SPRINKEL URGES GREATER GROWTH IN JAPAN, EUROPE

  Beryl Sprinkel, chairman of
  the president's council of economic advisors, said stronger
  domestic demand growth in Japan and Western Europe is needed to
  help stimulate U.S. exports without having to rely on futher
  dollar declines.
      "Stronger domestic demand growth in the major foreign
  industrial countries is needed to engender the much needed
  expansion of U.S. export markets without having to rely on
  further dollar depreciation," he told the Futures Industry
  Association.
      Sprinkel said the recent recovery of domestic demand in
  Japan and Europe has been one of the weakest in the post-war
  period.
      "Stronger domestic demand growth in the major industrial
  countries would help give balance to the current world
  recovery," he said.
      Asked if Japan was not living up to commitments made last
  month to trading partners, he said recent figures showed
  Japan's economy grew by about 0.5 pct in the fourth quarter of
  1986, "Not enough to sustain employment growth."
      However, Sprinkel said Japan had not reneged on its pledges
  and was moving toward more stimulative policies, including tax
  reform. "I suspect there will be further moves," he said.
      Sprinkel repeated his call for further cuts in U.S.
  government spending and for resistance to tax increases.
      "Reducing the federal government budget deficit by
  expenditure restraint is needed to preserve the low marginal
  tax rates achieved by tax reform," he said, adding that "a vote
  to increase to government expenditures is a vote against tax
  reform."
      Sprinkel said the fall of the dollar had substantially
  restored U.S. cost competitiveness and that the deterioration
  of the U.S. trade balance appeared to have abated.
      However, he said that "sole reliance on dollar depreciation
  to reduce our trade deficit is not desirable," as it risks
  inflation in the United States and recession abroad.
      "I am confident that further improvements in our trade
  performance will contribute significantly to growth in 1987," he
  said. Improvements in the U.S. trade balance, he said, will
  come about largely from a swing in manufactures trade and
  present "serious adjustment problems for U.S. trading partners."
      Western Europe, where manufactures output and employment
  have been weak, promises to be especially hard hit by the
  improvement in the U.S. trade balance, Sprinkel said.
      He defended flexible exchange rates saying wide swings in
  rates were not a fault of the system but of the undesirable
  policies that produced them.
  

