Consumer Despair Now Spans The Globe

Every economist worth his salt assumes that consumer confidence and consumer spending are hitting multi-decade lows in Japan, the EU, and the US. There has been some hope that the disease had not spread to emerging markets, especially India and China. They could still be good candidates to buy American goods.

Oddly, the central bank of China dropped interest rates yesterday for the fifth time in three months. The rapidity of the cuts seems odd for a country that is supposed to be "recession proof", but the action might just be prophylactic, a move to build a safe foundation. Or the Chinese government might know more than it is letting on.

New research shows the average man in developing countries may be no better off than his brother in the Old World. According to Reuters, a new poll from Ipsos Global Public Affairs shows that "the financial crisis is shattering global confidence, with three quarters of households cutting spending and consumers in emerging countries feeling especially squeezed." Russia, China, and India were including in a report that covered 22 nations.

The news puts a pin in the theory that China and India are largely immune from large economic downturns. Their economies might slow, but growing GDP should keep employment and the standards of living moving up. This means they will remain good candidates for imports from countries including the US. American manufacturers can still count on some help from emerging countries as consumer purchases here plunge.

If the poll results are even close to accurate it means that the vicious cycle of a deep global recession is already at hand. Consumers in established and emerging nations are no longer buyers of their own goods or those from abroad. That means a sharp drop in spending which will wash over business and cause large corporate losses is already under way as is a ballooning of job losses.

Douglas A. McIntyre