John Metzler Archive

Global economy report: Hope in the East and Germany, gloom in the West

According to the report, “Having fallen into the most severe recession since World War Two, the world economy is on the way to recovery.” Yet, the survey concedes, “The recovery of economic activity at the global level is weaker and slower than observed after previous recessions…the pace of recovery is too weak to close global output gap left by the crisis, and that the recovery is uneven across nations.”

Significantly the document cites “lackluster” economic activity in developed countries. The report moreover, warns that “as a result of continued high unemployment, soaring public debt and recurrent financial uncertainty,” for most developed economies, the global recovery will be more dependent on developing country growth.

Indeed the numbers cite a sad tale. Between 2004 and 2007 United States GDP growth averaged 2.6 percent with corresponding low unemployment. By 2008, the world recession kicked in and U.S. growth soon fell by -3.4 percent in 2009. Growth predictions for 2010 are slated at just under 3 percent.

Japan presents a more dire saga. Growth tumbled by 5 percent in 2009, and the 2010-2011 growth is expected at an anemic 1.3 percent. Western Europe too saw a 4 percent slip in 2009, with a just about one percent positive growth for 2010.

Naturally there’s some impressive news amidst the global gloom. East Asia remains strong, and the Mainland Chinese economy is slated for 9.2 percent expansion in 2010. The UN report states, “China will again be the region’s fastest-growing economy.

A separate survey updates the Republic of China on Taiwan. Importantly Taiwan’s once robust economy which has been battered by the recession, has rebounded with some amazingly good news; in the first quarter of this year, growth exceeded 13 percent, a thirty-one year high, which recalls the golden growth days of the 1970’s and 1980’s. The robust expansion reflects a surge in the export market.

Equally Germany whose economy remains the EU locomotive has seen amazing robust growth through exports. Here too Germany’s first quarter growth this year exceeded 3 percent. Ironically the weak Euro currency has helped German exports.

In spite of some glimmers of hope, unemployment remains an albatross facing the developed economies. In the United States, eight million jobs were lost between 2007 and 2009 with the losses still far from over. The UN report warns that unemployment will remain over 9 percent in 2010 and 2011. Significantly the American unemployment numbers hovering near ten percent mirrors or even exceeds Western Europe’s major economies.

Though the official American unemployment rate stands at 9.8 percent, many observers say that number fails to reflect deeper and endemic long-term job losses. More troubling for the U.S. has been poor private sector job creation.

Probably a major albatross to Western Europe’s growth has been the debilitating debt crisis, not only in Greece and Spain but the financial domino effect throughout the European Union. Among the economically sound economies such as Germany, France and the Netherlands there is justified ire over economic bailouts. Not surprisingly the German taxpayers will pay the bill for the profligacy of the Greek socialist state. Yet massive public debt and spending programs are part of the American scene too; “The fiscal costs of unemployment insurance and social welfare continue to weigh on the government deficit and compound other fiscal effects of the crisis.” The survey warns that while the “government deficit has soared,” the “United States economy has extricated itself from deep recession and has resumed growth.”

For example the U.S. government debt to GDP between 2004 and 2007 averaged 49 percent; by 2011 it is slated to hit 93 percent. This debt level is now on par with European economies. The Obama Administration’s spending has spiraled the debt to $13 trillion. According to the International Monetary Fund, the sum owed will surpass the entire U.S. GDP in 2012. Such numbers are usually found in Third World economies!

Clearly the Congress and Administration’s massive and profligate deficit spending has a short term “sugar rush” effect on a still tepid recovery. The real issue remains that when the recession cycle ends, who will have to pay the accumulated stack of bills?