American business has become increasingly interested in the economic situation outside the United States – partly out of curiosity, partly from necessity.
The necessity flows from the shrinking US share of world gross domestic product (GDP) – its output of goods and services. Back in 2001, the US accounted for a third of world output, a modern peak. That percentage had shrunk to a quarter by 2008, the latest number available.
The 16 member countries of the Eurozone now have a bigger share of world output than the US – $18 trillion in 2008 versus $14.4 trillion for the US. Fast-growing China has $4.4 trillion, a number that is “highly suspect,” says James Pressler, an economist at Northern Trust Co. in Chicago, and reflects some degree of exaggeration by Chinese statisticians.
So while the US remains the most powerful single national economy in the world, he adds, the prosperity of American business will depend increasingly on what happens elsewhere.
There’s another reason for growing interest in the global economic outlook. The world has just started to emerge from the first major international financial crisis since the Asian financial crisis of 1997. This one started in the US and spread quickly to affect the 6.4 billion people in the world. The Asian crisis was less serious and slower to spread, at least for most Americans.
So Americans want to know how the world is doing. On that count, the outlook is encouraging. In its 13-page study, Northern Trust offers “guarded hope” for 2010 as compared with the “great apprehension” of a year ago.
“What a difference a year makes!” exults the Institute of International Finance, representing the world’s largest private financial institutions, in its 28-page report. “The fear of financial collapse [at the end of 2008] has been dispelled, the global recovery has gained some traction and financial markets worldwide have posted impressive recoveries.”
The recovery will be uneven. “European countries will recover from the global economic crisis at varying speeds during 2010,” reckons Marek Belka, head of the International Monetary Fund’s European department. Commodity prices were “surprisingly buoyant in 2009” and are expected to rise further in 2010, holds another IMF official.
The Northern Trust study sees the US economy growing 2.5 percent in 2010, the Eurozone recovering more slowly at 1 percent, and Britain even more slowly, perhaps “slightly negative.”
As for “emerging Europe,” the countries once under communist rule, these will “under-perform economically and … have higher policy and political risks.” Ukraine “will be lucky to make it through the year” without defaulting on its government debt.
China, the study continues, enjoyed 8 percent growth in GDP last year after a massive government stimulus program. It now faces questions about the sustainability of such growth in 2010. Growth in Japan could “easily turn negative” in 2010. Canada’s GDP remains constrained by the demand for its exports in the US. Mexico, after a 7 percent contraction in 2009, faces “continuing fiscal decline,” looming inflation, and declining oil output this year.
Of course, forecasters are aware of the perils of their business. They might well be inaccurate.
Mr. Pressler’s big concern is that the world recovery might peter out: “There is one thing scarier than a major crisis – one that happens again.” He sees the world economy as still “quite vulnerable.”