Bullish Europe

It should outdo the U.S. in '79

While the U.S. is tamping down its economy to fight inflation and strengthen the dollar, Western Europe is beginning to emerge from the stagnation that began when oil prices were quintupled in 1973-74. The result will be "a scissors movement"--Europe's economies will move up, while U.S. growth declines in 1979. This metaphorical prediction, from the 24-nation Organization for Economic Cooperation and Development, is one of the most optimistic forecasts that the Old World has seen in years.

There is a general feeling of revival in Western Europe, even though forecast growth rates remain well below those seen before the oil embargo. In West Germany it is spurred by Europe's strongest economy; in France by a determined shift away from government regulation toward private enterprise; in Italy by a still troubled but convalescing economy.

Rising consumer confidence should boost demand, predicts the OECD, lifting total output of goods and services by 3.5% in Europe, vs. 2% in the U.S. Demand will also increase because West Germany and Japan are moving to stimulate their powerful economies, opening their markets to imports from less affluent trading partners. West German tax cuts and other expansive measures will amount to $8 billion this year.

The oil price rise announced by the OPEC cartel will hurt almost all industrial nations. The extra costs will amount to about $6 billion for the U.S., some $2 billion for West Germany and roughly $1.5 billion each for France and Italy. With North Sea oil on stream, Britain should weather the increase without trouble.

The OECD concedes that some European economic blemishes remain. Its steel, shipbuilding and textile industries continue in distress. Unemployment stands to stay at a high 5 1/4% because the work force is increasing as fast as new jobs are being created. Consumer prices, the OECD report says, should rise 7% this year for the Continent as a whole, ranging from less than 3% in West Germany to nearly 11% in Italy.

Though the prospect is for "moderation" in wages, that may translate into less than moderate increases of 12% in Britain, 8% in France and possibly 15% in Italy. In West Germany, 100,000 steelworkers who demand a 35-hour instead of a 40-hour week have been on strike or locked out, some for as long as six weeks. This is the worst German steel confrontation in 50 years, and by mid-January it will slow auto and electronics production. So, while Europe heads into the new year with more vigor than the U.S., the year of the scissors will be no snip.

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