Foreign demand may bail out US, reversing a trend

Font Size

Print

Feedback

Email

Discuss

Related Articles

Job loss pain crosses boundaries, sectorsAll that Goldman Sachs outsiders don’t get

Apr 9: The flagging US economy may get by with a little help from its friends. Demand from overseas is throwing a lifeline to an America weighed down by the housing slump and weak business investment.

With exports accelerating and imports shrinking, trade this year may add to growth instead of subtracting from it for the first time in more than a decade.

“Had it not been for the rest of the world, the US economy might be seriously floundering,’’ says Stephen King, chief economist at HSBC Holdings Plc in London.

That’s a change from the last 40 years, when the US powered the world economy through financial crises elsewhere but gained little thrust from abroad when demand turned weak at home. Back then, when the US sneezed, the rest of the world caught a cold; “nowadays, when the US sneezes, the rest of the world goes shopping,’’ King says.

The shift gives central bankers and finance ministers of the Group of Seven, the world’s biggest industrialised economies, reason for optimism as they meet in Washington this week.

“There are in Europe elements of broader and deeper sustained growth which exists independently of the other side of the Atlantic,’’ European Central Bank President Jean-Claude Trichet said at a press conference March 28. Japan’s vice finance minister Hideto Fujii told reporters on Monday that “overall, the Japanese economy is still robust.’’ The big differences now: The housing slump that’s dragging down demand in the US is having little impact beyond the country’s borders, while other economies are generating enough demand on their own to prop up growth elsewhere.

“The US slowdown has had little discernable effect on growth in most other countries,’’ the International Monetary Fund said in a report last week.

That could change if the housing recession does more damage than most economists now expect to the rest of the US economy. The US still accounts for a fifth of the global economy and is its biggest importer. “Global demand won’t be immune to a genuine US demand shock,’’ says Dario Perkins, an economist at ABN Amro Holding NV in London.