The recent flow of news from around the world suggests that the balance of world economic power may finally be swinging away from the United States towards Japan and Europe, which have lagged behind for many years.
In the past three years the world economy has put in its fastest growth spurt for decades, and is still bowling along at a healthy clip this year, despite a tripling of oil prices since early 2004. China and India continue to grow at breakneck speed but many economists are fearful that the interest rate rises by the world’s central banks this year, led by the US Federal Reserve, could put a brake on the world economy next year.
Indeed, the US economy has already slowed, expanding at an annual pace of only 2,5% in the second quarter. News last week that the 12-ÂÂmember eurozone expanded at an annualised rate of 3,6% in the April to June period indicates that Europe is suddenly growing faster than the US.
The key to how modern economies work often lies in consumer spending, since this now accounts for two-thirds of a developed economy. In the US the successive rate rises from the Federal Bank have dampened the housing market, something that is expected to slow consumer spending as Americans will no longer be able to use their houses as cashpoint machines to fund spending.
The big question for the eurozone is whether the economic recovery, which has been led by German exports to the US and Asia, can encourage consumer spending sufficiently to ensure that Europe remains on the recovery path and helps boost the world economy rather than just being dependent on it.
”While eurozone consumer spending has picked up overall this year compared with 2005, consumers are still relatively cautious,” said Howard Archer, an analyst at ÂÂGlobal Insight.
High unemployment across the bloc has kept consumer spending subdued, particularly in Germany. There are, however, signs that this might be changing. Figures out last week showed that employment growth has picked up and is now outpacing that of the US, which has slowed down. About 200 000 jobs a month are being created, about four times the number through most of last year. French job growth is running at its fastest for five years. Holger Schmieding, an economist at the Bank of America in London, thinks the eurozone recovery has sufficient momentum to continue next year, even if the world economy slows down and the European Central Bank continues to raise interest rates to dampen inflation.
In Britain, Europe’s second- largest economy, retail sales were bowling along healthily until July, when they slumped after the World Cup. Consumer spending has been strong in Britain for several years and has helped the economy to easily outpace that of the eurozone.
With interest rates having been put up this month and with gas and electricity bills rising, many analysts think consumer spending will grow more modestly over the next year or two than it has in recent years. — Â