Why the world's economies are sinking

Developing nations are flexing their muscles, while rich countries appear to be weakening in global meltdown

Jul 20, 2008 04:30 AM
David Olive
Business Columnist

The current economic slowdown may look global, but it might turn out to be the first in history that hits rich countries harder than developing ones.

The contagion of weak U.S. growth has spread to Europe and Japan, the world's second- and third-largest economies, respectively. Prolonged economic booms in Australia, Ireland and Canada finally have faded; no one's talking these days about the "Irish miracle" now that Irish job growth and housing values are in decline.

Jobless construction workers now queue up at 5 a.m. outside the Águeda Diez unemployment benefits office in the Carabanchel district of Madrid. Until 2006, Spain was building more houses – about 700,000 a year – than Britain, France and Germany combined.

But the Spanish housing market now is in a deep slump, and construction giant Martinsa-Fadesa SA, with debts of 5.2 billion euros, $8.3 billion (Canadian), last Tuesday made Spain's largest-ever bankruptcy filing.

As recently as last spring, Europe was forecast to avoid the slump afflicting the U.S. But in mid-May, European stock markets abruptly began to decline. The continent's banking sector, loaded with dubious U.S. subprime debt, has tightened lending practices, triggering a credit crunch for consumers and business alike. The world's biggest financial firms already have suffered more than $415 billion (U.S.) in writedowns and credit losses since the start of 2007.

French consumer spending, a pillar of the 15-nation euro zone's domestic economy, is in a funk. The British housing bubble, like its counterparts elsewhere in Europe, has burst. In May, new-home mortgage demand plummeted 63 per cent.

"The credit crisis, runaway inflation, mind-blowing energy crisis, falling confidence, housing prices – they have created a perfect story," Henk Potts, equity strategist at British bank Barclays PLC, told the Washington Post on Wednesday. "It's currently a market for the brave."

In Germany, the euro zone's largest economy, a strong euro, weak orders and sharply higher costs for oil and other commodities have forced blue-chip firms such as Siemens AG, Henkel AG and Heidelberger Druck AG, world's largest maker of printing presses, to announce the same kind of large job cuts that have racked the Ontario economy.

The Bank of Japan on Tuesday released its growth forecast of just 1.2 per cent through to March 2009 – the most anemic since 2002. Canadian economic growth is now expected to clock in at just 1 per cent this year, the weakest in 16 years. A report last week showed the first decline in prices for existing houses since 1999.

Meanwhile, consumers worldwide are suffering rapid commodity-price inflation even as economic growth rates sag. The European Central Bank's June report shows a near doubling in oil prices in the past year, a tripling in corn prices since the beginning of 2006, and an 80 per cent hike in wheat.

Yet, that squeeze between lower income and household wealth and a higher cost of living is largely absent in the more dynamic developing world economies. China, the superstar among emerging economies, posted double-digit growth of 11.9 per cent last year and 10.4 per cent in the first half of this year, despite vigorous efforts by Beijing to cool the economy with interest-rate increases and a modest decline in exports to Europe and North America.

"It is amazing that China is still able to maintain double-digit growth rates," Sherman Chan, Sydney-based China analyst for Moody's Investor Services, told The Australian on Thursday.

Russia, emerging energy superpower of Europe, will see 8 per cent GDP growth this year, and consumer spending is up 13 per cent so far in 2008, insulating the world's second-largest oil exporter from credit-market volatility.

In the U.S. last week, federal officials were bailing out the giant mortgage lenders Freddie Mac and Fannie Mae, along with a California bank, IndyMac, that was hit with a bank run.

In fast-growing Kenya, by contrast, savers are lining up to open bank accounts. And Nairobi's stock exchange, in contrast to significant exchange reversals in Toronto, New York, London and Frankfurt, has jumped 10 per cent in the total value of shares traded in the three months ended in June.

The world's emerging-world economic powerhouses increasingly are flexing their muscles as buyers of depressed assets in developed countries. Brazil's CVRD last year snapped up Inco Ltd. It was state investment funds in the United Arab Emirates and Singapore that came to the rescue of Citigroup Inc. and Merrill Lynch & Co. with emergency cash injections, becoming the largest shareholders in those American financial icons in the process.

