Global Economy Faces Slack Period Ahead

THE world economy is behaving like a seesaw. Two countries on one end, the United States and Canada, are headed up; two heavyweights on the other end, Japan and Germany, are going down. On balance, the world economy has slowed from last year and no rapid pickup is anticipated.

"There is enough growth abroad to give a little support to the US recovery," says Geoffrey Moore, director of the Center for International Business Cycle Research at Columbia University.

His center's analysis shows that statistical leading indicators for five nations - the US, Canada, Australia, Taiwan, and New Zealand - are positive, indicating more rapid growth in the months ahead. The leading indicators for Japan and Germany are negative. And the indicators for France, Britain, Italy, and South Korea signal not much change in economic activity.

This mixed picture, notes Dr. Moore, is better than a "unified recession." Far more countries experienced hard times together in the slumps of 1973-74 and 1981-82.

Rudi Dornbusch, an economist at the Massachusetts Institute of Technology, sees "a real chance" that 1992, rather than bringing recovery, will bring a slide toward world recession. "The ingredients are quite clear: a loss in confidence, financial fragility, and too little monetary easing, or too late," he told a seminar organized by the Massachusetts Institute of Technology's new World Economy Laboratory on March 13.

But most economists are more cheerful. A survey earlier this month, by the newsletter Globescope, of forecasts by 44 financial or business institutions in several countries showed, on average, real growth in output this year in all the nations examined. The numbers: US, 1.7 percent; Canada, 2.4; Japan, 2.7; Germany, 1.8; France, 2.0; Italy, 1.9; Britain, 1.5; Spain, 2.8; Australia, 2.3; Mexico, 4.3, and Brazil, 1.5.

With such a modest growth pattern, inflation is declining in most industrial countries, except perhaps Germany. "Core inflation is down," says Professor Dornbusch. Inflation in these rich nations, on average, will run 3.4 percent this year, economists predict.

A thumbnail sketch of the economic scene in several countries follows:

* United States: Recent statistics have been encouraging. Sales of North-American-made vehicles rose 14 percent in early March. Retail sales increased 1.3 percent in February and a revised 2.1 percent in January, possibly indicating consumers are leaving their blues behind.

"The economy is on the threshold of its best gains since 1988," say economists at the Prudential Insurance Company of America. They have just raised their forecast for US output to a 4.5 percent annual rate in the second half, a prediction well above the average.

* Japan: The Japanese economy, according to Wall Street economist Sam Nakagama, is in "a sharp slide." Economist Kathleen Molony at DRI/McGraw-Hill Inc., a Lexington, Mass., consulting firm, doesn't expect a recovery for "another few quarters." Dr. Moore in New York says an actual recession - not just a slowdown - is "a real possibility" in Japan.

The Bank of Japan, in an effort to slow the economy and deflate overblown stock and real estate prices, has kept money tight. As a result, industrial production has been slipping in recent months. Manufacturers' profits are expected to fall 16 percent in the fiscal year ending March 31. Business confidence has slipped. But there is speculation that the central bank will soon cut its discount rate, particularly after a 3.3 percent decline in the popular Nikkei stock average Monday to a level below a 20,00 0 "psychological barrier."

* Germany: DRI expects a "dramatic slowdown" in the German economy to 1.4 percent real growth this year from 3.2 percent last year. Recovery should come in 1993, says Ms. Molony, with output growing 3.3 percent. Last Friday, the Federal Statistics Office reported that gross national product grew at only a 0.6 percent real annual rate in the last quarter of 1991. The Bundesbank, the German central bank, has been attempting to slow inflation from its present 4.3 percent rate and discourage large wage hikes . "Germany might be overdoing its tight money gambit," says Dornbusch. "Growth is falling off throughout Europe and even an early easing of money will take its time before it leads to a resumption of growth. All of Europe could tumble into a recession."

Politicians in Britain, France, and Italy are all unhappy with the tight Bundesbank policy. Because of European Monetary Union, their own central banks cannot pump up their national money supplies to stimulate growth without the risk of devaluing their own currencies. In effect, the tough Bundesbank has become the central bank for most of Western Europe. British Prime Minister John Major faces an election April 9 in the midst of a slump.

* Canada: Royal Bank economist Earl Sweet says the economy "is struggling to shake off the remnants of the recession." He expects 2 percent growth this year and 4 percent next year.

* Mexico: The Mexican economy is growing at a handsome 4 percent annual rate, fed by a combination of consumer spending and foreign and domestic investment. That rate exceeds the growth in population of about 2.2 percent a year. The Mexican government might even have a surplus this year, says DRI economist Javier Murcio.