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The World Economy

Volume 929: debated on Tuesday 29 March 1977

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The industrialised countries as a whole achieved a relatively rapid recovery in output and trade at the beginning of 1976, but this fell off through the rest of the year. Over the year as a whole their gross national product rose by nearly 6 per cent., after falling 1½ per cent. in 1975; and world trade in manufactures increased by nearly 10 per cent. following a drop of nearly 4 per cent. in 1975. Nevertheless, there is growing concern that the pause has been unusually prolonged for this stage in the cycle.

More recently, growth in some major countries has shown signs of accelerating again. There now seems to be a reasonable prospect that this year GNP in the major countries will grow at around 5 per cent. World trade in manufactures may rise by about 8 per cent. Present policies in the United States and Japan should help to ensure that their recovery is sustained. But in Europe the prospects are more doubtful. Inflation and difficulties with the balance of payments have led several countries besides ourselves to take restrictive measures. Even countries with a strong balance of payments ments and low inflation rates are being very cautious in their fiscal policies.

The OPEC countries are expected to increase their imports by 15 per cent. in 1977, but as a group they will continue to run a massive surplus. In the non-oil developing countries, however, growth will remain constrained by shortage of foreign exchange. Many of them improved their position last year, as the price of primary commodities rose relative to manufactures, and this may continue to some extent in 1977. Nevertheless, their imports are likely to be held back by financing problems and the need to rebuild their reserves.

The most disturbing feature of the world scene is that over the last two or three years every major industrial country has seen its unemployment level rising well beyond what had been regarded in the post-war world as the limit for a well-managed economy. At the end of 1976 there were estimated to be 15 million unemployed in countries of the OECD, an average unemployment level of over 5 per cent. For the year ahead, Europe at least can expect little, if any, reduction in unemployment, and it will take concerted action to improve the outlook. I will return to this later.

This is the background against which I must review the present position and prospects of the British economy. A fuller and more detailed analysis will, as usual, be found in Part I of the Financial Statement and Budget Report, but I will now describe its principal features.