South Korea, the IMF’s new golden child after having repaid its $20 billion bailout loans from the 1998 Asia crisis, looks like a ray of sunshine. But Kim Dae Jung’s Korea could soon stumble when it comes to the seemingly simple. Exports are plummeting. Debt levels are rising. And Korea’s second-quarter GDP growth slowed to 2.7 percent–its lowest since 1986. It’s no better in South America. Argentina got $8 billion in temporary relief from the IMF, but the country’s continuing economic crisis yields little hope for Latin America. And Brazil’s not of much help either.
And yet. There are some slivers of silver lining. German bankers think their economy may have bottomed out. Business confidence rose in July, according to the latest IFO survey, and last week’s GDP numbers are higher than expected–suggesting that Germany could yet locomote Europe to recovery. Malaysia announced second-quarter growth. Australia is going strong. And China and India are still doing OK, pending exports to the United States and Europe.
There’s more. The two-month-long rise in value of the euro (it closed the week at 91 U.S. cents) should increase Europeans’ purchasing power, confidence and ease inflation pressures–laying the groundwork for interest-rate cuts and increased spending. Normal cyclical forces are also at work. European inventories are very low, so spending will quickly equal higher production.
U.S. inventories are larger, but Fed chairman Alan Greenspan just cut interest rates for the seventh time this year. Consumers continue to boost spending, and they’re now receiving a $40 billion shot in the arm from rebate checks from President George W. Bush’s tax cut. Housing remains ever-buoyant.
So, is the glass half full or half empty? It’s not entirely a matter of perspective. U.S. consumers, who have so far kept North America’s quarter of the global economy growing, may yet turn jittery. The balance between the warring forces of expansion and contraction is delicate, flirting with recession. Our cup could still as easily run dry as refill. All clear?
