World jobless unlikely to fall for two years, says OECD

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The Independent Online
THE ORGANISATION for Economic Co-operation and Development warned yesterday that the emerging world recovery is unlikely to reduce the record number of unemployed in the next two years.

Even though the expansion is forecast to accelerate to 2.7 per cent in 1995 from a modest 2.1 per cent next year, the number of people without work and claiming benefit in the industrial world could climb by 1 million to 35 million in 1994. It is unlikely to fall much in 1995.

The intergovernmental forecasting agency says the recovery is being held back by heavy private sector indebtedness in the English- speaking world, the Nordic countries and Japan. High interest rates in Continental Europe, the steep rise in the value of the yen and efforts to rein in budget deficits by many of the 24 OECD governments will also curb demand.

Despite an increasingly solid expansion in North America, recovery in the UK, Australia, New Zealand and some smaller European countries is unspectacular, and the German and Japanese recessions persist.

Governments have accordingly come under heavy pressure to act, the organisation says in its latest Economic Outlook, and must find 'policies that yield results quickly but which promise durable gains'.

It adds: 'With little scope for expansionary action on the fiscal side, support for recovery must rely largely, if not solely, on monetary policy.'

However, the OECD underlines the potential boost to recovery from easing inflation pressures in the industrial world. 'The emerging very favourable price situation, if sustained, will help to establish an economic environment more conducive to sustainable increases in productive investment, output and employment than has existed since the early 1960s,' it says.

The rising tide of joblessness over the past few years, from just over 28 million in 1991 when the global recession became entrenched, reflects a weak and uneven economic recovery. Most of the increase in the past three years - 9 million - has occurred in Europe, where the total is forecast to top 22 million by 1995.

North American unemployment is likely to fall next year, but the severe impact of the long-lasting recession on public finances means most governments have little or no room to stimulate activity by boosting public expenditure.

'Policies that promote economic recovery will help, but the largest part of most countries' unemployment problems are structural in nature and require structural remedies,' the organisation says.

As it has done in the past, the OECD says employment growth and lower long-term unemployment would result from less regulation, more flexible labour markets and more open trade, policies which deserve the highest priority.

The report also presses for reduced agricultural protection and an end to managed trade, policy changes going beyond those envisaged in the now-concluded Uruguay Round of world trade talks.

It calls for a rebalancing of policy, especially in Europe, in which the deepening budget deficits created by recession are reined in while demand is lifted by interest rate cuts. Europe's combined deficit is projected at 6.8 per cent of national output this year, falling to 5.6 per cent by 1995.

Exchange Rate Mechanism countries which link their currencies to the mark may find that their ability to bring rates below those of Germany depends directly on the credibility of their anti-inflation policies, especially if German inflation remains brisk.

The OECD says other European countries have room to cut short- term rates as long as control of inflation is not jeopardised.

Favourable prospects for a decline in German inflation should permit the Bundesbank to continue a steady easing of monetary policy, while Japan has room for a further easing in monetary policy via increased bank lending.

----------------------------------------------------------------- OECD FORECASTS ----------------------------------------------------------------- Real GDP (% change on previous period) 1993 1994 1995 US 2.8 3.1 2.7 Japan -0.5 0.5 2.3 Germany -1.5 0.8 2.2 France -0.9 1.1 2.7 Britain* 2.0 2.9 2.9 OECD Europe -0.2 1.5 2.6 Total OECD 1.1 2.1 2.7 Inflation (%) (GDP deflator) US 2.6 2.4 2.6 Japan 1.0 0.7 0.7 Germany 4.0 2.9 2.0 France 2.3 1.9 1.6 Britain* 2.0 3.0 3.0 OECD Europe 3.2 3.0 2.5 Total OECD 3.3 3.2 3.1 Unemployment (% of labour force) US 6.9 6.5 6.2 Japan 2.5 2.9 2.8 Germany 8.9 10.1 10.3 France 11.7 12.4 12.3 Britain* 10.3 10.0 9.5 OECD Europe 10.7 11.4 11.5 Total OECD 8.2 8.5 8.4 ----------------------------------------------------------------- *forecasts compiled before 30 November Budget -----------------------------------------------------------------