Saturday, May 26, 2012

Storm Clouds Over the World Economies

The storm clouds hanging over the global economy darkened yesterday as a raft of data showed output slowing around the world.

Bleak news from the United States and China added to the gloom in Britain and the eurozone as confidence drained away.

‘The world economy is in the intensive care unit now,’ said Chilean finance minister Felipe Larrain in a sign that the pain is being felt around the globe.

* * *

In the eurozone, business suffered its steepest decline for nearly three years in May as the malaise spread from the periphery to Germany and France.

Research group Markit said its index of private sector activity – where anything below 50 signals decline – fell from 46.7 in April to 45.9 this month.

Chris Williamson, chief economist at Markit, said it was the weakest reading for 35 months and pointed towards a 0.5 per cent slump in economic output across the eurozone in the second quarter of the year.

Manufacturing growth in the US also slowed, with the index down from 56 in April to a three-month low of 53.9 in May.

Recession in parts of Europe and the slowdown in China hurt American exports.

China’s once booming factories suffered a seventh straight month of decline.

The US and China are the world’s two biggest economies. ‘We are very much in a period of weakening global growth,’ said Peter Dixon, an economist at Commerzbank. ‘It doesn’t quite feel like 2008 yet but the danger is we could get there quicker than we think.’
The problem, as I see it, is that right now most every nation's economy is limping along. If everything else goes right, things will hang on, or perhaps even improve, given time. However, a black swan event, such as one or two major volcanic eruptions (we don't need a super-volcano, just something that will pump enough dust and SO2 into the atmosphere to lower temperatures a degree or two), a Middle-Eastern war, a sudden spread of wheat rust or some other similar event that would suddenly drive up food and/or fuel prices, and things would begin to tip over the edge in many areas.

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