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Aug. 20, 2001, 9:58AM

Economies stagnating around the world

By JOSEPH KAHN and EDMUND L. ANDREWS New York Times

WASHINGTON -- The world economy, which grew at a raging pace just last year, has slowed to a crawl as the United States, Europe, Japan and some major developing countries undergo a rare simultaneous slump.

The latest economic statistics from around the globe show that many regional economic powers -- Italy and Germany, Mexico and Brazil, Japan and Singapore -- have become economically stagnant, defying expectations that growth in other countries would help compensate for the slowdown in the United States.

The $33 trillion world economy is still likely to expand this year, as it has every year since the Great Depression. Of the top economies, only Japan's total output seems likely to shrink, and even bearish forecasters expect the world to grow at about a 2 percent rate, a bit faster than during international slumps in 1982 and 1991.

Still, many experts say the world is experiencing economic whiplash, with growth rates retreating more quickly and in more of the leading economies than at any time since the oil shock of 1973. And this time there is no single factor to account for the widespread weakness, persuading some economists that recovery may be slow in coming.

"We have gone from boom to bust faster than anytime since the oil shock," said Stephen S. Roach, the chief economist of Morgan Stanley, a New York investment bank. "When you screech to a halt like that, it feels like getting thrown through the windshield."

The biggest surprise is the sluggish performance in Europe, especially Germany, where leaders had thought until recently that they could escape the U.S. slowdown.

Germany's economy, Europe's largest, came to a standstill in the second quarter of this year. Italy and the Netherlands are showing practically no growth. And France's relatively frothy economy has slowed sharply as both consumers and businesses have cut back spending.

The result is that Europe, with a combined economy about as big as that of the United States, is in no position to take over as the locomotive of world economic growth.

"On balance, I'd say that the likelihood of continued difficulties here and abroad is higher than the prevailing view of most economists," said Robert E. Rubin, the former treasury secretary who is now chairman of the executive committee at Citigroup.

R. Glenn Hubbard, chairman of the White House council of economic advisers, said the slowdown among America's peers was worrying. But he also said that the reasons for weakness were idiosyncratic, varying from place to place, and that there was no reason to expect that international problems would drag the United States or Europe into recession.

"It might feel like a recession in some places," he said, "but I don't see an outright recession here or in Europe," Hubbard said.

Not long ago the United States hoped to have more help. European policy-makers confidently predicted last spring that the region would grow at about its long-term potential rate of 2.5 percent. They also acted as if they were certain their new common currency and the growing economic integration of Europe made the region more independent and less vulnerable to outside economic turbulence.

But as events unfolded, they were blind-sided by problems at home. Domestic demand for consumer goods and industrial machinery around the region is tepid, offering no source of growth at all.

European companies seem convinced that the real future growth markets are not at home but in the United States, Asia and Central Europe, so domestic investment has lagged. Many forecasters now predict that growth will be less than 2 percent this year, not much better than the United States.

Closer to home, Mexico has been in recession since April, with its economy shrinking for the third straight quarter. Brazil, the largest Latin American economy, has suffered soaring interest rates and a persistent energy crisis. It is now teetering on the brink of contraction, official estimates released last week show.

The situation in Asia looks no better. Singapore, one of the region's most advanced and open economies, has tumbled into a severe recession that some economists say is the nation's worst in at least 15 years. Japan once again slipped into recession territory as its government battled stubborn deflation. Nearly every other major economy in the region, with the notable exception of China's, has seen growth plunge despite months of interest rate cuts.

-- Martin Thompson (mthom1927@aol.com), August 20, 2001

Answers

With their water and drought problems I can't figure why China is left out of this.

-- Uncle Fred (dogboy45@bigfoot.com), August 20, 2001.