Peace And Prosperity?

The growth slowdown abroad has little to do with the gulf war. Canada, which buys one fifth of all U.S. exports, is burdened by high interest rates and a new 7 percent tax on goods and services that could cripple consumer spending. Germany's central bank has raised interest rates sharply to rein in a postunification boom; that has forced interest rates up all across Western Europe, putting the damper on growth in France and Italy.

Tight times:

In Britain, where manufacturing output declined 3 percent in the final quarter of 1990, home-mortgage foreclosures are running at a record rate. Sir Alan Walters, onetime economic adviser to former prime minister Margaret Thatcher, warns that only a deep currency devaluation can forestall a 1930s-style depression. In Japan, the second largest U.S. export market, tight monetary policy is biting as well. Last week the government announced that purchases of new machinery plunged 27.9 percent in December, the third largest monthly decline since 1970.

Bad news is relative, of course. Although Germany won't repeat 1990's stunning 4.5 percent growth, its economy is expected to expand by a respectable 3 percent. "Any talk of a recession is pretty absurd," snaps Commerzbank economist Peter Pietsch. Japan's economy is likely to grow about 3 percent this year. Akihiko Ito, an economist with Yasuda Trust and Banking Co., says demand for U.S.-made computers, aircraft and consumer goods should remain strong. High interest rates in both countries have driven down the dollar, giving U.S. exporters an added boost. A fairly strong performance by developing countries will also help. On balance, says Andrew Britton of London's Institute of Economic and Social Research, "the U.S. will be aided in its recovery by the growth of demand elsewhere."

Still, the increase in exports will be too modest to reverse the decline of 700,000 manufacturing jobs over the past year. The United States is going to have to bail itself out of this recession - and that will require more than quiet on the Saudi front.

OVERSEAS BLUES