SIGNS FROM some of the world’s largest economies in recent days and weeks have been mixed, but there have been enough weak indicators to raise concerns that the global economy may take longer than hoped to return to healthy growth.
In China, increasingly the world’s workshop and its engine of growth over the past two years, government measures to put a gentle brake on a potentially overheating economy are working. This is good news as it reduces the risk of a hard landing for the world’s most populous country. But it comes at some cost to everyone else. The rate of import growth halved in July while exports of Chinese goods ballooned by an eye-widening 38 per cent on a year earlier. The result: the country’s trade surplus in July soared to its highest level since January 2009. This further unbalances the global economy and can only fuel international trade tensions.
The country loudest in its criticism of China’s trade position is the US. Its trade deficit mirrors China’s surplus. The latest figures (for June) show that the US continues to suck in foreign goods, while its exports flat-lined. With the jobs and housing markets remaining stubbornly weak, the Federal Reserve, America’s central bank, announced on Tuesday that it was halting its exit from stimulus. It now expects the recovery in the world’s largest economy to be weaker than anticipated.
Closer to home, the Bank of England followed its US counterpart a day later, cutting its growth forecast. Next year, the British economy will expand less vigorously than the bank had thought earlier. But at 2.7 per cent, the forecast is still good news for Irish exporters, particularly if sterling’s recent rise holds.
Bucking the trend among the major economies is Germany. In the April-June quarter, indications are its economy expanded at the fastest clip since unification in 1990. Not only is the famed German export machine roaring, its infamously cent-pinching consumers are showing some signs of a greater willingness to live a little. This has contributed to a boom in imports, giving heart to its more sluggish European partners who depend on the giant German market.
Today, second quarter growth figures for the euro zone are to be released. According to forecasts, the expansion should be unusually strong. No matter that much of it is likely to be German. If that is confirmed, it will push euro zone growth ahead of that in the US for the second quarter. This would provide a confidence boost. And a shot in the arm is much needed.