It seems everywhere you look these days economies are gearing downto much slower speeds. Indeed, some economies are already at astandstill (or even moving in reverse) and it's likely more willsoon follow. Whether it's North America and Europe or even China and India, thestory is much the same -- the world's largest economies are runningout of gas. Despite the best efforts of central banks and financeministries, even unprecedented fiscal and monetary stimulus aren'tenough to keep the global economic recovery from stalling. In China, the days of heady double-digit growth rates look to beover. |
The latest GDP projections see growth sinking into the 8percent range, a pace that itself may be unsustainable. EvenChina's seemingly indefatigable manufacturing sector, which isresponsible for more factory output than that of any other country,is beginning to look tired. The last time that happened, Beijingcame to the rescue with a 4 trillion yuan stimulus package. Butthat was during the global recession in 2008.
This time around thatkind of massive stimulus may help to fill order books, but it wouldalso surely start a bonfire under inflation at the same time. The economic outlook is similar in India. Growth there hasdecelerated to 5 percent, the slowest pace in nearly a decade. Andeven that may not be sustainable given that inflation is nowchugging along at more than 7 percent.
Even with slower growth, China and India remain bright spots forthe global economy. Hardly a day seems to pass without more badnews coming out of the eurozone. In Spain, money is pouring out ofthe banking system, with more than $80 billion fleeing for saferhavens in the last month alone. And with good reason.
Investorsneed only look to Greece for evidence of what a punishing recessionwill do to a country's banks. Greece is about to leave the EuropeanMonetary Union and Spain won't be far behind. An exodus of theeurozone's weaker members bodes poorly for the stronger economiesof northern Europe. Without the drag of the struggling PIIGS(Portugal, Italy, Ireland, Greece, Spain) to hold down its value, asoaring euro will batter German exports, one of the few remainingstalwarts of an otherwise moribund EU economy. The outlook for North America is also sobering.
The most recentU.S. employment report shows the economy added a paltry 69,000jobs, hardly the kind of job creation needed to keep a strugglingeconomic recovery on the rails. In both the U.S. and Canada, GDPgrowth has already dipped below 2 percent.
What makes such modest growth numbers even more troubling is theamount of stimulus that's already been used to create today'stenuous recovery. Central banks are keeping interest rates at ornear zero, while huge fiscal deficits are already commonplace. Inthat context, it's far from obvious what economic leversgovernments have left to pull to fight the next round of recessionsthat are threatening the global economy. Follow Jeffrey Rubin on Twitter: /@jeffrubin.
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