GERMAN ECONOMIC OUTLOOK SEEN FAIRLY BRIGHT

  The outlook for the West
  German economy is relatively bright, with gross national
  product expected to expand by three pct this year, Kiel
  University's Institute for World Economy said.
      The GNP forecast by the institute, one of five leading
  economic research bodies in West Germany, is more optimistic
  than that of the other institutes, some of which have recently
  reduced their GNP forecasts to between two and 2.5 pct.
      In a report the Kiel institute said West Germany's export
  outlook has not deteriorated fundamentally despite the mark's
  strength against the dollar and other major currencies.
      "The danger that exports will slump in 1987 appears, all in
  all, limited," the report said. "On the contrary, a slight rise
  in exports can be expected."
      The institute said past experience has shown West German
  exporters will move to counterbalance currency factors by
  cutting costs, trying to penetrate new markets and adjusting
  their product ranges.
      They will be aided in 1987 by an expected slight rise in
  economic growth in industrial countries. At the same time, the
  decline in exports to oil producing countries looks set to slow
  this year.
      West German GNP growth in 1987 will be led by renewed
  advances in domestic consumption and investment spending, both
  of which will in turn be buoyed by an expansionary monetary
  policy, the institute said.
      However, it said the labour market would see only a slight
  improvement because companies will be reluctant to hire
  additional workers due to higher labour costs caused partly by
  agreed reductions in working hours.
      The institute cautioned that the expansionary stance of
  monetary policy in West Germany was likely to bring a marked
  acceleration of inflation.
      It also warned that what it called the worldwide
  synchronization of monetary policy heightened the risk of a new
  global recession. It said central banks in industrialized
  countries, including the Bundesbank, had followed the Federal
  Reserve Board's expansionary course.
      The institute said this in turn was bound to lead
  eventually to a rise in worldwide inflation and a shift in U.S.
  Policy towards a more restrictive policy. Other central banks
  were likely to follow suit, causing a recession that could
  aggravate the debt crisis of developing countries as well as
  increase protectionism around the world.
      Although Germany cannot entirely shield itself from the
  negative effects of the global synchronization of monetary
  policy, it should do all it can to strengthen the forces of
  growth at home.
      The institute said this could be done by ensuring that
  fiscal policy fosters a willingness to work and invest. Taxes
  should be cut by a greater amount than currently planned, and
  wage increases in 1987 and 1988 should be markedly lower than
  in 1986. It also said the Bundesbank should reduce inflationary
  pressures by cutting the current rate of growth in money supply
  to about four pct.
  

