A Costly and Worsening Global Slide

Even as the U.S. waits expectantly for an upturn in its slumping economy, recession in much of the rest of the non-Communist world is deepening. Though some nations are hoping for the beginning of the end of hard times later this year, no abrupt reversal of the worldwide drop in production and rise in unemployment seems likely, largely because the slide is so widespread. The situation underscores the perils raised by the growing interdependence of key industrial countries. In an era when heavy world trade, the operations of multinational companies, and massive flows of money across international borders have tied the industrial lands into something resembling one giant economy, both booms and busts increasingly tend to spread quickly round the world.

Just three years ago all the leading industrial nations were in a boom; living costs soared everywhere. Then oil producers quintupled prices, causing huge trade deficits for most consuming countries and sending global inflation flaring to double-digit levels. To curb runaway prices, one government after another cut spending and tightened up credit. Now these measures seem at long last to be slowing the pace of price increases in most countries, but at a heavy cost in lost output, joblessness and social unrest.

Darkening Outlook. The recession, of course, varies in intensity from one country to another. The U.S. has suffered a longer and deeper slump than any of its trading partners, but last week President Ford proclaimed that "the recession is receding" and confidently predicted a recovery starting in the third quarter of 1975. He could cite some good news: manufacturers' orders rose for the first time in six months, and the wholesale price index in February dropped 0.6%, its fourth straight monthly decline. Unemployment, however, which is a lagging indicator, rose to 8.7% in March from 8.2% in February, bringing the number of Americans out of work to 8 million. In addition, the Labor Department disclosed, 1.1 million discouraged jobless workers have simply stopped looking and are not counted as unemployed.

For the industrial world as a whole, though, the slump is getting worse and the outlook for appreciable recovery this year is darkening. Seven months ago, the Paris-based Organization for Economic Cooperation and Development, which embraces all the leading industrial nations, was predicting that its members would post a small average increase in real gross national product during 1975. A few months ago it scaled down its projection to zero growth; now it is estimating a decline of 1.5%. To avert an even worse slide, some nations that have made headway in combatting rapid price rises are, like the U.S., moving gingerly to restimulate their economies. The situation in some of the most important nations:

BRITAIN, widely considered "the sick man of Europe," is in woeful condition. Inflation is running at a rate of 20%, fueled mainly by the massive wage settlements demanded by Britain's militant trade unions, which averaged 26% in 1974 and could go to 30% this year. Caught between ballooning inflation and government price controls, industry is being forced to slow production. The jobless rate, now 3.2%--high for Britain --is likely to go on climbing for the rest of the year. Moreover, the nation's current account last year was in a deep $9.2 billion deficit.

FRANCE is waging an inconclusive battle against inflation. The best hope the government can offer is that price rises this year will be held to about 10%, down from 15% last year. Moreover, as the nation feels the full force of world-wide recession, official predictions of economic growth have been repeatedly scaled down and now stand at 3% or less. Sputtering production has already left 800,000 members of France's volatile work force without jobs, and unions are increasing their pressure on the government to ease its restrictive policies. President Valery Giscard d'Estaing has ruled out any move toward general reflation and has instead begun a modest program of stimulation on an industry-by-industry basis.

ITALY only six months ago was in spectacular trouble. Because of the rapid run-up in world petroleum prices, the cost of imports was exceeding exports by $5.5 billion annually, inflation was running at 24.5%, and only emergency loans from the International Monetary Fund and the German government saved the nation from outright bankruptcy. Today demand is slackening and Italian inflation is fast diminishing: wholesale prices in February rose a mere 0.2%, v. 6.8% in the same month last year. But the price of whipping inflation has been high. Industrial production in January was down 15% from the year before--the biggest monthly drop in decades--and the government reports that more than 1.2 million Italians are out of jobs. Last week, in a wary reversal, the government moved to a policy of gradual stimulation.

GERMANY, through a policy of stingy government spending and tight credit, cut its annual inflation rate from 7.8% in December 1973 to 5.8% in February. But again, the effort has been costly. Industrial production is now declining at an annual rate of about 10%, and, according to the OECD, unemployment hit 3.6% in January, more than double that of a year earlier (the Bonn government, calculating on a different basis, puts the jobless rate in February at 5.1%). Last December the government embarked on a moderately reflationary course, offering tax credits for industrial investment, lower interest rates and various subsidies to create more jobs. But consumer demand remains flat, and few nongovernment experts look for a broad-based recovery this year.

JAPAN, too, has been exceedingly effective in quelling its raging inflation, which was largely fueled by the sudden hike in world oil prices. Owing to stern fiscal and monetary measures, the rise in living costs, which in fiscal 1973 were leaping upward at an annual rate of 25%, has been more than halved. But the fight against inflation pushed Japan into its deepest postwar recession. Production has plunged 20% since the start of the oil crisis 18 months ago. In a country where lifetime employment has long been the accepted rule, the jobless rate has inched up to 2%. Now the government is moving hesitantly to reflate, though the official goal is only a 4.3% boost in real G.N.P. for the year--downright meager by Japanese standards.

CANADA has so far weathered the economic storms better than most of the industrialized world because, as a major producer and exporter of oil, it benefited from the rapid rise in world prices. Yet now consumer demand is flagging, a rash of strikes is cutting into production and a slowdown in world trade has widened the country's balance of payments deficit from $425 million in 1973 to $1.8 billion today; some experts believe that it will hit $5 billion by year's end. Though the government still predicts a 4% gain in Canada's output of goods and services for the year, some economists believe that zero growth is more likely. The jobless rate, at present 6.8%, is expected to climb to between 8% and 10%. Inflation, which has just edged down to 9.6% after two years of ranging above 10%, is expected to subside only gradually. Reason: hefty wage settlements being won by unions.

For individual nations, finding a way out of the present mess is particularly difficult precisely because of the recession's global scope. In the past, many European nations and Japan could stimulate their flagging economies by boosting exports. But because all the major economies are in decline at the same time, there is a marked dearth of buyers. Thus the rest of the industrial world can only fervently wish success for the moderately stimulative policies of Germany, Japan--and especially the U.S., by far the richest market of all.

This file is automatically generated by a robot program, so viewer discretion is required.