reprinted from today's 'Sunday Telegraph'

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SUNDAY TELEGRAPH - Economic Agenda

Roger Bootle
22/8/08

Is the recovery running out of steam?

Not long ago the world economy was supposedly zooming away as just about all major economic zones, led by the US, enjoyed a surge in demand. Continued strong growth in America and continued mega growth in China would be boosted by the emerging recovery in Europe, and even in Japan. This synchronised recovery had its downsides, not least the prospect of rising inflation and hence higher interest rates, but it was fundamentally good news for
everyone.

But all that seems to have been turned upside down. The financial markets are now focusing on the gathering evidence of a global slowdown. What can have happened to the world so quickly?

The evidence
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-----[here is the evidence and the reasons at length]
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Accordingly, I have long been forecasting that the US growth rate would slip back next year. Some of that slowdown appears to be happening now.

Relying on Uncle Sam

But why should this matter so much? It is extraordinary that after all this time, economies around the world are still dependent upon the US for a boost to demand. Excessive spending by the US has kept the world economy going for the past umpteen years, but at the cost of an enormous financial imbalance.

The US runs a current account deficit of about 5 per cent of GDP - and rising. Foreigners, principally Asian central banks, are amassing huge claims on the US. At some point this will prompt a period of retrenchment in the US and/or a major international financial crisis.

What is required is for other parts of the world to expand their spending.

Japan does seem to be doing just this but bitter experience teaches us not to expect too much. The Chinese authorities seem to be thinking along the right lines by trying to shift the balance of the economy towards domestic consumption. But will they be prepared to let China run a large current account deficit?

So where else should our hopes for faster growth of demand reside? You've guessed it - the euro zone. The failure of this huge economic area, itself the equivalent in economic weight of the US, to generate a significant recovery remains a serious blight for Europe and a source of major economic weakness for the world. Until this is resolved the global recovery is built on sand.

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* Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte.

Indeed - on closer look he (euric) appears to post an anti-euro point of view!

EH?

It’s interesting you should broach this topic. I was just reading a news story about France’s economic woes. I simply had to chuckle at their consternation over their imploding economy. Honestly, if you draft laws restricting the amount of time that people CAN work, how can you expect your economy to grow – or even break even for that matter?

I guess they figure that since they’re metric, their economy should be outstripping ours since we use those archaic American Customary Measures.

You forgot to use the words "obsolete" and "harsh reality".

You could chuck "habit" in for good measure too.

Right, I'm off to hoover my cave...