Earlier this month, another UAE fund bought a 90 per cent stake in Manhattan's landmark Chrysler Building.

A new paradigm seems to have emerged, in which wealthy nations drag each other down, a mirror image of how Asian currency crises in the late 1990s triggered panic selling only in other developing world markets, leaving mature economies unscathed.

This time it's the emerging markets that continue to thrive while so-called First World countries struggle with the double whammy of declining growth rates and soaring inflation. The dilemma for industrial nations is that elevated inflation levels constrict the ability of central bankers to stimulate laggard economies without risking still higher inflation as a result of their efforts. Indeed, in a report last week, the International Monetary Fund identified inflation and not weak GDP growth as by far the greater worry for mature economies.

"Inflation is a rising concern and will constrain the policy response to slower growth," the IMF warned in its report released on Thursday. Even though some experts put Europe's chances of sliding into recession as high as 40 per cent, the European Central Bank raised its key rate earlier this month by a quarter point, to 4.25 per cent. And on Tuesday, the Bank of Canada left its key overnight rate unchanged at 3.0 per cent.

For China, the challenge is too much economic growth too quickly, creating an overheated economy where food prices leapt 20.4 per cent in the first half of 2008, and wages rose 19 per cent in the first quarter. A modest economic slowdown in Beijing, and for that matter, global economic lethargy, is not viewed as the worst of outcomes by China's economic planners.


Vikram Nehru, World Bank chief economist for East Asia and the Pacific, said, "In some ways, this is not only welcome but desired by the Chinese."

Reference Source - The Star

GDP GROWTH RATES BY NATION

Russia: 7.7 per cent (2008 projection)

Japan: 1.2 per cent (2008 projection)

China: 9.7 per cent (2008 projection)

United States: 1.3 per cent (2008 projection)

Canada: 1.0 per cent (2008 projection)

India: 8 per cent (2008 projection)

Germany: 2.4 per cent (2008 projection)

Italy: 0.4 per cent (2008 projection)

Portugal: 1.25 per cent (2008 projection)

Britain: 1.8 per cent (2008 projection)

France: 1.6 per cent (2008 projection)


Sources: International Monetary Fund, Ifo Institute (Gemany), Bank of Japan; ISAE Research Institute

GDP GROWTH RATES BY NATION

China: 9.7 per cent (2008 projection)

India: 8 per cent (2008 projection)

Russia: 7.7 per cent (2008 projection)

Germany: 2.4 per cent (2008 projection)

Britain: 1.8 per cent (2008 projection)

France: 1.6 per cent (2008 projection)

United States: 1.3 per cent (2008 projection)

Portugal: 1.25 per cent (2008 projection)

Japan: 1.2 per cent (2008 projection)

Canada: 1.0 per cent (2008 projection)

Italy: 0.4 per cent (2008 projection)


Sources: International Monetary Fund, Ifo Institute (Gemany), Bank of Japan; ISAE Research Institute

china , india russia sheer numbers dude , numbers numbers numbers !

china now has 300 miilion multi millionaires and growing ,the average workers earns less than USD$1. per day and most work 6 days a week 12 hour days

How come Guyana did not make the list? I'm dissapointed!

Jagdeo should ban future reports!

In aggregate the economies of China and India are big, but in per capita terms they still trail the great economies of the WEST.

quote:

Originally posted by Demerara_Guy:
Why the world's economies are sinking

while rich countries appear to be weakening in global meltdown

Given this you expect them to pay Guyana not to cut down its trees. Please!!!!!!!

quote:

Originally posted by kidmost:
china , india russia sheer numbers dude , numbers numbers numbers !

china now has 300 miilion multi millionaires and growing ,the average workers earns less than USD$1. per day and most work 6 days a week 12 hour days

Kid,

Only in communist China can the country rake in so much but the people get so little. And socialism is all about equitable distribution of wealth! Yeh, right! And I am a billionaire waiting to get rich! It's a pity DemGuy didn't get info on China's military budget for the past five years. For a so-calle people's country, China has its priorities mixed up. And they're in Guyana ADVISING OUR GDF?

