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Financial Times Deutschland, Germany

Who Cares about the U.S. Economy?


"Economic distress signals from the United States are on the rise. No need to panic. As far as the global economy is concerned, the U.S. is less and less important. … We couldn’t care less."


By Thomas Fricke



Translated By Stephanie Martin


June 10, 2011


Germany - Financial Times Deutschland - Original Article (German)

America’s purchasing managers have a slight cough. Fewer jobs than expected were created in the labor markets. And housing prices have fallen in a number of cities. Alarming conditions, crash scenarios and an apocalyptic mood are already circulating for the U.S. economy - and for the world. Even the German economic recovery is at risk.


At least that’s what the market-crash prophets are predicting. They could, however, prove doubly wrong. For one thing, the United States is still somewhat far from the next real recession. And secondly, this needn't worry us now as it has in the past, because the global significance of the U.S. economy has decreased dramatically. Today, assuming that the global economy is at risk when U.S. purchasing managers are in a bad mood may be taking this traditional reflex to absurd lengths.


Almost On Par With China


It’s true that American economic growth has recently slowed. Companies are reluctant to hire large numbers of new people. High oil prices are a burden. And the real estate market is feeling the after-effects of the busted bubble. But these factors alone don't mean that the next recession is coming.


More than companies in almost any other country, those in the U.S. took great advantage of the economic crisis to improve their economic fitness. Since 2008, U.S. productivity has soared and unit labor costs have fallen sharply. Profits are even higher now than during the peak periods before the crisis. And, what’s more, the dollar is 40 percent cheaper on average than it was ten years ago - which has given U.S. companies an enormous boost in competitiveness. Take export figures: U.S. exports snapped back to pre-crisis levels faster than the much-lauded German exports. U.S. companies are also investing much more in high-tech products than before the crisis. 


New claims for unemployment benefits have dropped so much that, based on past experience, after a small delay, the unemployment numbers should also begin dropping. Another positive sign: On balance, all of this should lead to an expansion of the U.S. economy, albeit a more moderate expansion than during untroubled times, as is often the case after an economic bubble bursts. The question is whether we should be particularly disturbed by all this.


Sure - America is important. It’s just that the financial crisis has dramatically accelerated the trend toward a shift in the global economic balance - a shift away from the United States. Already, the fact that economic output in many emerging countries has remained unaffected during the crisis has resulted in the significantly diminished U.S. receiving a much smaller share of global GDP. The same is true for the import market. Ten years ago, Americans still bought nearly 20 percent of global imports. Now they buy just 12 percent. In the year 2000, the American quota was five times that of China’s. Today the two countries are just 3 tiny percentage points apart.


The year 2009, the year of the U.S. crash, was the first time more newly-registered cars in China than in the land of the Big Three. According to Veronique Riches-Flores, economist with the Socièté Générale in Paris, two years later, the Chinese are registering 50 percent more new cars than the Americans. All in all, however, the Chinese still only spend a fifth of what Americans spend. On the other hand, their spending is growing five times as fast. Result: 2010 was the first time China contributed as much too global growth in consumption as the United States. Ten years ago, the U.S. contribution was five times higher than China’s.


Investment trends are even more impressive, with the Chinese contributing seven percentage points to global investment growth in 2010, while U.S. companies contributed less than one percent. Also in terms of foreign direct investment, China is now on par with the U.S. And also historic: In 2010, foreign firms invested more in the Middle Kingdom than they did in the United States. Not long ago, this would have been unthinkable.  



Chinese gains during the recent crisis have also put in perspective the impressiveness of the American economy's decades of immense influence on the rest of the world. While the U.S. has slipped into a massive recession, China, India, and others, supported by large economic stimulus packages, continued to grow almost unconcerned.


The German economy has been booming for two years, although German exporters are exporting less, not more, to the U.S. than in 2005-2006. So the U.S. is definitely not the source of the economic upturn. Since 2007 alone, German exports to China have more than doubled. Here also, we appear to be entering a new era: Ten years ago, Germans exported five times more to the United States than China. Now, China is on the verge of leaving the U.S. behind as an export market - and as a foreign economic engine.


All of this would probably not be enough to protect us from more severe consequences if the U.S. were to slide into a deep recession; the country is still too important for that. And of course, the latest crisis also showed how quickly a systemic financial crisis can jump from New York to Germany. But at the moment there are neither signs of recession nor a bubble like the one on U.S. real estate markets before 2008. Investment in construction has fallen to a measly 2.5 percent of total economic output - there’s not much left to collapse. Which means that the new rule applies even more emphatically: On a global scale, the U.S. is just a lot less important than it used to be.


Therefore, agitated knee-jerk reactions and obsessing over each and every U.S. economic indicator is correspondingly absurd. Also absurd is the prediction that the German economic upturn could end because economic growth in the U.S. might slow from 3.5 to 2.5 percent.


Even if this caused German exports to the U.S. to decline by five percent, which is highly unlikely, mathematically, this wouldn’t even amount to 0.1 percent of German economic output. We couldn’t care less.  



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[Posted by WORLDMEETS.US June 20, 3:18pm]


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