Slowing Economies Hint of Global Recession

THE threat of a world recession is mounting. The slump in the United States, which started last summer, has some months to go. Britain, Canada, Australia, and New Zealand are also in recession. Italy and France are headed in that direction.

The economies of Germany and Japan are slowing considerably.

"It is rather a serious development," says Geoffrey Moore, director of the Center for International Business Cycle Research at Columbia University.

"The economic outlook is not good," echoes J. Paul Horne, international economist for Smith Barney, Harris Upham & Co.

The US stock market appeared to agree Tuesday. The Dow Jones industrial average slid 62.13 points to 2,867.82, the worst point drop since Oct. 9, 1990.

The market, observers say, was reacting specifically to a report by International Business Machines Corporation that its earnings would be half of original estimates. Also, many investors were disenchanted by the rise in consumer prices in February. Overall, this inflation index edged up only a tiny 0.2 percent. But if food and energy prices are excluded, it rose 0.7 percent. Price jumps in postage, alcoholic beverages, and women's clothing were especially large.

Rimmer de Vries, international economist for Morgan Guaranty Trust Company, asks if investors are beginning to doubt that the US economy will recover before mid-year, as most economists predict.

"Maybe we are not coming out so fast," he says.

This gloom is not shared by all. "There will be no global recession," predicts Michael Gregory, an economist with the Royal Bank of Canada in Toronto. He's counting on continued economic growth in Germany and Japan and recovery this summer in the US and Canada to avert a worldwide slump.

In general, economists are expecting world output to grow more slowly this year than last. Looking at the democratic industrial countries, DRI/McGraw Hill now sees an average growth in production of goods and services amounting to 2 to 2.5 percent this year, down from 2.5 to 3 percent a few months ago. "For the US, it means we are not going to get as much assistance from exports as we expected," says Cynthia Latta, an economist at the Lexington, Mass., economic consulting firm.

The consensus of 50 economic forecasters in the US and several other countries, surveyed by Globescope, in Glen Carbon, Ill., predicts these average national growth rates this year: the US 0.0 percent; Canada 0.1 percent; Japan 3.6 percent; Germany 3 percent; France 2.2 percent; Italy 2 percent; Britain 0.0 percent; Spain 2.7 percent. Over the past half year, the predictions of these forecasters, made monthly, have been trending down.

No 'firepower' in economy

However, James Buhr, editor of Globescope, says his latest survey, only 20 percent complete, shows a slight upbeat in forecasts for the US economy.

One favorable sign was a 16.4 percent jump in the seasonally adjusted annual rate of construction of new homes and apartments in February to 989,000, reported Tuesday by the Com- merce Department. The housing industry typically rebounds some three months to a year before the end of a recession.

Dr. Moore of Columbia University follows the statistics for 11 countries making up about half of world output. His composite leading index for these nations, designed to indicate where the economies of this group of countries will stand in around six months, has been declining at an annual rate of 2 percent. Only three of the 11 individual national leading indexes are currently rising.

Should recession spread among US trading partners now, Moore says, it could either slow down the US economic recovery or put it off a month or two.

Dr. de Vries maintains that rising state and local taxes, sticky inflation, modest inventory levels, and other factors will mean a "very slow recovery" in the US. "There is no real firepower in this economy," he says.

Drag on German growth

However, the Federal Reserve System has been adding more money to the economy. One measure of money known as M2 that includes currency, checking deposits, and some savings, grew at a high 8.9 percent annual rate in February. "That does not suggest a need for more loosening by the Fed," says Ms. Latta.

Abroad, the German government just raised taxes to pay for unification. "Financing the huge and growing transfers to eastern Germany is proving to be a greater drag on German growth than expected by the government or private economists," notes Mr. Horne. The Bundesbank, Germany's central bank, has maintained a tight monetary policy to curb inflation.

Japan's central bank also is sticking to monetary restraint for the same reason. As a result, growth is expected to be modest by Japanese standards.