The Global Economy

By Author: diandian
Total Articles: 7
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The global economy continues to sputter. Yet most economists and policymakers do not expect a double dip recession in America or elsewhere. This week Horst Kx5hler, the IMF's managing director, was the latest I play down the risk of recession. Yet this misses a crucial point: Even if economies continue to expand over the next year, growth may not be strong enough to prevent the onset of deflation—falling prices—in seven countries.

America's economy continues to give out mixed signals. Investment remains weak, after dropping f seven consecutive quarters—the longest unbroken fall since the Second World War. But optimists pin the hopes on the American Replica Cartier Watches consumer, who continues to spend (and borrow) with reckless abandon. For how long? At first sight the fall in America's unemployment rate from 5.9% in July to 5.7% in August seems good news. Tag Heuer Replica Watches But the jobless rate, which is based on household ...
... surveys, is notoriously volatile. The monthly payroll figures, which are more reliable, show that America's labour market remains weak. Private-sector employment was virtually flat in July and August. This weakness, along with lower share prices, has already dente consumer confidence.

After four consecutive quarters of decline, Japan's GDP rose faster than America's in the second quarter—by 2.6% at an annual rate. But its economy remains fragile. Retail sales fell by 4.8% in the year to July, and deflation continues unabated. Average wages fell by 5.6% over the same period, as company onuses slumped.

With Japan still sickly and America experiencing a wobbly recovery, one might hope that Europe would ride to the rescue. Dream on. The Euro area has also disappointed this year. Not only did GDP grow at an annual rate of only 1.4% in the second quarter, but much of that came from net exports; domestic demand was feeble. The prospects for the third quarter look grimmer. Germany's economy may now be contracting gain; its IFO business-sentiment index has fallen for three consecutive months. In the euro area, demand is icing squeezed by a stronger currency, as well as by the fall in share prices. Many forecasters have revised heir predictions for growth in 2002, to below 1 %.

A double-dip recession in America—or indeed in Germany—is certainly possible. But a more likely outcome is that America could suffer a few years of below-trend growth as the economy's imbalances, such as excessive debt and insufficient Tag Heuer Replica Watches saving, are put right. A couple of years of modest growth, so long as it remains positive, may not sound so bad. But this misunderstands the relationship between inflation and the output gap the difference between actual and potential GDP).