Archives - Economics: Page 37
Author: amparo enriquez (Thu Jun 16, 2005 4:20 pm)
Title: economic world performance
THE ECONOMY DEBATE’S PLACE
Although the economy is still growing at 3.25 to 3.5% approximately (during the month of march) it has demonstrated some unexpected weakness.
High oil prices and a lower than expected score in consumer confidence undoubtedly negatively impacted the economy and the hope of many investors. To this it should be added that employment performance has not been adequate, still lagging behind. On the other hand, the ghost of inflation has been creeping forward, helping build a scenario that could be perhaps best described as one of stagflation; which in turn could be translated in limited growth with an undesirable level of unemployment and inflation.
Among the things that have economist worried, the most important one is the dollar’s weakness. We have come to depend too much on Japanese and Chinese investments, mostly in US bonds, to be able to handle the commercial deficit. It is important that we straighten out the present commercial imbalance so that we become less dependent on Asian’s cash flow. At present, we can continue to count on Chinese and Japanese investments because it is in the best interest of those countries to continue to place their dollar’s surpluses in America since it was our buying power who help build their powerful economies. They need our market desperately to place their exports and continue growing. On the other hand not investing in America will weaken the dollar even further and that will bring down the value of their debt. In spite of the lack of stability and the complexities related to mutual economic dependencies it appears that for the moment economic chaos is not around the corner.
Although we shouldn’t fret about the present economic situation we must be concerned about its future evolution. The twin deficit problem need to be corrected and the Chinese should appraise the Yuang’s value to break the present commercial imbalance. We need to strengthen ourselves in order to become less vulnerable to scenarios such as lower oil availability and dependence on foreign capital.
Our present economic predicament however is not only ours. Europeans face a very difficult situation, a high Euro’s value has made low demands for their exports and a less competitive economy, characterized also by high unemployment. On top of that European’s workers unions have unrealistic expectations (a higher salary and less working hours) of the benefits they should be entitle. Because of the persistence present situation some analyst have come to think that Europe’s economic future is rather dim.
In what concerns Asian economies their main performer Japan has had poor economic growth, with little to show for well over a decade while the Chinese economic health is uncertain to say the least; the country faces a banking financial system in bankruptcy among other problems.
In synthesis the future of the world economy looks somewhat gloomy and it will be in the best interest of everyone if the leaders of the G8 kept and ongoing dialogue so that a program can be developed that will enhance economic world performance and keep the threat of recession as far away as possible.