There was a program on Discovery last night that talked about massive corruption in Shangai.

quote:

Originally posted by Communicator:

It's a pity DemGuy didn't get info on China's military budget for the past five years.

Do you have an interest on its military budget?

quote:

Originally posted by Demerara_Guy:

quote:

Originally posted by Communicator:

It's a pity DemGuy didn't get info on China's military budget for the past five years.

Do you have an interest on its military budget?

DemGuy,

Not really. I can Google this. I did read some time back about how much China is spending on its military and it was shocking. But I only made the point to underscore Kidmost's own observation that China is raking in billions a year but Chinese workers make 1US a day and work long hours. The whole concept of equitable distribution of wealth is lost on this socialist-oriented government.

Commumicator:

I have been following the reported expenditures for the major super power countries ... and indeed China does have a HUGE military budget.



US military spending accounts for 48 percent, or almost half, of the world’s total military spending

US military spending is more than the next 46 highest spending countries in the world combined
US military spending is 5.8 times more than China, 10.2 times more than Russia, and 98.6 times more than Iran.

US military spending is almost 55 times the spending on the six “rogue” states (Cuba, Iran, Libya, North Korea, Sudan and Syria) whose spending amounts to around $13 billion, maximum. (Tabulated data does not include four of the six, as the data only lists nations that have spent over 1 billion in the year, so their budget is assumed to be $1 billion each)

US spending is more than the combined spending of the next 45 countries.

The United States and its strongest allies (the NATO countries, Japan, South Korea and Australia) spend $1.1 trillion on their militaries combined, representing 72 percent of the world’s total.

The six potential “enemies,” Russia, and China together account for about $205 billion or 29% of the US military budget.


=================

Top 15 Countries

Rank – Country – Billions -- %


01. United States -- 711 -- 48. 28%
02. China -- 121.9 -- 8.28%
03. Russia -- 70 -- 4.75%
04. United Kingdom -- 55.4 -- 3.76%
05. France -- 54 -- 3.67%
06. Japan 41.1 -- 2.79%
07. Germany 37.8 -- 2.57%
08. Italy -- 30.6 -- 2.08%
09. Saudi Arabia -- 29.5 -- 2.00%
10. South Korea -- 24.6 -- 1.67%
11. India -- 22.4 -- 1.52%
12. Australia -- 17.2 -- 1.17%
13. Brazil -- 16.2 -- 1.10%
14. Canada -- 15 -- 1.02%
15. Spain -- 14.4 -- 0.98%


Reference Source - More Information

quote:

Originally posted by Communicator:

quote:

Originally posted by Demerara_Guy:

quote:

Originally posted by Communicator:

It's a pity DemGuy didn't get info on China's military budget for the past five years.

Do you have an interest on its military budget?

DemGuy,

Not really. I can Google this. I did read some time back about how much China is spending on its military and it was shocking. But I only made the point to underscore Kidmost's own observation that China is raking in billions a year but Chinese workers make 1US a day and work long hours. The whole concept of equitable distribution of wealth is lost on this socialist-oriented government.

A few very close friends who are positioned in UN Military advisory , ex Israeli Intel , and Taiwanese businessmen indicated China 's numbers are not real , that they are spending far more than what they are declaring . The Chinese had to revamp their entire military infrastructure and all equiptment etc over the past 20 years . Their army was obsolete back in 1985 , they had WWI & WWII equiptment , so figure what it cost them over the years to achieve this and they are still behind in military technology .

These communist countries failed because of greed , corruption and power . In China they are still forcing 7 and 8 month abortions when the people cannot pay the fines which are as high as 5 years earnings . Officials are now being bribed to look the other way while babies are being exported for sale , women being sold into slavery to pay family debts and old people going into the mountains to expose themselves to harsh weather to die since they do not believe in suicide , they feel when they get old they need to die so they do not become a financial burden to their kid and relatives ....friken sad ! China , Africa and India have the most sad people in the world . China is expanding spheres of influence , investments etc in countries neglected and unimportant to NATO countries , they will own these countries in another 10 years . They will open factories , export huge segments of their population and rape these countries bare of their resources and dignity.