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Are World Economies Faltering?

By Cina Coren
Cina Coren is a former Wall Street broker and financial advisor. She holds a Master's degree in Communications and spent many years writing for international news outlets and journalistic publications. Today, Cina spends most of her time writing internet articles and blogs, and reading various newspapers to stay on top of the news.

World economies may appear to be on the mend, but when analysts delve deeper they find symptoms of financial deterioration. The euro zone's is at an even keel; China's economy is slowing down; Japan's tanked in the second quarter; the United Kingdom has wage deflation and the U.S. economy is barely holding its own.

The world is preoccupied with geopolitical crises from the Ukraine, Iraq and Gaza to the Ebola outbreak in West Africa leaving the global economy on the back burner. But there are increasing signs it is in trouble despite being awash with cash from record low interest rates.

Many policymakers across the world would like to move away from this ultra-loose monetary policy, which they put in place to pull their countries out of the financial crisis. But the economies don’t seem to be playing along.

In China, data in July showed cash flowing into the economy tumbling to a near six-year low. The housing sector, around 15 percent of the world's second largest economy, is also vacillating. So although overall growth projections for the year remain roughly on track, the latest data has brought the potential for a weaker Chinese monetary policy.

Similarly, the issue in the waning euro zone is not one of reeling in monetary bounty but of whether the European Central Bank should extend it by buying government bonds in a quantitative easing program. The bank has already thrown more than 1 trillion euros ($1.34 trillion) into the economy, much of it repaid, and is poised to inject up to another 1 trillion euros if necessary.

Yet there was no growth across the 18-country bloc in the second quarter and inflation is running at a deflation-threatening 0.4 percent.

Jacob Funk Kirkegaard, a fellow at the Petersen Institute of International Economics, figures that the main problem facing central banks is that the pillars of world economic growth are not on the same level and that economies are not working together.

"There is no country (now) to pick up the slack," Kirkegaard said. "From the perspective of the U.S. consumer coming to the rescue of global demand, forget about it."

This was emphasized by the latest U.S. jobs data, which showed steady job creation but flat wages in the private sector and little improvement in long-term unemployment.

The U.K., the fastest-growing Group of Seven economy this year (albeit from a low base), is in a similar place. Reports from the central bank's last meeting showed the first split vote on interest rates since 2011 and underlined the desire of some to start hiking now. The meeting, however, took place before data showed average wages in Britain falling for the first time in five years, inflation dropping and employment growing more slowly. Some of Britain's falling wages can be tracked back to comparisons with a year earlier when they boomed after a cut in the top tax rate.

At the same time, Japan suffered its biggest contraction since March 2011 in the second quarter, falling at an annualized 6.8 percent. It is hoping it was mainly due to an April 1 sales tax hike that hit household spending.

Similarly, some of Britain's falling wages can be tracked back to comparisons with a year earlier when they boomed after a cut in the top tax rate. That impact will disappear.

But the G7 as a group is growing well below trend. The United States, Germany, Japan, France, Britain, Italy and Canada averaged growth of just over 2 percent a year between 1981 and 2013. The projection for this year is less than 1.5 percent.

And that is before any potential longer-term impact from Russia sanctions, disrupted Middle East oil flows or other geopolitical pressure.

Most analysts agree that much of what is happening globally is out of their control.

Cina Coren
About Cina Coren
Cina Coren is a former Wall Street broker and financial advisor. She holds a Master's degree in Communications and spent many years writing for international news outlets and journalistic publications. Today, Cina spends most of her time writing internet articles and blogs, and reading various newspapers to stay on top of the news.
 

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