Who is to pay the dearest price in a global slowdown?

European Parliament. Workshop on granting Market Economy status for China after 2016. Discussion between Bernard O'Connor, Professor at Bocconi University, Jean-François Bellis, Professor at the Institute of European Studies of the University of Brussels, Lucien Cernat, Chief Trade Economist of the European Commission, Robert Scott, Director of Trade and Manufacturing Policy Research at the EPI Institute and author of the Study " Unilateral grant of market economy status to China would put millions of EU jobs at risk", Maurizio Zanardi, Associate Professor in Economics at the Lancaster University Management School and Schaake Marietje (ALDE, NL). Event Date: 28/01/2016. City: Brussels. © European Union 2016 - Source : EP.

European Parliament. Workshop on granting Market Economy status for China after 2016. Discussion between Bernard O’Connor, Professor at Bocconi University, Jean-François Bellis, Professor at the Institute of European Studies of the University of Brussels, Lucien Cernat, Chief Trade Economist of the European Commission, Robert Scott, Director of Trade and Manufacturing Policy Research at the EPI Institute and author of the Study ” Unilateral grant of market economy status to China would put millions of EU jobs at risk”, Maurizio Zanardi, Associate Professor in Economics at the Lancaster University Management School and Schaake Marietje (ALDE, NL).
Event Date: 28/01/2016. City: Brussels. © European Union 2016 – Source : EP.

What happens in China is more important for the European economy than a meagre fall of unemployment in the Eurozone. Last Tuesday, China said its February exports dived by a record 25.4%, fuelling new fears for a bigger slowdown in the world economy. At the same time, a Press release by Eurostat, the EU statistical service announcing a small reduction of unemployment, by some decimals of a percentage unit in the Eurozone, was not enough to arrest a fall in Europe’s capital markets. Everybody has in mind that euro area unemployment always remains well into the double digit region.

There are more problems in Europe though, like the non performing loans of every kind and the inability of the economy to take advantage of the European Central Bank’s abundant and almost zero cost liquidity treatment. Unfortunately, it’s just the banks that profit from this money bonanza. Turning now to the other developed economies, we find that they are not in a much better position.

Japan in a shoddier position

In Japan the economy is also not reacting to a similar liquidity treatment after years of Abenomics. The Prime Minister of this country, Shinzō Abe who pressed the Bank of Japan, the country’s central bank to introduce a huge quantitative easing program in order to revive the economy, seems now to have lost control. Deflation and recession again show their ugly face. Most economic analysts consider now the Abenomics plan as a complete failure. As for the United States, the country’s stock exchanges are going up and down according to the good or bad news about the Chinese growth rate and export performance. Let’s dig a bit into all that.

Last Tuesday, it became known that the Chinese exports fell abruptly in February by a huge and alarming percentage. Analysts had expected a fall, due to seasonal adjustments, but nobody had predicted a decline larger than 12.5%. Nonetheless, China is a key economy, the second largest of the world, not only as a producer but as a consumer as well. On the same occasion, it was released that the Chinese imports fell in February by 13.8 percent. There is more to it though. This was the sixteenth month in a row that the Chinese imports are falling. And this is an equally alarming development. If China continues slowing down that fast, the rest of the world will be gasping for air.

Breathing with China

Last Tuesday, the paramount global weight of the Chinese economic variables instantly affected the entire world. All major capital and commodity markets, including oil, fell to lower levels. Obviously, investors instantly adjusted their expectations about the growth of the global economy. This adjustment though, revealed also what the markets believe about each one of the major economies. The New York stock exchange main index, the Dow Jones Industrial fell slightly by less than half a percentage unit. In Europe the capital markets lost a full percentage unit and the Tokyo stock exchange main index, the Nikkei fell by one and a half percentage unit.

After Tuesday all those markets followed diverging courses, due to other developments more particular to any one of those exchanges. However, on Tuesday we got a clear snapshot of what investors believe about the resilience of the developed economies, in view to a possibly steeper global slowdown. Obviously, the most resilient one appears to be the American economy. The more drastic and effective response of the US authorities to the 2008-2010 financial crisis has obviously paid good dividends.

Who can better resist?

Unquestionably, the American economy and more particularly the country’s financial system is in a much better position than the Eurozone. The US may suffer from a chronic dual deficit in the government budget and its foreign trade, but the strength of the dollar can cover those gaps for a long period of time.

As a result, the American policy makers can plan for long periods without the constraints of the double deficit. Of course, this is a unique case in the history of economics. Not to forget that the strength of the American dollar is actually based on the political and military might of the US and on their proper oil reserves plus those of the Gulf Kingdoms. Whichever oil producing country decides to sell oil in any currency other that the dollar, it has a rough time. Iraq, Libya and Venezuela paid the price. In this way the US central bank, the Fed, didn’t hesitate and has fed the American economy with $4.5 trillion freshly printed dollars, effectively helping the financial system and the country to overcome the 2008 crisis.

