A Bloomberg report says that relying on the strength of the United States economy to support global growth poses a major risk for other countries, as well as for America itself.
According to the report, the US economy is seeing a surplus of jobs and consumers continue to spend with confidence. Stocks rose to record highs this February, and last year the US economy became stronger than Spain’s or Indonesia’s.
The report added that high interest rates and a strong dollar are weighing on global markets, with China and Europe showing no signs of taking the initiative.
Chinese and European recession
China is still in recession, which is a consequence of the crisis in the real estate sector. Foreign investors fled the country amid a slump in the stock market, which has lost $7 trillion since its peak at the start of 2021. Prices have also fallen for three straight quarters, the longest deflation since the Asian financial crisis in the late 1990s, according to Bloomberg.
Britain slipped into a moderate recession in the second half of 2023, and Germany is at risk of recession in 2024, dragging the rest of Europe down.
Bloomberg quoted Moody’s chief economist Mark Zandi as saying, “The US economy will continue to outperform most of the world’s economies this year, particularly the European and Chinese economies.”
With the increase in consumer prices, according to Bloomberg, inflation in the US continued to run wild, which is why hopes were lost that the Federal Reserve could soon start reducing interest rates. Rising interest rates in the US are making borrowing costs high around the world, especially in developing economies that borrow in dollars.
Weaknesses of the US economy
The strength of the US dollar remains a major challenge. According to the International Monetary Fund, a 10 percent appreciation of the U.S. currency reduces growth in developing economies by 1.9 percent after one year, affecting trade, credit availability and stock market performance.
However, a Bloomberg report suggests some weakness has emerged in the U.S. economy, as small business morale fell by more than its biggest drop in a year last month. That was impacted by a drop in profits and expected sales, according to the National Federation of Independent Business (NFIB).
Americans’ credit card debt has increased, putting pressure on low-income families in particular. The average interest rate on credit card accounts with estimated interest was 22.75 percent, the highest level in Federal Reserve data since 1995, while the average interest rate on 60-month auto loans was the highest in 2006.
Another threat is the growing weakness of the Chinese and European economies, which could expose the United States to a shock that could leave the world without a leader in global growth.
Federal Reserve Bank of Chicago President Austin Goolsbee warned that a deeper global slowdown or geopolitical shock could affect the United States. He said that the US economy does not only depend on the local economy and that the continued weakening of other major economies in the world could significantly affect the US.
But at the moment, it seems that the US economy will remain superior to other world economies, as the short-term expectations for the Eurozone economy – according to European Central Bank Board of Governors member Gabriel Makhlouf – are stagnation due to tight financing conditions (rising interest rates), weak business and consumer confidence and low foreign demand.
Source: Agencies
