Join the Socialist Party Join us today!

Printable version Printable version

Facebook   Twitter

Link to this page:

From The Socialist newspaper, 22 May 2004

World Economy: 

New shocks cast cloud over recovery

THE RECOVERY in the world economy continues to assume an anaemic character. While most attention is currently fixed on the debacle in Iraq, serious commentators fret that accumulated economic imbalances could yet derail the fragile and contradictory growth signs in the US over recent months.

Robin Clapp

Just last week, oil prices climbed above $40 per barrel for the first time in 13 years, prompting panic on the world's stock exchanges. The FTSE 100 suffered its steepest one-day fall in a year. It is generally agreed that every $5 increase in oil shaves a quarter of a percent off GDP (GDP - the total wealth of goods and services produced by a national economy). So the oil hike will have immediate impacts, economically and politically.

The rising cost of oil which will lead to British pump prices heading towards 4 per gallon, is both a response to fears about the disruption to supplies caused by the continual instability in the Middle East and concerns that US interest rates might have to double by the end of 2004 as a result of worries about inflationary pressures.

Industry experts even predict that oil could go on rising, especially as China's overheating economy is guzzling 15% more than a year ago.

The US economy is still the key to whether the recovery can be sustained, but excessive reliance on America is also the biggest problem facing the global economy. Since 1995 almost 60% of growth in world output has come from the US.

This reflects an extraordinary rise in American spending, with US domestic demand rising on average, by 3.7% a year since 1995, twice the pace of the rest of the rich world.

During the 1990s boom, it was American firms that powered the global economy with a huge debt-financed investment spree. Global prosperity continues to depend overwhelmingly on US demand. If it were to drop significantly, the world would tumble into recession. Yet, for years the US has been spending far beyond its means.

The stock market crash in 2000 may have exposed the stupidity of those who believed the 1990s boom had created a "new economic paradigm". But Bush's trillion dollar tax cuts and the rock-bottom interest rates introduced to stave off a deeper recession and avoid a downturn have allowed new bubbles to form in the bond and housing markets.

Investors have been coaxed into gambling on borrowed money, often using housing wealth to underwrite it. If interest rates rise unexpectedly, or too quickly, the unwinding of these investment bets could cause meltdown in financial markets. American consumers' indebtedness is currently growing twice as fast as their incomes and since 2001 has accounted for a staggering 92% of GDP growth.

Growing US debts

AS RECENTLY as 1980, the US was the world's biggest creditor. Now though it is the world's biggest debtor country, having to borrow more than a billion dollars a day in order to finance its engorged economic appetite. The current account deficit - the amount it must borrow annually from outside the USA - has been rising fast and is running at a historic high of over 5% of GDP.

It has been mainly Japanese and Chinese central banks that have underwritten Bush's spending spree by buying huge quantities of US government bonds. This has meant that those countries have been able to keep their currencies low against the dollar, which has aided their export drive to the USA.

The US is trying to engineer a controlled fall in the dollar so as to reduce its deficits and has warned China that protectionist measures will be instigated if "unfair" trade continues.

The other traditional powerhouses of the world economy continue to stutter. Former US Treasury secretary Lawrence Summers warned that "the world economy is flying on one engine."

The once mighty German economy is now a candidate for the sick man of Europe tag. German GDP per head is below that of Britain and France and only marginally ahead of Italy, while unemployment festers at over 10% of the population.

Japan has commonly been referred to as a basket case economy over the last decade. The poison cocktail of bad debts, plunging stock markets and political paralysis have mired the country in recession and deflation.

Recent growth in real GDP is mainly attributable to the export of huge quantities of steel and manufactured and capital goods to China. But with general government debt equivalent to 160% of GDP, the state of public finances remains a dark cloud hanging over the economy.

The world economy still looks likely to face a lengthy period of stagnation, punctuated by feverish and short-lived spurts of growth. Workers will continue to pay the price for capitalism's failures. Globalisation, far from being a miracle cure for the ailing world economy, has instead matured the conditions for even deeper crises.


Why not click here to join the Socialist Party, or click here to donate to the Socialist Party.

In The Socialist 22 May 2004:

Sanctioning Torture From The Top

Iraq: Desperately Seeking An 'Exit Strategy'

Iraq: what we say

Socialist Party news and analysis

What Is The Alternative To Blair?

Workers' Unity Can Win

FBU conference: Preparing For More Battles

Save our Special Schools

Say no to the tyre burners!

A socialist weekend in Sheffield

Buses: Put Privatisation Into Reverse!

International socialist news and analysis

New shocks cast cloud over world economy recovery

Ruling BJP is Swept Aside in India

Founding Meeting Of The Socialist Movement in Pakistan

A Working-Class Alternative Is Needed in Israel/Palestine


Home   |   The Socialist 22 May 2004   |   Join the Socialist Party

Subscribe   |   Donate  

Related links:

World economy:

triangleBuilding workers' struggle and the forces of international socialism

triangleBuild 100 days of resistance to Trump's agenda!

triangleSocialist Party national congress 2016


trianglePowerful picture of the Port Talbot steel workers' struggle

triangleYoung people being strangled by debts

triangleNationalise to save jobs at BAE Systems

triangleTories torn - bin them now


triangleObesity epidemic: end food market anarchy

triangleSwansea Socialist Party: Mother Jones - A US labour pioneer

triangleJoin the Orgreave Halloween rally


triangleHurricane Harvey: A tragedy made far worse by capitalism

triangleTories and Blairites in pockets of big business: kick them out!

News and socialist analysis

News and socialist analysis



Hundreds of torture victims wrongly detained



Tories torn - bin them now


What we saw

What we saw



Obesity epidemic: end food market anarchy



Tories scrap the NHS pay cap: now fight for real-terms pay rises!



Young people being strangled by debts



The end of the Tories?



Nasty party out the Tories


Black history

The fight against racial discrimination is tied to fighting against capitalist austerity



Housing crisis: Corbyn's positive measures blanked by Labour's right


Universal Credit

Major attacks 'Universal Credit', half a million more face poverty


Them & Us

Them & Us



NHS meltdown - fight the Tory cuts



IMF helps cause inequality it slams



Tories wreck our NHS

triangleMore News and socialist analysis articles...

Join the Socialist Party
Subscribe to Socialist Party publications
Donate to the Socialist Party

triangle19 Oct Arriva North West bus drivers strike over pay

triangle18 Oct Russia, October 1917: When workers took power

triangle18 Oct Tories torn - bin them now

triangle18 Oct Royal Mail bosses block strike - back postal workers

triangle18 Oct Balloting members on the pay cap

triangle13 Oct The end of the Tories?

triangle11 Oct Nasty party out the Tories

More ...

triangle23 Oct Chesterfield Socialist Party: The continuing struggle for abortion rights

triangle24 Oct Liverpool Socialist Party: The October Russian Revolution 100 years ago to the day

triangle25 Oct Salford Socialist Party: The October 1917 Russian revolution

triangle25 Oct Swansea Socialist Party: Mother Jones - A US labour pioneer

More ...

Socialist Party Facebook page
Socialist Party on Twitter
Visit us on Youtube



October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017





















Platform setting: = No platform choice