INDUSTRY TO AROUND 80 % .
FROM MID-1978 , RISING CAPACITY UTILIZATION COINCIDED WITH ACCELERATING INFLATION . THE QUESTION NOW IS THUS :
( I ) WHETHER FURTHER INCREASES IN CAPACITY UTILIZATION CAN BE ACHIEVED WITHOUT REVERSING THE GRADUAL DECELERATION OF INFLATION , AND
( II ) WHETHER INCREASES IN POTENTIAL OUTPUT CAN BE MADE SUFFICIENTLY RAPID TO ENABLE CAPACITY UTILIZATION THEN TO BE HELD CONSTANT AT , SAY , AROUND THE 83 TO 84 % LEVEL IN THE PRESENCE OF AN ADEQUATE TREND RATE OF GROWTH , AND WITH LITTLE OR NO LOSS IN TERMS OF PRICE STABILIZATION OBJECTIVES .
EXTERNAL FACTORS ARE LARGELY FAVOURABLE TO A GOOD OR BETTER PRICE PERFORMANCE IN THE NEXT YEAR OR TWO . THE OIL MARKET SEEMS LIKELY TO BE WEAK FOR SOME TIME AND ENERGY PRICES DO NOT APPEAR TO PRESENT A PARTICULAR RISK FOR INFLATION IN A FORESEEABLE FUTURE . THE DOLLAR'S EXCHANGE RATE , WHILE PROVING STRONGER FOR LONGER THAN MANY ANALYSTS EXPECTED , IS HARDLY LIKELY TO APPRECIATE AGAIN VIS-A-VIS THE ECU AS IT HAS DONE OVER THE LAST THREE YEARS , AND IS MUCH MORE LIKELY TO DEPRECIATE OVER A MEDIUM-TERM PERIOD AHEAD . IN THESE RESPECTS , THE PERIOD AHEAD IS LIKELY TO BE MORE FAVOURABLE THAN 1979 AND 1980 .
IF INTERNAL FACTORS ARE ALSO TO BE FAVOURABLE , IT WOULD BE NECESSARY , AS ALREADY INDICATED , FOR PROFITABLE CAPACITY TO BE INCREASED . WAGE MODERATION AND OTHER MICROECONOMIC SUPPLY SIDE MEASURES WOULD BE IMPORTANT IN INCREASING PROFITABLE CAPACITY AND IN KEEPING DOWNWARD PRESSURE ON PRICES . IN ADDITION , IN ORDER TO AVOID REPEATING THE EXPERIENCE OF 1978 WHEN MONEY SUPPLY WAS ALLOWED TO GROW EXCESSIVELY FAST , - 14 % FOR THE EC AS A WHOLE AND 11 % IN GERMANY , MONETARY POLICY WOULD HAVE TO KEEP CLEARLY TO MEDIUM-TERM STABILITY AND GROWTH OBJECTIVES .
IN CONCLUSION A RATE OF GROWTH ABOVE THE PRESENT SHORT-TERM TREND OF 2 TO 2,5 % WOULD BE NECESSARY TO IMPROVE SUBSTANTIALLY THE EMPLOYMENT SITUATION IN CONDITIONS OF CONTINUED TECHNICAL PROGRESS . SOME MEMBER STATES , FOR EXAMPLE GERMANY , ALREADY CONSIDER 2,5 % TO BE A FEASIBLE RATE OF GROWTH FOR POTENTIAL OUTPUT IN THE MEDIUM-RUN . AN INTENSIFIED IMPROVEMENT OF THE SUPPLY-SIDE OF THE ECONOMY IN ALL MEMBER STATES MIGHT WELL , COMBINED WITH STEADILY RISING DEMAND EXPECTATIONS , MAKE A SLIGHTLY HIGHER POTENTIAL GROWTH RATE OF 3 % FEASIBLE FOR THE COMMUNITY AS A WHOLE , A STRIKING BUT NOT UNATTAINABLE IMPROVEMENT OVER THE RECENT TREND . IN ADDITION , THERE EXISTS SOME SCOPE FOR ABOVE-TREND GROWTH TO TAKE UP A CERTAIN MARGIN OF PRESENT UNUSED OR LESS THAN EFFICIENTLY USED CAPACITY . WHEN COMBINED WITH MEASURES TO INCREASE THE TREND GROWTH OF POTENTIAL OUTPUT , AN ACTUAL GROWTH RATE OF 3,5 TO 4 % MIGHT CONCEIVABLY BECOME POSSIBLE FOR A PERIOD . THE MARGIN OF PURELY CYCLICAL SLACK APPEARS TO BE QUITE SMALL IN THE COMMUNITY ECONOMY AND IT WOULD SEEM UNWISE TO