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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

Macron plans for Europe, Brexit and banks but vague on France

YOUTH RIGHTS AT RISK FROM RISE OF EXTREME-RIGHT AND POPULISTS IN THE EUROPEAN PARLIAMENT

Trump ostracized by his party and world elites but still remains in course; how can he do it?

When will Eurozone’s unemployment rate stop being Europe’s worst nightmare?

The London City-EU connection holds despite of Brexit and the ban of LSE-Deutsche Börse merger

A health approach to climate change

NATO summit, Brussels, 11-12/07/2018

When connectivity is not enough: the key to meaningful digital inclusion

Statistics show the ugly face of youth training schemes

The European Sting @ Mobile World Congress 2014, Creating What’s Next for the World. Can EU Policy follow?

WEF Davos 2016 LIVE: “Employment contracts today are a reducing share of the workforce”, scientists worry in Davos that the 4th industrial revolution threatens employment globally

AI has huge potential – but it won’t solve all our problems

MWC 2016 Live: Mobile ad industry still waiting for “revolution”

The success story of a Chinese investment in the Greek port of Piraeus

Do we have to choose between creating jobs and protecting the climate?

Are you breathing plastic air at home? Here’s how microplastics are polluting our lungs

Where is Egypt leading the Middle East and the Mediterranean economy?

Facebook and Google to treat Europe as the 51st State of the USA

GradList Launched At TheNextWeb 2014

The EU finally seizes the opportunity to support the sharing economy?

#Travelgoals: why Instagram is key to understanding millennial tourism

‘Worst devastation I have seen,’ says UN refugee envoy Angelina Jolie, as she visits West Mosul

Investing in rural women and girls, ‘essential’ for everyone’s future: UN chief

Climate change and health: a much needed multidisciplinary approach

Further reforms needed for a stronger and more integrated Europe

Deutsche Bank chased away from US, threatened with more fines

Speeches of Vice Premier LIU He and Vice President of the European Commission Jyrki Katainen at the Press Conference of the Seventh China-EU High-level Economic and Trade Dialogue

IMF: How can Eurozone avoid stagnation

This crisis cannot be confronted with statistics

How dearly will Germany pay for the Volkswagen emissions rigging scandal

Eurozone: The cycle of deficits, debts and austerity revisited

Why CEOs need to become activists in sustainability

Close to 7,000 evacuated from Syrian towns after enduring nearly 3-year siege

Ercom, cutting-edge Telco solutions from Europe

Bring killers of journalists to justice: UN agency seeks media partners for new campaign

Let your fingers do the walking

Yemen: UN envoy asks Security Council for more support ‘to move back’ to the negotiating table

‘More support’ vital to put Afghanistan back on a ‘positive trajectory’ – top UN officials

Social Committee teaches Van Rompuy a lesson

The EU Commission to fight unemployment tsunami with a…scoreboard

How close is Eurozone to a new recession which may trigger formidable developments?

ECB: The bastion of effective and equitable Europeanism keeps up quantitative easing

Does May have enough time in Parliament to table a soft Brexit deal?

WEF Davos 2016 LIVE: The health of capitalism won’t be the only worry for those who head for Davos

EU: Centralised economic governance and bank supervision may lead to new crisis

Migration crisis: how big a security threat it is?

France and Poland to block David Cameron’s plans on immigration

AI can be a game-changer for the world’s forests. Here’s how

These Dutch microgrid communities can supply 90% of their energy needs

Financial Transaction Tax: More money for future bank bailouts?

Medical workforce migration in Europe – Is it really a problem?

The EU Commission predicts a decimated growth in the next years

ILO discusses world of work response to global refugee crisis

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

Bridging the gap: Health through technology

MEPs back update of rail passenger rights across EU

Google’s hot summer never ends: EC to launch ANOTHER antitrust inquiry against the American giant

Deaf advocate voices importance of sign languages as UN marks first commemoration

Last-chance Commission: Why Juncker promised investments of €300 billion?

European Young Innovators Forum @ European Business Summit 2014: Europe for StartUps, vision 2020

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