MUNICH – With the United States teetering into recession, the global economic boom has ended. The boom was unusually long and persistent, with four years of roughly 5% growth – a period of sustained economic dynamism not seen since around 1970.
The clearest sign that the boom is ending is the IMF’s forecast of 1.5% growth for the US in 2008. That may not sound like a recession, but the Fund’s marginally positive projection primarily reflects the growth overhang from 2007, with hardly any new contribution in 2008. It is compatible with three consecutive quarters of zero growth in 2008.
Many argue that a US recession will no longer affect the world because China has supplanted America as an engine of the global economy. Wrong. Although China is growing fast, its economic power remains tiny. While the US contributes 28% to world GDP, China accounts for only 5%. The whole of Asia, from Turkey to China, contributes 24%, less than the US alone.
At some stage, the world may no longer catch a cold when the US sneezes, but that is far from being true now. Twenty-one percent of China’s exports and 23% of the EU’s exports to non-member countries go to the US. Thus, the world cannot help but be pulled down by a US slump.