Sunday, August 10, 2003

One of the premises of a US economic revival in the second half of 2003 is a rise in not simply US demand but global demand. This is especially necessary in light of the enormous US current account deficit. If there is no expansion in the rest of the world, the only sustainable expansion in the US will be in debt levels.

And on that note, Italy officially fell into recession on Monday.
Italy's economy contracted by 0.1% over the three months, according to the national statistics agency said.
An identical performance in the first three months of the year means Italy has now met the traditional definition of recession - an economy shrinking over two successive quarters - for the first time in 11 years.
A sharp fall in Italian exports -- thanks to the supercharged euro -- hit the Italian economy hard. The US wants a weak dollar so as to begin correcting the current account deficit, but a weak dollar in a deflation-prone European economy only means exporting US deflation to Europe, cutting into European growth and -- presto! -- eliminating the chances that a weaker dollar will have any effect at all on the current account deficit.

And that's not all. Readers of the Globblog already know that Germany is teetering on the brink of an official recession as well. The country's unemployment rate rose to 10.4% in July and formal recession is just an announcement away. If Germany tips over the edge, it will leave France and Spain as the primary economic engines of the eurozone. Yikes!

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