ECONOMIC

CHAPTER 3The World Economy in 1976S. 1976 DREW TO A CLOSE, there appeared to be some doubt\ regarding the strength, if not the sustainability, of the economicrecovery. After moving very fast early in 1976, the recovery began duringthe summer to slow in many countries. This slowdown, combined withpressures in foreign exchange markets associated with external paymentsstrains in a number of countries, brought about a renewed sense of uncertainty.Whereas policy concerns early in the year had centered on the riskthat simultaneous recoveries in the industrial economies might reinforceeach other and bring about an unsustainable pace, in the second half of 1976the concern shifted to the possibility that the flattening of the recovery mightlead to an insufficient rate of growth.Nevertheless the record for 1976 is quite positive in many respects. Outputin the industrial countries is estimated to have risen about 5 percent aboveits 1975 level in real terms, the volume of world trade expanded by about 10percent, and inflation rates, though not diminished as much as would bedesirable, are significantly below earlier levels. Despite the pessimism ofthe summer months, it should be clear that a cessation of growth is notexpected this year. The consensus of government and private forecastersis that expansion in output will continue, at a pace only slightly below theaverage rate of growth achieved in 1976, but nevertheless a pace that maynot be sufficient to allow a significant reduction in unemployment. In fact,although employment has been growing in many countries, unemploymenthas remained high and has begun to rise again in some.The experience of the past several years has shown that high and risinginflation rates are incompatible with the achievement of sustainable growth.In recognition of this fact it was agreed at the Ministerial Meeting of memberstates of the Organization for Economic Cooperation and Development(OECD) and at the meeting of Heads of State and Government of the majorindustrial countries in the summer of 1976, that the restoration of fullemployment and normal levels of capacity utilization in the OECD areawould take a number of years. It was also agreed that sustained recoverycould be achieved only in a climate of price stability. For this reason excessivelyexpansionary policies, which would be interpreted as carrying theseeds of renewed inflation, might at best bring only temporary relief fromunemployment.100