The global economic engines turn at different speeds and show an uneven growth between East and West. Even within one region the difference in GDP growth is very noticeable in the first half of 2010.
Japan announced today that their second quarter GDP grew at 0.1% in comparison with a first quarter gain of 1.2%. China has now officially replaced Japan as the world’s second largest economy and its continued growth, although at a slightly slower pace, indicates that by 2020 China will bypass the US as the largest economic engine in the world.
European growth for the second quarter came in at 3.9%, a very strong figure given their current financial turmoil. A deeper analysis however shows the large discrepancy between the Northern economies and those of the South.
The largest contributor to European growth was Germany who saw its economy grow by 9% in the last three months, while Greece declined by 6% and other countries such as France, Belgium and The Netherlands grew at or below 3% for the quarter.
GDP growth in the US declined to 2.4% and fell below analysts’ expectation but is nevertheless a sustainable growth rate given the circumstances.
What is the contributing factor to such growth discrepancies and how the global economy will restore itself to some sort of stability, is the question that is on every economists’ mind today.
One can certainly point to the current debt/GDP ratios and budget shortfalls as an impediment for stable growth but the impact of the international import/export activity is much larger and causes volatility in regional or continental economic performances.
The slow growth in Japan can be attributed to a drop in exports, which are crucial to their local economy, while the opposite can be said about the strong German growth who continues to see their exports rise.
The US saw a stagnation or small decline in exports during the second quarter.
Overall, international trade is imbalanced right now between East and West and is exacerbated by fluctuations in the currency markets and the change in supply and demand for goods and services worldwide.
The obvious difference between several economic models does not seem to contribute positively to a healing of the global economy in the near future.
Economies such as China and Japan rely too heavily on exports to fuel their engines while their domestic consumer spending is disproportionate and minimal from an overall perspective.
The US and India on the other hand are tilted far more towards consumer spending and lag in export activity.
That leaves Europe somewhere in the middle for the time being as they battle their economic woes by implementing severe austerity packages. That model will change too in the near future.
Neither one is a good omen unless we can balance our economic activity globally and find a way to restore import and export activity among global economies to a healthy level.
Written by Nick Doms © 2010, all rights reserved
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