Bad All Over

Grim thoughts from the OECD

The increase in oil prices--approximately 60% since January--will send the developed nations into their worst economic slowdown since the first round of OPEC price gouging touched off the 1974-75 recession. So says the Organization for Economic Cooperation and Development in its semi-annual forecast covering 24 member nations of the industrial world. In the next twelve months, predicts the OECD, their economic growth will average 2%, down from 3.7% last year; their inflation will rise from 7.9% to 10%; and their unemployment may swell from 5.25% to 6%, a postwar record of 19 million people out of work in OECD countries.

The forecast found that the U.S. will have no growth at all. Elsewhere, performances will range from flat in Britain to a healthy 4.5% to 5% expansion in Japan. West Germany, Europe's trusty "locomotive," will slow to about 3%, while France will do well to reach 2.5%. Because of higher prices for oil, balance of payment deficits for the OECD countries will double, to $40 billion. Meanwhile, the combined surpluses of the OPEC cartel will also double, to $70 billion.

The report warns that any tinkering with the economy--such as a tax cut in the U.S. or further increases in West German interest rates--will only make the situation worse, and it advises policymakers to sit tight. Their main priority, the OECD advises, should be to reduce oil imports. Says John Fay, head of the OECD's economic department: "We have a long road of rather slow growth ahead of us."

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