The International Monetary Fund and other global agencies that forecast economic activity posted warnings a month ago. The gross domestic product (GDP) of most large nations will slow to almost a halt, they predicted. Japan is the latest country to prove the forecasts right. Its GDP grew at 1.4% in the quarter that ended in June. Economists polled by Dow Jones Newswires had expected the rise to be 2.7% on an annualized basis. The hope that the global economy will not slide back to near a recession is over now. And planned stimulus in some countries will not balance that.
Japan’s disappointing figures get added to those of the United States, Germany, the United Kingdom and even China. The emerging economies of countries like Brazil and India also have had economic growth slowdowns. Even if they had not, their combined GDPs are not great enough to lift those of the economic giants like the United States.
The debate over how to break free of the sluggishness has not made any progress so far. Married with food inflation due to crop shortages, and a possible increase in crude prices because of worries about supply disruptions, global GDP struggles are about to be burdened more. The one offsetting hope is that some of the world’s largest countries will begin stimulus programs. While that could happen in Japan and China, the odds are sharply against similar actions in the United States, the United Kingdom and all of Europe. And, even with stimulus, the world’s economy is interlocked enough from country to country that the effects of government efforts to offset GDP slowdown can only have limited results.
The reaction to Japan’s news was not bad, if global stock market improvements are any indication. The nature of the reaction is shorted-sighted. Japan cannot pull itself up by its own boot straps. It relies way too much on the rest of the world.
Douglas A. McIntyre