[Marxism] Japan recession, Europe stagnation cast pall over global economic outlook

Louis Proyect lnp3 at panix.com
Tue Nov 18 00:27:26 MST 2014

Washington Post, Nov. 18 2014
Japan recession, Europe stagnation cast pall over global economic outlook
By Lori Montgomery and Griff Witte

A sharp slowdown in Asia and stagnation in Europe are putting the global 
economy at risk of a prolonged slump, economists say, marked in places 
by sky-high ­unemployment, sluggish wage growth and some of the worst 
economic conditions in decades.

On Monday, Japan said it had entered its fourth recession in six years — 
this one despite aggressive efforts by Prime Minister Shinzo Abe to 
boost growth. Meanwhile, British Prime Minister David Cameron warned 
that the world’s economy could be headed toward another disaster.

“Six years on from the financial crash that brought the world to its 
knees, red warning lights are once again flashing on the dashboard of 
the global economy,” Cameron wrote Monday in Britain’s Guardian newspaper.

Two of the world’s economic powerhouses — Europe and Japan — are failing 
to bolster global growth, and their economies appear to be getting 
worse. With an unemployment rate of 11.5 percent, the euro zone is 
experiencing conditions that some economists say echo the Great Depression.

Emerging markets, which helped lift the world out of the ugly downturn 
that followed the 2008 financial crisis, are also lagging. Russia and 
Brazil have been dogged by recession, and China’s double-digit growth 
has slowed rapidly as the country has matured and a speculative real 
estate bubble has let out air.

China is “the thousand-pound gorilla in the emerging world and a big, 
big question mark,” said Nariman Behravesh, chief economist at the 
consulting firm IHS.

Conditions differ markedly from the financial meltdown of 2008 that 
sparked a worldwide crisis. “It’s not like the world is leveraged up and 
ready to plunge back into the abyss,” said Jay Bryson, a global 
economist at Wells Fargo. “The challenges today are a lot different.”

For the United States, the developments have raised few concerns. The 
U.S. economy is growing at a solid pace of 3 percent per year, and 
falling gasoline prices have pumped roughly $80 billion into American 
wallets. The Dow Jones industrial average rose 13 points Monday, and the 
Standard & Poor’s 500-stock index edged toward a record high as 
lucrative mergers at home obscured bad news abroad.

Still, exports represent 13 percent of the U.S. economy and have slumped 
a bit, the first sign that sustained weakness abroad could limit the 
American recovery.

Economists said stagnation and political paralysis in Europe are perhaps 
the most worrisome features on the global landscape. In the Guardian, 
Cameron described the euro zone as “teetering on the brink of a possible 
third recession, with high unemployment, falling growth and the real 
risk of falling prices too.”

Add in stalled trade talks, conflict in the Middle East, fighting in 
eastern Ukraine and the alarming spread of the Ebola virus, Cameron 
warned, and the world is functioning against “a dangerous backdrop of 
instability and uncertainty.”

Cameron’s bleak prognosis came at the end of the Group of 20 summit in 
Brisbane, Australia, where leaders of the world’s biggest economies 
struggled with strategies for kick-starting growth. Similarly negative 
pronouncements have echoed from other sources in recent days, 
particularly in relation to Europe.

Mark Carney, the governor of the Bank of England, told reporters in 
London last week that “a specter is now haunting Europe — the specter of 
economic stagnation.” International Monetary Fund chief Christine 
Lagarde has warned of “the risk of a new mediocre” in Europe, with low 
growth, low inflation, high unemployment and high debt.

On Monday, European Central Bank President Mario Draghi presented 
European lawmakers with a list of policy recommendations to stimulate 
growth, arguing that monetary policy alone cannot solve the problem.

Draghi said that “2015 needs to be the year when all actors in the euro 
area — governments and European institutions alike — will deploy a 
consistent common strategy to bring our economies back on track.”

Leaders in Europe and the United States have urged Germany — Europe’s 
largest economy, teetering on the edge of recession itself — to boost 
public spending. But German leaders continue to insist that other 
struggling euro-zone countries need to restructure their economies first.

Europe is hardly the only sick patient. Government figures released 
Monday in Japan showed the world’s third-largest economy shrinking for 
the second quarter in a row, with gross domestic product falling by 1.6 

The report stunned forecasters, who had been expecting solid 2 percent 
growth, and served to undermine Abe’s plan for reviving an economy that 
has suffered two decades of stagnation, falling prices and dangerously 
high government debt.

That plan included an increase in the national sales tax in April — the 
first in 17 years — that slowed consumer spending far more than 
expected, Japan’s economy minister acknowledged Monday.

“The numbers are absolutely awful, beyond-description awful,” said Peter 
Tasker, a longtime analyst of Japan’s economy and a supporter of Abe’s 
policies. “It’s clear that the tax hikers and the fiscal hawks have 
tanked the economy.”

In response, Abe is expected to announce Tuesday that he will dissolve 
the lower house of Japan’s parliament and call a snap election for 
December, enabling him to delay a second sales tax increase scheduled 
for the fall of 2015.

By contrast, India, Britain and the United States have been among the 
world’s bright spots. U.S. job growth has been steady for a full year, 
and unemployment is back to pre-crisis levels. With oil prices 
plummeting, economists said even a recession in Europe probably would 
not knock the United States off track.

“Things would have to get really bad in the global economy for the U.S. 
economy to begin to suffer again,” Behravesh said.

Still, “we have to be on guard about possible ramifications for the U.S. 
economy,” said Joel Prakken, senior managing director of the forecasting 
firm Macroeconomic Advisers, which has already knocked a few points off 
its projections for U.S. growth in 2015.

Prakken called “a freshened round of financial turbulence the most 
insidious threat.”

“Financial contagion,” he said, “knows no boundaries.”

Witte reported from London. Anna Fifield in Tokyo contributed to this 

Lori Montgomery covers U.S. economic policy and the federal budget, 
focusing on efforts to tame the national debt.

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