Europe is different

On this shore of the Atlantic Ocean though, the Eurozone doesn’t have this luxury. The euro has to be supported by a positive foreign account and much lower levels of government deficits. That’s why the EU is recovering more painstakingly from the crisis than the US. For the same reason, Eurozone appears less crackproof to a possible new global slow down.

Consequently, an export performance problem like the Chinese one, stemming from a global slowdown would compromise the European economy to a much larger degree than the US. China itself will be less hit than the West from a general slowdown of exports, because it can count now more on a gigantic internal demand. As for Japan, it seems that she will pay the dearest price of them all, the internal demand has never been its strong point.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

MEPs to vote on overhaul of road transport rules in July

Plastic is a global problem. It’s also a global opportunity

It’s a lie Eurozone isn’t competitive

Ukraine undecided over a strategic partnership with the EU

ECB to people: Not responsible if you lose money on Bitcoin, your governments are

MEPs call for sanctions against Turkey over military operation in Syria

UN chief urges restraint following reported Saudi-led assault in Yemen

Progress against torture in Afghan detention centres, but Government needs to do more, says UN report

Opening – EP remembers Nelson Mandela and mourns attacks on Roma in Ukraine

The Commission offers exit from the EU budget stalemate

A Sting Exclusive: “Paris is the moment for climate justice”, Swedish MEP Linnéa Engström claims from Brussels

This is how music festivals are tackling plastic waste

UN human rights office urges Egypt to immediately release detained protestors

Ebola cases rising in DR Congo, but UN health agency cites progress in community trust-building

MEPs back EU partnership agreement with Armenia

Humanitarian Aid 2016: The needs, the highlights, the crisis and the relief

MEPs back first EU management plan for fish stocks in the Western Mediterranean

Why CFOs need to rethink what it means to create value

European Parliament gives green light to Christine Lagarde

AIESEC @ European Business Summit 2014: The Digital Era: A New Business Frontier

Fleeing violence, Cameroonian refugee arrivals in Nigeria pass 30,000, reports UN refugee agency

iSting: a reader’s thoughts on the UN Environment Assembly 2017

State aid: Commission finds Luxembourg gave illegal tax benefits to Engie; has to recover around €120 million

Tax revenues have reached a plateau

On Grexit: Incompetence just launched the historic Ultimatum that could open “pandora’s box”

Why is the EU launching a doomed policy in stopping immigrant waves? What are the real targets?

Half the world’s population is still offline. Here’s why that matters

‘Urgent need’ to stop Mali violence with ‘effective’ military response: UN expert

ITU Telecom World 2017 on 25-28 September in Busan, Republic of Korea

Migration crisis update: Greece could probably say goodbye to Schengen really soon

“None of our member states has the dimension to compete with China and the US, not even Germany!”, Head of EUREKA Pedro Nunes on another Sting Exclusive

‘Transformational benefits’ of ending outdoor defecation: Why toilets matter

TTIP update: postponed vote and INTA meeting shuffle cards again

GSMA Reveals Shortlist For 2019 Asia Mobile Awards

Understanding of LGBT realities ‘non-existent’ in most countries, says UN expert

This is how Middle Eastern retailers can keep up with e-commerce

On our way to China

American women are 50% more likely to die in childbirth than their mothers

EU budget 2019 approved: focus on the young, innovation and migration

‘All efforts must be made’ to ensure peaceful elections for Guinea-Bissau, Security Council hears

Bullheaded Madrid authorities confront Catalonia with force

Convincing the Germans to pay also for the unification of Eurozone

CO2 emissions around the world

More than half of EU consumers have environmental impact in mind when shopping, new survey reveals

On flight to sustainable development, ‘leave no country behind’, urges aviation agency

Athens urged to fast track asylum seekers amid island shelters crisis – UNHCR

Turkey caught in a vicious Syrian circle bringing terror and war at home

Why EU’s working and unemployed millions remain uncertain or even desperate about their future

Libya: $202 million needed to bring life-saving aid to half a million people hit by humanitarian crisis

Main results of EU Environment Council, 25/06/2018

Security Council downsizes AU-UN mission in Darfur, eying eventual exit

How ‘small’ is Europe in Big Data?

Do we judge robots on their colour? This study says we do

The European Parliament launches a website on European election results

‘Endemic’ sexual violence surging in South Sudan: UN human rights office

2019: An unpredictable, confrontational and financially ominous year

Online platforms: improving transparency and fairness for EU businesses

October’s EU strong digital mix: From Safe Harbour to Net Neutrality, Roaming and Snowden

UN health agency highlights lifestyle choices that can prevent onset of dementia, as millions more succumb each year

4 steps to developing responsible AI

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s