Sneezes and Pneumonia

European businessmen like to say that "if the U.S. sneezes, the rest of the world catches pneumonia."

In the last six months the U.S. has had some economic sniffles and sneezes. Has the rest of the world taken to its bed? Not Great Britain, France and West Germany, who are, in fact, walking more erect than any time since World War II. However, since there is usually a time lag between a downturn in the U.S. and its effects on the rest of the world, businessmen thought it too early to tell whether the stalwarts of Europe would be affected. But in countries whose economies are most closely tied in with the U.S., e.g., Canada, Mexico, there was some sneezing.

Canada's industrial production hit its peak last June, and by January the index was down slightly more than 10%. Last week there were signs of a pickup in the Canadian economy just as in the U.S. In Mexico, some 70% of whose foreign trade is with the U.S., a slump began in textiles, oil and other industries before the U.S. downturn. On top of that, President Ruiz Cortines cut back federal spending sharply. Recently, however, the government 1) began to spend for public works to check the business decline, and 2) devalued the peso to help boost exports and spur the declining tourist trade.

World Surpluses. In Italy, Japan, Belgium and Luxembourg, production has also been declining, probably less because of the U.S. dip than because of the fact that shortages have turned into surpluses around the world. Italy reached its peak production last October and Japan in December. However, Italy is expecting 1954 to be one of its better postwar years, and her trade deficit in January and February was trimmed to $149 million from $189 million a year ago. While unemployment in Japan is still low, the gloomy foreign-trade picture (1953 deficit: $313 million) has been darkened by a 20% decrease in spending by U.S. security forces. Belgium and Luxembourg, who depend mainly on exports of steel and capital goods, are feeling the pinch of lower world demand and prices.

Four-Way R . But the giants of Europe show virtually no effects of the U.S. sneeze. Private savings last year in Britain were the highest in history, and production, wage rates and dividends were the highest since the war. Steel production hit a new peak in March. But the effects of the U.S. recession are beginning to be felt. Although Britain's total exports were up in the first quarter, there was a 7% drop from a year ago in exports "to the U.S. Even so, world traders were so bullish on the British economy that last week the pound rose to $2.82, the highest since February 1953 and the limit under present exchange regulations.

In West Germany, the boom is still in high gear (TIME, Feb. 15). The German index of industrial production on March 1 stood at 158, up three points from February and 15 points higher than a year ago. Even France, the perennial sick man of the European economy, is feeling better. French output, except for farm production, sagged last year. But business snapped back, and French business leaders are hopeful that further recovery can come about as a result of the government's four-way prescription: 1) tax reductions (made possible, in part, by stepped-up U.S. aid in the Indo-China war); 2) a freer money policy; 3) relaxed rent controls and a special payroll tax to help building; 4) lifting of quota restrictions on a number of imports.

Brazil's Bonanza. While France has been helped by a good crop year, Brazil has profited from crop failures. The coffee and cocoa price boom, plus tight restrictions on imports, has changed Brazil from a debtor nation nine months ago to one that has a trade surplus of almost $370 million. Cocoa prices went up 112% after the failure of the African crop. Though frost cut Brazil's coffee exports 15%, prices went up 50%. Net additional profit to Brazil: $165 million.

Other countries are doing so well that they expect 1954 to be a record year. The Netherlands' industrial production, after hitting a new high in 1953, is expected to rise another 4% this year. Australia, helped by a new oil and uranium boom, believes that 1954 may be its best postwar year. Unemployment, under 1%, is still dropping, and the government itself expects a $52.6 million surplus for the current fiscal year, its second in two years.

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