G-20 summit: 6 countries in recovery
The G-20’s six largest economies took a big hit during the global recession in the past year and a half. Challenges remain but most appear on the path to recovery.
United States: Painful rebound
The U.S. economy appears to be stabilizing after declining for four straight quarters, but the recovery has been tepid so far.
Financial markets have shown signs of improvement, and interbank lending has largely returned to normal. Consumer spending is still shrinking due to ongoing job losses and difficult credit conditions, but it has been stabilizing over the past quarters. Furthermore, home sales and new home construction are beginning to make a long-awaited comeback.
Businesses have continued to cut back on spending and have sharply reduced their inventories. But many economists believe that companies are largely done with their cuts, which could lay the groundwork for economic growth this quarter. The massive $787.2 billion stimulus bill is also expected to give GDP a boost in the current quarter.
“The recession is very likely over at this point,” Federal Reserve Chairman Ben Bernanke said last week. But he also added, “It’s still going to feel like a very weak economy for some time.”
That’s because unemployment continues to rise, retail sales are still slipping, factories have cut output to the bare bones and wages remain depressed.
Japan’s economy made a major comeback in the last quarter, emerging from a recession after a massive double-digit decline in GDP in the first three months of the year.
Japan’s $275 billion stimulus package was largely credited with the rebound. The plan included massive public-works projects, a cash-for-clunkers program and sending consumers checks amounting to about $130 each. That helped drive consumer spending up last quarter for the first time since last October.
But economists are cautious about labeling Japan’s economic turnaround as a true recovery, as businesses cut inventories so low in prior quarters that production had little place to go but up.
Experts also worry about the increasing rate of deflation, unemployment rising to a record high last month and jobless rates that are projected to rise past 6% next year.
And there’s another concern: All of Japan’s fiscal stimulus has grown the debt-to-GDP ratio to an astronomical 200%, which many economists believe is unsustainable.
China: Massive stimulus
China weathered its downturn better than any other G-20 nation, and the country appears to be picking up where it left off before the global recession started.
China’s GDP bounced off of 10-year lows to rebound nicely in the second quarter. The economy was aided by a $586 billion stimulus package, ramped-up bank lending and government support for exports.
According to a recent report from the Asian Development Bank, China’s state-controlled banking system lent $1.2 trillion more to Chinese businesses and consumers in the first seven months of 2009 than during the same period a year ago. As a result, factory output and construction has soared and auto sales grew 82% last month.
Tax breaks to exporters helped China’s exports from falling off a cliff like in other countries. Outgoing goods dropped just 14.2% through July, according to ADB, compared to a 32.6% decline for the rest of the world.
The downturn knocked China’s booming GDP down to an annualized growth rate of 6.1% in the first quarter, but the government recently said it believes it can grow 8% for the year and remain the world’s fastest-growing economy.
Germany thought it would exit its recession this year, but economists didn’t expect to see GDP growth quite so soon.
Europe’s biggest economy rebounded from four-straight quarters of decline to grow at an annualized pace of 1.3% last quarter.
A $120 billion stimulus package, $25.9 billion business lending program and extensions of government-subsidized labor contracts, helped Germany out of its recession.
German factory orders are on the rise and retail sales are climbing as well. Business confidence in Germany rose to a one-year high, and consumer confidence is at a 15-month high.
But the country’s unemployment rate is still rising, and economists expect it to soar once the government’s job subsidies come to an end.
Germany also has to deal with a huge $25 billion budget deficit during the first half of 2009, which compares with a more than $10 billion surplus during the same period last year.
France’s economy entered its recovery in the second quarter, an encouraging sign that led the country to revise its long-term forecasts higher this week.
The country’s $37 billion economic stimulus program helped bring the French economy back to positive growth for the first time in more than a year. Though French economic minister Christine Lagarde said the economy will likely contract by 2.25% this year, that’s less than the government’s previous forecast of 3%.
Lagarde said the economy will continue to grow throughout the remainder of the year, but that the growth will be tepid.
That’s because economists expect that unemployment, which rose sharply during the recession, will remain a problem for quarters to come. Last month, France recorded its worst quarterly labor reading in four years.
France’s finance minister also said this week that the country remains in a “extremely vulnerable period,” given its forecasts that its deficit will rise to between 7% and 7.5% of GDP next year. That’s more than double the 3% limit set by the European Union.
Great Britain’s services sector grew in August at the fastest pace in almost two years. Factory output has started to rebound after massive declines throughout the downturn. And the latest business and consumer confidence surveys showed slight improvement.
Economists also say Britain has avoided the threat of massive deflation by keeping the printing presses on around the clock. The Bank of England has printed $290 billion in an attempt to jumpstart the economy.
As a result, Mervyn King, the governor of the Bank of England, told Parliament this week that the recession may soon be over.
Still, Prime Minister Gordon Brown has said that he plans to continue the nation’s stimulus efforts at least through next year. That may be necessary, given last month’s unemployment figures jumped to their highest levels since 1995.
Source: money.cnn.com