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New Data Deepen Fear of Global Recession

Compiled by Our Staff From Dispatches AP, Reuters

Wednesday, July 11, 2001

From Asia to Europe, Ripple Effect Is Felt in Low Growth Forecasts Amid fresh reports of economic trouble from Singapore to Germany, analysts were debating whether the growing gloom could push the fragile global economy into a full-blown recession.

The concerns mounted Tuesday as Singapore became the first Southeast Asian country to officially slip into recession. The government reported that the economy shrank at an annual rate of 10.1 percent in the second quarter from the first. That followed an 11 percent annual decline in the first quarter.

Some analysts expect other Southeast Asian nations to echo Singapore when they announce their second-quarter data in coming days. Thailand, Taiwan and the Philippines already have reported that their economies shrank in the first quarter. A recession is typically defined as two back-to-back quarters of a contraction in gross domestic product.

Germany added to the global woes on Tuesday when its growth forecast was slashed by a leading economic institute. The Berlin-based DIW research group cut its growth outlook for the largest European economy to 1 percent. The institute had predicted that Germany would expand by 2.1 percent this year. On Monday, the International Monetary Fund said that it expected the German economy to grow by 1.25 percent, down from its forecast of 1.9 percent.

The latest batch of dreary figures comes as financial turmoil is rippling through several emerging nations and raising the possibility of a worldwide economic contagion. Currencies in Central Europe and the South African rand have suffered in recent days from crises in Argentina and Turkey. Events in Argentina have also taken a heavy toll on neighboring Brazil.

The rand fell because "of poor expectations of the auction in Argentina," said Juliet Sampson, a currency strategist at Bank of America Securities in London. "Emerging market conditions are extremely difficult right now. It is certainly not unique to the rand."

Some analysts believe that the risk of an economic crisis is limited for now. But they warn that a default on debt by Argentina or Turkey could trigger large withdrawals of investments from emerging markets, with global repercussions.

"Contagion is not a big issue over the medium-term," said Alex Garrard, head of emerging markets at UBS Warburg in London. "But if there is a credit event then there would be an impact."

The U.S. Treasury Department said Tuesday that it, too, saw little danger. "Of course we always pay close attention to the markets, but at this time we don't see much evidence of automatic contagion," said John Taylor, Treasury undersecretary for international affairs.

The finance ministers of the European Union meeting in Brussels on Tuesday also expressed little alarm over the state of world economy. They acknowledged that they were taken aback by the sluggish pace of growth this year but predicted the EU economy would rebound before the end of 2001.

"Growth has weakened, but the trend is upward and we see a recovery in the second half" of the year, said the German finance minister, Hans Eichel.

Mr. Eichel said positive signals for the expected rebound included signs that inflation had peaked, exports were on the increase and industrial production and manufacturing orders were on the rise.

(Bloomberg, Reuters, AP)

-- (M@rket.trends), July 11, 2001

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Ack! See what you've done, you nasty little central bankers? I am melting! Me-e-e-e-lting!

-- Wicked Economies of the West (wew@oz.org), July 11, 2001.