A Bloomberg report says that relying on the strength of the United States economy to support global growth poses great risks to other countries, and to America itself.
According to the report, the American economy is witnessing a job surplus, and consumers continue to spend with confidence, while stocks rose to a record level this February, and the economy grew last year by more than the size of the Spanish or Indonesian economy.
The report adds that high interest rates and a strong dollar are a burden on the markets, while China and Europe show no signs of taking the initiative.
Chinese and European recession
On the other hand, China is still mired in a swamp of recession as a result of the real estate sector crisis, and foreign investors have exited the country amid the decline of the stock market, which has lost $7 trillion since its peak in early 2021, and prices have fallen for three consecutive quarters, which is the longest contractionary series since the financial crisis. Asia, in the late 1990s, according to Bloomberg.
In Europe, Britain slid into a moderate recession in the second half of 2023, and Germany is at risk of contraction again in 2024, dragging the rest of the euro zone with it, while Japan unexpectedly fell into recession last year.
Bloomberg quoted Moody’s Analytics chief economist Mark Zandi as saying, “The US economy will continue to outperform economies in most parts of the world this year, especially in China and Europe.”
Inflation and the strength of the dollar
According to Bloomberg, the rise in consumer prices has halted progress in curbing inflation in the United States, disappointing hopes that the Federal Reserve (the central bank) could begin reducing interest rates soon, and rising interest rates in the United States are keeping lending costs high around the world. Especially in emerging economies that borrow in dollars.
The strength of the US dollar remains a huge challenge. According to the International Monetary Fund, a 10% appreciation of the US currency reduces the growth of emerging economies by 1.9% after one year, affecting trade, credit availability and stock market performance.
Signs of weakness in the American economy
But the Bloomberg report indicated that the continued strength of the American economy is not a given, and some weaknesses have appeared in it, as small business morale declined last month from the largest decline in more than a year, affected by declining profits and sales expectations, according to the National Federation of Independent Business.
Americans’ credit card debt has increased, putting pressure on low-income families in particular. The average interest rate on credit card accounts with assessed interest was 22.75%, the highest level in US Federal Reserve data since 1995, while the average interest rate on 60-month car loans was the highest in 2006.
Another threat is the growing weakness of the economies of China and Europe, which could expose the United States to a shock that could leave the world without a growth leader.
Chicago Federal Reserve Bank President Austin Goolsbee warned on February 14 against complacency about how a deeper global slowdown or geopolitical shock might affect the United States.
He added that the American economy does not depend only on the local economy, warning that further weakness in other major economies in the world could have a significant impact on the United States.
But at the present time, it seems that the American economy will remain superior to the world’s economies, as a member of the European Central Bank’s Board of Governors, Gabriel Makhlouf, said this February that the short-term expectations for the euro zone economy indicate stagnation in the face of more stringent financing conditions (with a rise in… interest), weak business and consumer confidence, and lower foreign demand.
