Global economy shudders as slowdowns hit all corners

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June 10, 2012, 5:45 p.m. Published in Magazine Issue: Vol.: 05 No.-21 May .18-2012 (Jestha 05,2069)<BR>

The global economy’s foundations are weakening, one by one. Already hobbled by Europe’s debt crisis, the world now risks being hurt by slowdowns in its other economic powerhouses. The US economy had a third consecutive month of feeble job growth last month. China, India and Brazil are slowing, too.

 

Fears of a global economic downturn have sent investors rushing toward the safest possible investments: US and German government bonds.

 

The gravest fear is Europe. The most urgent threat is that on June 17, Greek voters will reject the terms of a E130 billion (R1.4 trillion) bailout and abandon the euro. The move could ignite chaos as Greek debts shift from euros to new Greek drachmas of uncertain value.

 

Yet the world’s economic troubles go well beyond Greece. Here’s a look at the global economy’s vital signs:


The US

 

US employers added just 69 000 jobs in May. Since averaging a healthy 252 000 a month from December to February, job growth has slowed to a lacklustre average of 96 000 a month.

 

On Friday June 1, after the government issued the May jobs report, the Dow Jones industrial average sank 275 points, the Dow’s biggest loss since last November. It is now down 0.8 percent for the year.

 

The dismal news suggests the US economy is enduring a mid-year slump just as in 2010 and 2011. Unemployment rose to 8.2 percent in May from 8.1 percent in April.

 

The jobs report came out a day after the government said the US economy grew at an annual rate of just 1.9 percent in the first quarter of this year.

 

And it is too slow to generate many jobs or to lower the unemployment rate. In good economic times, the rate would be just less than 6 percent.

 

Many US firms are finding it more efficient to invest in machinery, not people. Other firms are reluctant to hire until they are confident that demand will keep growing. Adding to fears are Europe’s troubles and America’s dysfunctional politics. For now, some key sectors of the US economy remain positive. Americans are buying more homes, suggesting the housing market is on the mend. US builders have increased spending on construction.

 

Unless Congress and the White House reach an agreement by the year’s end, federal taxes will jump and deep spending cuts will kick in. If that happens, the Congressional Budget Office says, the economy will likely to fall into recession.

 

Given the size of the US economy, further weaknesses could worsen the slowdowns in European and Asian countries that depend on sales to the US.

 

Europe

 

Unemployment in the 17 countries that use the euro is already at 11 percent, according to the EU’s Eurostat office. It is the highest rate since the euro was introduced in 1999.

 

The EU has struggled with the debt crisis for three years. Greece, Ireland and Portugal have already needed bailouts because of unsustainable levels of debt. Austerity has been the main prescription for the crisis. But spending cuts and tax hikes are causing economies to shrink across the euro zone.

 

In a blunt warning, European Central Bank president Mario Draghi a week ago called the euro currency union “unsustainable” without stronger political and financial ties. The fear is that Greece will drop the euro, and other weak countries, such as Spain and Portugal, will be forced to follow. Financial chaos could rage across Europe.

 

Spain is facing punishing borrowing costs on bond markets because investors fear it won’t be able to pay its debts.

 

Asia, South America

 

Since the global recession ended in 2009, the world economy has been fuelled by rising powers in the developing world, led by China, India and Brazil. Now, all three are running into trouble.

 

China’s manufacturing weakened in May, according to official surveys out on June 1. Factory output was the weakest in three months. Some economists say China’s economic growth will fall to an 8 percent rate this quarter. That is high by Western standards, but it would be the weakest growth for China in almost three years.

 

Having rebounded strongly from the recession of 2007 to 2009, China’s economy grew a sizzling 10.4 percent in 2010 and 9.2 percent in 2011, helping drive global growth.

 

Australia and other Asian countries have come to rely on Chinese markets to buy their exports. India is suffering an even sharper slowdown. Its economic growth slowed to a 5.3 percent annual rate in the January to March quarter, the lowest in nine years. Output from India’s factories has declined. Its consumers have seen inflation, which has averaged 9.2 percent a year since the start of 2010, devour their wages.

 

As recently as last year, Indian politicians were claiming their economy could rival China’s and surge into double-digit growth. Instead, India is mired in a deepening crisis of confidence. Asia’s third-largest economy is widely regarded as performing below its potential.

 

Indians are losing hope that the country’s fractious political system will deliver the policies that might unlock a rebound – investments in roads, ports and other infrastructure and lighter regulations to attract more foreign investment.

 

One encouraging corner of Asia has been Japan’s economy, the world’s third largest. It grew at an annual rate of 4.1 percent in the first quarter as it recovered from last year’s earthquake and tsunami.

 

But factors that could crimp expansion, such as weaker European demand for Japanese exports, have raised fears that growth will slow or even stall.

 

In Brazil, the economy practically stalled in the first quarter of 2012. It grew at just a 0.2 percent annual rate from the final three months of 2011, the government said on June 1. That was below expectations of 0.5 percent growth.

 

But Brazilian officials point to another culprit: the ongoing trouble in Europe is hurting exports. – Sapa-AP

http://www.iol.co.za/business/features/global-economy-shudders-as-slowdowns-hit-all-corners-1.1315455#.T9SuybDKkig

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