World Economy: Deepest Downturn Since The 1930s?

THE USA’s economy is contracting in its worst industrial crisis since 1945. In the three months ending in September its gross domestic product (GDP) was shrinking at a 0.4% annual rate while consumer spending fell at its steepest rate for 14 years.

Per Olsson

There were a record 3.57 million people officially out of work in the US in September; a surge up to 5.3%. Along with this goes a deepening crisis in Japan and an economic impasse in Europe.

Consumer spending and industrial production continue to fall in Japan while Europe’s economies are slowing down and Germany is on the brink of recession. Unemployment is increasing again across Europe. France was creating 40,000 jobs a month early this year. Now it is shedding them at a similar rate.

“(The) global economy is slipping precariously toward recession,” warns the World Bank’s annual Global Economic Prospects report. The world economy could possibly suffer its deepest downturn since the 1930s.

After a sharp drop in global demand during 2001, what capitalist commentators call “global excess capacity” has reached its highest level since the 1930s.

This in turn will means further lay-offs and cuts in capital spending or investment as profits drop even further. 415,000 jobs were lost in the US alone in October and unemployment is probably rising in Britain. The ILO estimates that 24 million jobs worldwide will disappear by the end of 2002.

Growth in world trade volume will slow to 2% or less this year, from a record 12% last year. This is the sharpest drop in decades.

Investment bank CSFB predicts that global economic growth will only average 1.5% in 2001 and 2002, the slowest growth over a two-year period in 50 years. This points to a serious crisis of global capitalism which could last for years.

The world now has no major engine of growth. This crisis could get worse with the likelihood of an even sharper contraction in the US. Falling US demand is a particular blow to export-orientated countries in Asia and Latin America.

Spectre of deflation

Many countries are already in a deep slump. Singapore faces its worst crisis since independence in 1965. Most of East Asia is balancing on a knife-edge again.

“Asia’s most open and globalised economies, such as Singapore, are suffering the most since they are so dependent on international trade patterns. ‘What is virtuous in good times can become vicious in bad times’, commented a Singapore-based economist” [International Herald Tribune 11 October].

In Mexico, which sends nearly 90% of its exports to the US, over 500,000 workers have lost their jobs since January. Argentina came close to default on its $132 billion debt recently.

“The economy is in a tailspin, destroying jobs, tax revenues and political support”, wrote a leading economist (Financial Times 30 October).

The 21st century’s first capitalist crisis is only beginning its impact.

World capitalism now faces the spectre of deflation – falling production, falling prices and wages, a squeeze on profits and an exaggerated debt problem, as in the 1930s.

This crisis was not caused by the 11 September terror attacks but originates in the economic imbalances and excesses built up during the 1990s. The blind forces of the market created worldwide overcapacity and overproduction.

Fuelled by credit, capitalist firms ‘over-invested’ and over-borrowed. But the longer this went on, the more painful the ending of the cycle would become. The present crisis may be longer and deeper than expected.