Crucial period for world economies
WASHINGTON — The U.S. economy is stumbling, the global economy is slowing, and the next few weeks are likely to be crucial in determining the pace of business activity for everyone from Boston to San Francisco, Beijing to Sao Paulo.
Greek elections Sunday may determine whether the European Union holds together or sinks deeper into recession. Leaders of industrialized nations, the so-called G-20, will meet Monday and Tuesday in Mexico to discuss ways to spark growth.
A mini-summit Thursday of leaders from Germany, France, Spain and Italy may determine how quickly Europe moves on needed revisions, and audit results expected late next week will determine how much of a bailout is necessary for the banks in Spain, a large and teetering economy.
All that precedes a summit of the European Council scheduled for the final days of June, which may bring the kinds of serious changes that finally calm investors and allow a return to normalcy, or, absent action, accelerate the downfall of their union and send financial shock waves around the globe.
“I think the stakes are very high for them and for the rest of us,” Treasury Secretary Timothy Geithner acknowledged Wednesday at an event hosted by the nonpartisan Council on Foreign Relations.
Europe’s problems weigh down U.S. exports and the global economy. Important engines such as China, India and Brazil are decelerating. That’s significant, because about 47 percent of sales for companies listed in the SP 500 stock index come from abroad.
It’s why the prominent forecaster Macroeconomic Advisers warned Thursday that the U.S. and global economies are in a precarious state.
“While weaker export demand from a renewed and deeper euro-area recession would have some negative impact, it is the adverse financial spillovers that would do the most harm to U.S. growth prospects, and indeed are already,” the group said in an update to its forecast of economic developments. “Weaker growth in China and the prospect of a hard landing there only compound concerns that the global recovery is faltering.”
European leaders are wrestling with whether to give up their own individual banking rules in favor of centralized European regulation, and whether to create Europe-wide bank deposit insurance, similar to the U.S. government’s guarantees of bank deposits. Those two steps would calm investors’ fears about bailouts and potential bank runs, but they also would reverse years of European opposition to such continent-wide rule-making.
Europe’s problems have global ramifications, slowing the U.S. economic recovery and hurting growth in China. That in turn has caused China to cut imports of commodities from Brazil and elsewhere that were needed to feed what had been a prolonged Chinese boom.
Incoming data point clearly to a global deceleration, particularly in the so-called BRIC nations — Brazil, Russia, India and China — large developing economies that account for an ever-greater share of global growth. Only Russia showed improved growth in the first three months of this year from the fourth quarter of 2011, and even that was slight — an annualized rate of 4.9 percent from 4.8 percent.
India’s economy slowed to a growth rate of 5.3 percent in the first three months of this year, from 6.1 percent in the last quarter of 2011, according to its Central Statistical Office. Both figures are well below the developing nation’s target rate of 9 percent.
Brazil’s economy expanded at a crawling rate of 0.8 percent from January through March, an especially poor number given how much construction it is undertaking because it’s hosting soccer’s World Cup in 2014 and the Summer Olympic Games in 2016. Those projects can’t offset the decline in China’s imports of Brazilian food products and minerals tied to the drop in China’s sales to Europe, its largest export market. Brazil’s central bank projects that growth this year will be just 3 percent or lower.