The odds that the US slipped into a recession around the turn of the year have increased. Nouriel Roubini is convinced. Jim Hamilton isn’t. The risk that US growth may slow later the in year are rising. So far, US export growth has remained robust – supporting growth. The pace of export growth hasn’t risen recently — if has been strong for a long time — so much as the pace of import growth has slowed: Imports have contributed positively to growth for the last three quarters, meaning real imports fell (see Dean Baker for more). But there is a growing risk that export growth will slow with a slowing global economy.
Signs of trouble are now visible in Europe. And not just in housing and finance-dependent economies like the UK – where consumer confidence has really plummeted. Anything that includes the phrase “worst since 1974” cannot be good. Europe, writ large (i.e. counting “new” Europe) has been a more important engine of global demand growth that the US since 2005, so a European slowdown matters for the world. Especially if Europe slows before the US resumes sustained growth.
Japan hasn’t had much momentum for a long-time. It isn’t likely to find new momentum now.
Of all the major economies – and with a $4 trillion GDP and $1.4-$1.5 trillion in goods exports this year, China is far too big to be considered anything other than a major economy – China has by far the strongest growth.
Its exports have held up quite well as the US – and Chinese exports to the US — slowed. Thank Europe – and booming sales to India and a host of other emerging economies. Many emerging markets fear cutting tariffs on Chinese goods far more than cutting tariffs on US and European goods. But forward looking indicators* suggest a broader slowdown in exports. Chinese manufacturers and policy makers are worried.
And it increasingly seems like China took a policy decision to slow the RMB’s appreciation against the dollar (and thus to slow the RMB’s likely appreciation against all the other large oil-importing economies) in order to support China’s export sector. That decision came even though China has the strongest domestic economy and the largest current account surplus of all the large oil-importing economies.