Japan, EU, China are flashing economic warning signs
EVEN before the recent plunge in commodity and stock markets, the world economy was weak. But recent data from China, Europe, Japan and other countries suggest that growth is slowing more sharply than many analysts had anticipated. That puts the burden on policy makers in these countries to come up with more credible ways to bolster their economies.
The most worrying signs are coming from China, the world's second-biggest economy. After two decades of rapid growth, China's economy is decelerating and its leaders are failing to strengthen it - by, for instance, decreasing its reliance on investment and putting greater emphasis on consumer demand. In a sign of how quickly business activity is falling, exports declined more than 8 percent in July from June and auto sales were down more than 6 percent compared to a year earlier. Gross domestic product grew at 7 percent in the second quarter, the slowest pace in six years.
China's communist government has seemed to make matters worse by intervening forcefully in the financial market. First, it ordered state-owned companies and the secu- rities industry to buy stocks, but the move did not shore up confidence in the inflated stock market, and shares have kept falling. The Shanghai composite index tumbled 8.5 percent on Monday. Meanwhile, China's decision to greatly devalue its currency, the renminbi, has sent the currencies of other developing nations sharply lower against the dollar.
Many analysts had hoped that China's rise could be good for the global economy, by creating another big source of growth besides the United States. But the government's mishandling of its economy this summer suggests that China will not be ready to play that role anytime soon. The problem is that much of the rest of the world is also struggling.
Last week, the Japanese government said the country's economy contracted by 0.4 percent in the second quarter of the year. Exports and industrial activity have been slowing in the country, partly as a result of weaker demand from China. But the government of Prime Minister Shinzo Abe also needs to do more to encourage businesses to invest more and raise wages.
The euro currency union, which is made up of 19 countries, is doing a little bit better, but not much. The eurozone grew at 0.3 per- cent in the second quarter, down from 0.4 percent growth in the first three months of the year. While growth picked up in Spain and a few other countries, other economies like France and Italy slowed. European leaders should be trying to stimulate their economies with public spending, but they are not doing that in a misguided attempt to reduce their budget deficits.
The economies of other countries such as Brazil and Russia, which depend heavily on exporting commodities like oil and iron ore, are also faltering as China and other nations import fewer raw materials. Oil prices have fallen by more than half in the last year, to just under $40 a barrel. Commodity-exporting nations need to diversify their economies, even though that is a long-term process that is unlikely to deliver a quick boost.
America's economy is in better shape, but it is not growing fast enough to help the rest of the world. The slowdowns abroad could, in fact, serve to dampen growth in the United States by reducing demand for American exports. In recent months, the dollar has strengthened considerably against other currencies, making American goods more expensive to consumers elsewhere.