NCPA - National Center for Policy Analysis

Are Global Economies Staggering To Their Feet?

August 19, 1999

Economies in Europe, parts of Asia and Japan are showing glimmering signs of recovery, analysts report. If that trend continues, the U.S. would feel the impact in terms both good and bad, they say.

  • German manufacturing orders rose much faster in June than expected, as did Italian industrial production, while French household spending is recovering -- and European exports are rising to an improving Asia.
  • Japan's gross domestic product surged at an astonishing 8.1 percent annual rate in the quarter ended March 31, 1999.
  • Malaysia's stock market has been rallying recently and factory output in South Korea is said to be soaring.
  • With Brazil's economy growing by nearly 1 percent in the second quarter, analysts are forecasting that all the major Latin American economies will return to positive growth next year.

After expanding by a sluggish, inflation-adjusted 2.1 percent last year, the world economy will grow by 2.8 percent this year and will hit 3.8 percent next year, Merrill Lynch & Co. forecasts. What would a continuing turn-around overseas mean for the U.S., which has largely been responsible for keeping the world economy afloat for two years?

  • Investors have begun to shift their capital to increasingly attractive markets abroad.
  • As a result the dollar has fallen slightly against both the yen and the euro, implying imports could become more expensive to U.S. consumers, while U.S. exports could increase as foreigners resume purchases.
  • Since distress abroad has been a key factor in keeping U.S. inflation in check, would global recovery mean prices would begin to climb once again?

Source: Jacob M. Schlesinger and Michael M. Phillips, "Overseas Economies Rally, Giving the U.S. a Very Mixed Blessing," Wall Street Journal, August 19, 1999.


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