World Bank Sees Dim Prospects for Growth

Rich and poor countries face economic growth rates far below those of a decade ago unless the United States cuts its budget deficit substantially and more Western Europeans get jobs, the World Bank said in a report made public Tuesday.

Growth rates declined last year and the year before in Third World and industrial countries.

“On what we know to date, 1987 is not looking much better,” said Constantine Michalopoulos, who directed preparation of the report.

Under the bank’s “low-case” scenario for 1986 to 1995, the economies of Japan, the United States, West Germany and other Western industrial countries would grow by 2.5% a year. That is a little higher than the 2.3% so far in the 1980s, but considerably lower than the 2.8% of 1973 to 1980 and the 4.7% of 1965 to 1973.

Though the differences seem small, the percentage points refer to trillions of dollars worth of production. In the United States, for example, a difference of only 0.1% amounts to more than $4 billion a year.

Since populations also grow, slow overall economic growth means that the income of the average citizen improves even more slowly.

“The low case . . . assumes no major policy changes,” the report says. “The United States fails to cut its budget deficit by much, and European unemployment stays high. That would mean slow growth in the industrial countries, a rising tide of protectionism and no hope of further trade liberalization.”

The report predicts that growth in poor countries would be little higher: 3.9% for 1986 to 1995, compared to 3.6% from 1980 to 1986, 5.4% from 1973 to 1980 and 6.5% from 1965 to 1973.

In poor countries, individuals would fare worse because the population is increasing faster. Under this low-case scenario, average individual incomes in those countries would decline as they have done for some years in many of the poorest areas.

The report also presents a “high-case” scenario, under which industrial countries would grow by 4.3% and poor countries by 5.9% a year between 1986 and 1995. But Michalopoulos said at a news conference that it would be difficult politically to make the reforms needed, and that “low cases” in past scenarios have come closer to reality.

These scenarios are a feature of the “World Development Report” prepared annually by the bank.

The 1987 edition emphasizes the growth of industry as countries develop and the role of industry in world trade. Michalopoulos said it indicates that on the whole, countries fare better when their governments open borders to imports than when they try to protect against foreign competition.