Quantcast

Global economy in worst shape since 2009

By Paul Wiseman

Associated Press

Published: Sunday, July 22 2012 10:33 a.m. MDT

Brazil also has a U.S.-style problem with consumer debt: Since 2003, about 40 million Brazilians have entered the middle class and brought a strong appetite for consumption. Brazilian leaders credited those consumers with invigorating the economy in recent years and helping protect it from external shocks.

But most of the buying has been on credit. And those bills are adding up. In a report last week, London-based Capital Economics estimated that debt payments now eat up 20 percent of household income in Brazil.

"The current pace of credit growth in Brazil remains unsustainable — and the longer it continues, the bigger the risk of a messy ending further down the line," Capital Economics warned.

Similarly, the outlook has dimmed for India, the world's fourth-biggest economy. Its growth slowed to a 5.3 percent annual rate in the first three months of 2012, the slowest rate in nine years.

Over the past two decades, India has emerged as a powerhouse in services — writing software, running call centers, making movies, drafting engineering plans.

In a report last month, Andrew Kenningham, senior global economist at Capital Economics, said India's troubles are mostly self-inflicted.

"Weak governance, although not new, is the most plausible explanation for the slowdown," he wrote.

The government has reneged on promises to make it easier for foreigners to invest in India. It has taxed Indian firms that acquire companies overseas. Indian factories have cut production. And the pay of many Indians has been diminished by inflation, which has averaged more than 9 percent a year for the past two years.

The slowdown in the developing world could make it harder for the economies of Europe and the United States to climb out of their ruts. And the weaker the rich countries get, the harder it will be for developing economies to regain their old fast pace.

"In today's interconnected world, we can no longer afford to look only at what goes on within our national borders," IMF Managing Director Christine Lagarde said earlier this month. "This crisis does not recognize borders. This crisis is knocking at all our doors."

Associated Press Staff Writers Bradley Brooks in Rio de Janeiro, David McHugh in Frankfurt and Joe McDonald in Beijing contributed to this report.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS