US and Eurozone Growth Slows, Japan’s Rises

One of the problems with globalization is the risk that the interlocked economies of the world could all stumble together. The word “contagion” applied only in medicine until the 1997 currency crises in East Asia and Russia cropped up. Counter-intuitively, economic growth usually depends on the various big economies of the world being out of phase. Thanks to Japan’s surprisingly strong third quarter growth, that’s exactly where the world is at the moment.

Despite everything from the Chinese economic boom to a decade of deflation, Japan still has the second biggest economy in the world after the USA. Cabinet Office figures for the quarter ended September 30, 2006 show a Japanese GDP growth rate of 0.5% over the quarter ended June 30, 2006. Annualized, this is about 2% compared with a 1% annualized rate just three months ago. Exports were up 2.7% thanks to a weak yen, and capital investment was up 2.9%. Domestic consumption slipped 0.7%, but it wasn’t enough to really harm the country’s expansion.

Thus, Japan is taking up the slack left by the slowing economies of the US and the Eurozone. The American trend is depressingly clear. From a largely unsustainable 5.6% growth rate in the first quarter of 2006, the US economy has slowed to 2.6% in the second quarter and just 1.6% in the third quarter, the slowest rate of growth in three years.

In the Eurozone, growth fell to 0.5% in the third quarter from 0.9% in the second quarter. A flat French economy offset a rather robust German economy. The real performer in the Eurozone was Spain with a 0.9% growth rate in the latest quarter. Despite that five-year high, the Spanish economy isn’t big enough to really move the overall Eurozone growth rate.

In the broader European Union (which includes the UK and a few smaller states that still have their own currencies), the quarterly growth dipped to 0.6% from 0.9%. Annualized, the third quarter’s 2.8% rate of growth was off from the 2.9% seen in the second quarter.

In absolute terms, the US and Europe are still doing well. It is the trend that causes concern. While the central banks are still worried about inflation, the growth rates could be better. At very least, stable interest rates are in order. Naturally, the European Central Bank is expected to raise rates to 3.5% in December. And the Federal Reserve has had its view of things challenged by a 0.9% drop in the core rate of inflation in October, the biggest drop in 13 years.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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