Treating the Merest Whiff as a Catastrophe
If you’re wondering why the merest whiff of protectionism on the part of the United States threw the European representatives to the Davos conference into a tizzy, look no farther than the Eurozone’s shrinking GDP:
Eurozone growth contracted at its fastest ever rate at the end of last year, with an unexpectedly-bad German performance deepening the recession more than had been feared.
Gross domestic product in the 16-country region slumped by 1.5 per cent in the final quarter of last year — the same pace of contraction as in the UK but faster than the 1 per cent fall reported in the US.
Economic gloom is spread across the region but Germany has been especially badly hit by the collapse in global demand. Europe’s largest economy contracted by a much larger-than-expected 2.1 per cent in the fourth quarter, the sharpest fall since the country was reunified in 1990.
The other problem Europe has is that their major economies, especially Germany’s, have historically been heavily dependent on exports. The biggest source of robust domestic demand growth has been the United States consumer, and that turned out to be illusory. Unfortunately, Europe’s relatively paltry stimulus efforts seem to indicate that they still, somehow, believe that the United States consumer can pull them out of it, which is insane considering how overleveraged we are. Unless they can overcome the need for our consumer spending, they’ll continue to suffer longer and har[d]er than we do.
As I’ve noted before just as diversifying your investment portfolio provides such security as can be found in an uncertain climate, diversifying the economy insures a country against economic shocks. We need to increase the importance of exports to our economy; the Germans and the Chinese need to consume more.
I do wonder why, if we’re so darned important to the rest of the world, they don’t treat us any nicer?