Global Great Recession

January 22, 2009

The array of data released today showcases the global component of the economic downturn. 

  • Japanese exports to the EU, U.S., and Asia fell by 41.8%, 26.6% and 36.4% in the year to December.  Japan’s 2008 trade surplus of Y 2.16 trillion was 78% smaller than the average annual surplus during the previous four years.
  • On-year real GDP growth in China of 6.8% last quarter was almost halved from the 12.6% advance in the year to 2Q07.  First-quarter growth will be even lower.
  • Real GDP in South Korea, Asia’s fourth biggest economy, fell 5.6% last quarter.
  • Industrial orders in Euroland plunged 14.8%, or 47.3% at an annualized rate, in the three months between August and November.
  • The expected output reading in the CBI survey of British industrial trends was at the lowest level since September 1980.  Such was -43 in January compared to -16 in the September survey.
  • Canadian retail sales posted the biggest monthly drop in November since the infamous ice storm of January 1998.  Sales fell 2.4%, led by a 7.1% monthly decline in the automotive sector. Canada’s recession intensified last quarter.
  • U.S. housing starts and permits plunged between October and December by 28.3% and 24.8%.

The forces of globalization lifted all boats earlier this decade, elevating world growth to one of its best multiyear spans.  The process is proving to be a two-edged sword now, however.  An Op-Ed column by Martin Wolf in today’s Financial Times asserts that the economic crisis can either be fixed by enhanced demand from countries that had been heavy net savers previously or by falling supplies.  Not only would the second of these scenarios be more economically harsh, but Wolf fears that such a wrenching adjustment could also ignite a wave of trade protectionism, squelching globalization, and condemning the world to a lower path of potential growth.  Rising protectionism in the past has often been a root cause of geopolitical tensions and eventual warfare.  In the scenario that is more benign both in the short and long runs, governments in China, other emerging markets, and developed economies that also have run surpluses like Germany will have to make significant policy adjustments.  It will not be possible for the Obama Administration to repair the present mess entirely on its own.

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