There is no doubt that America needs to get its economic mojo back: in the 2nd quarter its GDP grew at an annualized rate of 1.7 percent, according to revised figures published on August 29th. That growth number is down from two percent in the 1st quarter and 4.1 percent in late 2011. But, anyone ready to ascribe that number to mismanagement or competition from emerging economies should consider the state of much of the developed world.
Europe remains the cautionary tale with GDP shrinking by 0.2 percent (an annualized decline of 0.7 percent) in the 2nd quarter. The Greeks are on the verge of quitting the common currency and Spain is looking for a bigger bailout. According to the Economist, the research firm Markit is predicting a further fall in GDP in the 3rd quarter.
Finland’s economy shrank by 1.1% in the second quarter. The country had been one of the euro zone’s best performers, but the crisis is now starting to take its toll on exports, which account for 40% of Finnish GDP. In July the finance minister said Finland would “not hang itself to the euro at any cost”.
The Japanese economy is feeling the European gloom with exports to the European Union falling by a steep 25 percent in the year to July. The only reason their economy grew by 3.5 percent over the last 12 months is because of all the reconstruction work after the tsunami and earthquake.
Even the high-flier BRIC countries (Brazil, Russia, India and China) are sputtering. Brazil’s fall from grace has been particularly marked: Brazil’s economy grew at an annualized pace of only 1.64 percent in the April-June period. It is forecasted to grow 1.9 percent this year, less than the 2.15 percent in the U.S. and 2.5 percent expected in Japan. One bright spot Brazil scored the rare coup of winning the bid for the 2014 World Cup and the 2016 Summer Olympics, leading to $38.1 billion in foreign direct investment this year.
Flagging imports suggest that China’s slowdown will prove to be more severe than previously expected. The country’s exporters are also having a hard time. In August, new export orders for manufacturers were at their weakest since March 2009, according to Markit.
So, while the campaign rhetoric heats up, with each side blaming the other, it is important to see the bigger picture. A big part of our weak job numbers was that U.S. factory activity shrank for a third straight month in August — because of factors outside our control. Weak demand from China (our 3rd largest market) hits our farmers, IT firms and chemical companies. When Europe contracts, that makes our manufacturing free fall because they buy 20 percent of our exports. In the end, we need to place our woes in context and recognize that the recession is indeed world-wide.