Global economy in worst shape since 2009

By Paul Wiseman

Associated Press

Published: Monday, July 23 2012 11:11 a.m. MDT

Protesters shout slogans to demonstrate against the country's near 25 percent unemployment rate and stinging austerity measures introduced by the government, in Madrid, Spain, Saturday, July 21, 2012.

Andres Kudacki, Associated Press

Enlarge photo»

WASHINGTON — Mounting fears about Spain's financial health help illustrate why the global economy is in its worst shape since 2009.

Six of the 17 countries that use the euro currency are in recession. The U.S. economy is struggling again. And the economic superstars of the developing world — China, India and Brazil — are in no position to come to the rescue. They're slowing, too.

The lengthening shadow over the world's economy illustrates one of the consequences of globalization: There's nowhere to hide.

Investors drove up Spain's borrowing rates Monday over concern that the government's debts might force it to seek a bailout. The interest rate on Spain's 10-year bond reached 7.45 percent — the highest since the euro began in 1999. Stocks around the world tumbled in response.

Worries about Spain intensified after its central bank said the economy contracted 0.4 percent in the second quarter. The government predicts the economy will keep contracting next year as tax hikes and spending cuts hurt consumers and businesses.

Economies around the world have never been so tightly linked — which means that as one region weakens, others do, too. That's why Europe's slowdown is hurting factories in China. And why those Chinese factories are buying less iron ore from Brazil.

As a result of this global economic slowdown, the International Monetary Fund has reduced its forecast for world growth this year to 3.5 percent, the slowest since a 0.6 percent drop in 2009. Some economists predict the global economy will grow a full percentage point less.

For now, few foresee another global recession. Central banks in China, Britain, Brazil, South Korea and Europe have cut interest rates in the past month to try to jolt growth. European leaders have begun to focus more on promoting growth, not just shrinking debt and cutting budgets.

The Chinese government, in particular, is expected to do what it takes to protect its economy from deteriorating too quickly. And despite their slowdowns, China and India are still growing at rates America and Europe can only imagine.

But many economists say European policymakers aren't moving fast enough to strengthen European banks and ease borrowing costs for Italy and Spain. They fear the global impact if Europe's economy deteriorates further.

Stock prices in the United States and elsewhere are fluctuating almost daily depending on the outlook for a resolution of Europe's debt crisis.

Around the world, sales at companies ranging from automakers to technology companies are falling. Advanced Micro Devices, a California-based maker of computer chips used in everything from slot machines to smart cameras, says revenue likely dropped 11 percent in the second quarter because of weaker-than-expected sales in China and Europe.

At Jagemann Stamping Co. in Manitowoc, Wis., sales to Europe have dropped more than 10 percent from a year ago. The company makes metal parts for auto companies and other customers. It's still enjoying strong sales in the United States, so it hasn't had to cut workers because of falling business in Germany and the Czech Republic.

"What it does is slow our new hiring," says company president Ralph Hardt.

One growing concern about the global economy is there's little margin for error: Unemployment is already at recession levels in Europe and the United States.

The United States, by far the world's biggest economy, has long pulled the global economy out of slumps. Now it needs help. Three years after the Great Recession officially ended, the American economy can't maintain momentum. For the third straight year, growth has stalled at mid-year after getting off to a promising start.

Unemployment stood at 8.2 percent in June — the 41st straight month it's been above 8 percent.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS