Well, the US has certainly caught a stinking cold. In the past, this would of course have meant the global economy would go down with a very nasty case of ‘flu. It is not supposed to be like that now. The world has supposedly de-coupled. We can carry on regardless.
Is that true? Yesterday saw conflicting evidence on both sides of the world. Japan, for so long the sick man of the G7, really does seem to have reduced its reliance on the US. But in Europe, the evidence is mixed.
Yesterday saw the latest balance of payments data for Japan. Not surprisingly, exports to the US were down – in fact its trade surplus with the US was down 11 per cent as sales of Japanese cars and machinery continued their downward march.
But overall, Japan’s exports were up 3.7 per cent, while imports rose too – up 4.4 per cent.
In 2007 the US was by far and away Japan’s top exporter, with 20 per cent of all its exports heading that way. China saw 15.4 per cent of exports, South Korea 7.6 per cent, Taiwan 6.3 per cent and Hong Kong 5.6 per cent.
Japan’s leading suppliers last year were China, US, Saudi Arabia, UAE and Australia, respectively.
That Japan has managed an increase in exports at a time of a dramatic US slowdown is really an indication of how strong its economic neighbours are.
Mind you, there is a time lag with these things. Maybe Asia will not experience the full consequences of a US slowdown until next year.
Meanwhile, in Europe, signs are emerging that the US slowdown is taking its toll
Earlier in the week the Composite Purchasing Managers index for the Eurozone fell below the critical 50 no-change level. The French PMI index put in an especially bad performance.
In Germany the news is mixed. Its Purchasing Managers index was okay, but the closely watched IFO index fell to the lowest level since December 2005.
The Eurozone trouble spots are Ireland – possibly on the verge of recession; Spain, which is seeing a sharp slowdown; and poor old Italy seems to want to play with recession in the way a cat plays with a mouse.
But it is outside of the Eurooze where one traditionally strong economy is suffering badly: Switzerland. Capital Economics reckons Switzerland will see GDP growth slow to 1.5 per cent this year, but says a “technical recession is an all-too-feasible outcome. The downturn is likely to linger into 2009, with GDP growth falling below the 1 per cent mark.”
Right now, it’s the economies that did especially well during the boom, countries that saw house prices shoot up, or economies with a strong financial sector – such as Switzerland and the UK, that are most vulnerable.
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