Are we moving towards long run Global Stagnation?
With every passing day and every news that comes in from governments of developed world, we are indeed getting assured of arrival of an era of slow growth worldwide. Reasons are simple and straight. No progress of biggest economy of the world, Uncle Sam, is bound to slow the economic growth of the world.
A quarter ago we all were worried about European crisis when Spain, Greece, Iceland were reeling under immense debt and they had to be bailed out by bigger euro zone economies like France and Germany with the help from IMF. At that time US was looking like it is on fast track recovery mode. But after few months things have changes dramatically, no one is talking about European crisis and everyone is sceptical about US recovery.
Unfortunately, weekly applications for unemployment benefits spiked again last week to 484,000, the highest level in nearly six months. This and other red flags have prompted Goldman Sachs economists, among the more bearish on Wall Street, to predict a 25-30 percent chance of a much-feared double-dip recession.
In Europe, Germany continues to grow with rising exports. Strong growth of Germany is very important for development of Euro zone as a whole. But this growth may not be sustainable if US economy keeps on spiralling into the deflationary trap of decreasing economic activities. France, another important Euro zone economy is not showing much signs of strong growth and remains a concern for Europe.
"It’s somewhat ironic but significant that the U.S. slowdown appears to have been triggered by debt concerns in Europe and in the end European growth is showing a pick-up," said Jim O’Sullivan, chief economist at MF Global in New York.
Japan is in no way going to grow at a high rate in this type of recession. It is already showing signs of further slowness with weak economic data coming in today. Reuters reported this morning that Japan‘s quarterly gross domestic product growth of 0.1 percent translates to annualized expansion of 0.4 percent, well below the median market forecast of 2.3 percent and the United States’ 2.4 percent annualized growth in the same quarter.
"The economy may enter a lull late this year or early next year, or even stagnate," said Yoshiki Shinke, senior economist, Dai-Ichi Life Research Institute.
So, if that being the case in developed world then growth drivers of the world will have to be developing world which are still growing with high growth rates steamed by their domestic consumption. Nonetheless, US stagnation will affect developing economies up to some extend. For most of the developing nations, US is their largest trading partner and deflated demand with US consumers will cause havocs on the balance sheets of exporting companies and also the balance of payment of countries.
That means slowing US will cause economic slowness in world, only thing is few countries will slowdown while others would stagnate. A lost decade of US can well be a lost decade of the world.