and demand.


"As the upswing gathers pace throughout the area during the next two years, prospects for labor markets should continue to improve," the OECD said.


It forecast an increase in employment which should cut the average unemployment rate to around 7.7 percent of the work force by the end of 1996 from 8.2 percent this year.


Europe would be no exception. But the area, criticized in an OECD jobs report last summer for its rigid labor markets, would be stuck with a jobless rate in double figures.