World's Economies Try to Stay Aloft in US Downdraft
David R. Francis writer of The Christian Science Monitor, The Christian Science Monitor
It's not just the United States economy that's in trouble. It's the world's.
For six years or so, the thriving US economy was the center of demand for goods from around the globe. Last year, it sucked in $360 billion more of imports than it exported. Now the American economy has slowed sharply.
"It's not good for the world economy," says Clyde Prestowitz, president of the Economic Strategy Institute in Washington.
Indeed, there is a scramble in several countries to avoid, if possible, the drag from the slowing US economy.
The Bank of Canada, for instance, last Wednesday reduced a key interest rate from 5.75 percent to 5.25 percent, after a quarter point cut in January. Canada ships about 85 percent of its exports to its southern neighbor.
A day later, Australia's central bank reduced its benchmark interest rate for the second time in four weeks. It, too, is attempting to ward off a slump.
Also, China, which exports heavily to the US, rolled out a budget last week that is $31 billion in the red. A boost in public-works and military spending is partly aimed at generating a 7 percent growth rate this year after inflation.
Other central banks that cut rates last month include South Korea, the Philippines, Hungary, Denmark, and Turkey. Turkey acted after sinking into a financial crisis.
Global output this year will still grow 2.6 percent after inflation, reckons Consensus Economics in London. The firm uses predictions of more than 200 forecasters around the world to come up with its consensus forecast, weighted by the size of national economies.
That forecast indicates "an unusually large drop" from 3.9 percent real growth in the world in 2000, says editorial director Jeremy Weltman. He expects a further drop in a monthly poll taken this week.
The US is the biggest factor in the world slowdown because it produces 20 percent of global output. The latest Federal Reserve survey of regional economic conditions shows business activity has slowed to a crawl in some areas.
Europe is offering the largest positive influence on the world. Though slowing a little, the European economy is still expected to grow a healthy 2.6 percent this year. Because European countries do most of their trade with each other, Europe's economy is relatively independent of US trends.
"At present there are no convincing signs that the slowdown in the US economy is having significant and lasting spillover effects on the euro-area economy as a whole," Wim Duisenberg, president of the European Central Bank, told the European Parliament last week. …