ECONOMIC

tions the authorities began to formulate a more comprehensive economicprogram partly in preparation for reopening negotiations with the InternationalMonetary Fund (IMF) for financial assistance. The Government'sprogram took more definite shape in October with the announcement andsubsequent parliamentary ratification of a series of increases in taxes, administeredprices, and public traiffs. Monetary policy was tightened further, anddiscussions with business and labor were begun to seek ways of reducinglabor costs and in particular of modifying the linkage between wages andprices. These discussions are continuing, and completion of the IMF negotiationsawaits presentation of a satisfactory program of wage restraint.Italy's Communist Party, which made considerable gains in the June elections,as well as the country's other major political parties have supportedthe Government's stabilization efforts and have agreed, along with key membersof the union leadership, that wage restraint must form an essential partof any stabilization package. However, the form such restraint is to take stillremains to be worked out.In the meantime, the recovery slowed, though not quite as much as hadbeen expected. Real GDP in the third quarter of 1976 increased at an annualrate of less than 2 percent, after strong increases in the preceding 2 quarters of10.2 percent and 6.3 percent respectively. Growth in the second and thirdquarters was largely sustained by exports and stockbuilding. Investmentspending, except for energy-related projects, leveled off after some improvementearly in the year. If the Government's stabilization efforts are effective,income growth may remain weak in 1977. In addition, high nominalinterest rates, a weak demand outlook, and poor profit opportunities maycontinue to inhibit private investment demand. A successful stabilizationprogram and strong export orders, however, might do much to release longdeferredreplacement demand for capital equipment.In the United Kingdom it was hoped that an export-led recovery wouldbring about the structural shift of resources into exports and private investmentthat was needed for a sustainable expansion, but these hopesflagged in the spring of 1976. The growth of exports began to slow, andin volume terms they fell by 3 percent in the third quarter of 1976. At thesame time, the recovery of private investment expenditures, except onNorth Sea oil installations, appeared to have come to a halt in the secondhalf of 1976. Real GDP fell in the second quarter; and although industrialproduction stopped falling in September, by November it was only fractionallyabove its early 1976 level. As a consequence unemployment rose throughmost of the year.The disappointing performance of the British economy was largely associatedwith continued high rates of inflation, despite the wage restraintinstituted in August 1975 and the agreement for further restraint reachedin May 1976 in return for some tax relief. The high rates of inflation—over 15 percent at an annual rate as measured by the CPI in the first halfof 1976—to some extent reflected higher import prices, as commodity pricesrose and the exchange rate weakened. But to a larger extent they reflected106