Threat of Recession

For months European businessmen congratulated themselves on how sturdily their economies were weathering the sharpest U.S. recession since World War II. Now there are signs that Europeans themselves have something to be concerned about. By last week talk of a downturn in European business, hushed when Europe's boom refused to bust even during the U.S.'s greyest months, broke out in loud tones. In Rome, officials of the U.N.'s Food and Agriculture Organization warned that the price bottom might drop out of Europe's agricultural market this fall, and in London Britain's cautious Chancellor of the Exchequer, Derick Heathcoat Amory, talked bluntly of "a possible recession in the fall."

For the first time in years, reported the U.N.'s Economic Commission for Europe, Western Europe's production is "leveling off." Machines are slowing down, using less oil and coal, digesting fewer raw materials, spewing out fewer finished products, and making smaller profits. Only highly protected France seems still to be boosting its industrial production. Warned Heathcoat Amory: "We cannot look at present to rising European demand to counteract the downturn in the U.S., as we could in the last recession" of 1953-54.

Slowdown in Speedup. In Belgium, usually the first European country to suffer when the demand for steel and coal slumps, industrial output has sagged 6% in the first quarter of 1958. Bank of Brussels Economist Albert de Lettenhove reports "no signs as yet of any revival--the recession may have reached bottom in the States, but not here."

Italian industrial production, after expanding by an impressive 10% a year for a decade, grew at a bare 1% rate in the first three months of 1958. Bank of Italy Governor Donate Menichella says: "We are in a period of watchful waiting."

Among the prosperous Swiss, too, "wait-and-see has replaced the boom mentality," reports the Neue Zuercher Zeitung, which forecast a 15% drop in industrial building projects for this year.

Even in West Germany, where the index of industrial production in May of this year slipped a fraction below the 1957 level, Economics Minister Ludwig Erhard told the Bundestag: "I do not doubt that the pulse of our economy is somewhat weaker."

The dominant note everywhere is concern, not panic. Economies are generally sound, employment high and currency strong. To Dr. Erhard, the engineer of the German production miracle, a slowdown is not without advantages for his highly flexible economy, for rising costs were beginning to threaten Germany's competitive position. And one Italian economist dismisses his own country's recession as no more than "a slowdown in the speedup."

From Little to Late? But the Dutch, the Scandinavians, and above all the British, with their slowed-down economy, are less sure that they can avert a deeper slide. Tough, restrictive policies in Britain saved the pound (Britain's reserves climbed last week to $3.1 billion, highest since 1950), but they held down inflationary pressure so much that Tory leaders must now worry about the threat from the opposite direction. Like the rest of Europe, the British have so far reaped the benefits of the 15-20% fall in world commodity prices since last year. But some raw-material exporters, their incomes slashed by falling prices, have now begun cutting their imports from Britain.

Britain's Heathcoat Amory, juggling the controls to open up the economy last week gave British banks power to grant more credit without Treasury approval.

For Western Europe in general, the forecast is a slackening of expansion, but no crash.

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