The global economy is suffering from its worst pullback in over 60 years. According to the International Monetary Fund, output is expected to fall by 1.3% this year before modestly rebounding in 2010. Though we are feeling plenty of pain in the US, our trading partners in the Eurozone (the second-largest economy in the world) and Japan (the world's third-largest economy) are feeling even more pressure from the global contraction.
The IMF estimates that the 16-nation Eurozone economy will contract by 4.2%, with Germany leading the decline. This has happened, in part, because Europe is reliant upon exports and has been slow to react to the subprime meltdown in the US and the global impact on financial institutions.
Prior to the failure of Lehman Brothers, many on the continent felt their banks could withstand the financial shocks emanating from the US, and leaders were caught flat-footed when the American tidal wave came ashore.
The always-inflation-vigilant European Central Bank (ECB) actually raised interest rates last summer and has reacted too tepidly as its benchmark rate still stands above 1%. Compare this to rates in the US, Japan, Canada and England, which all sit well below 1%.
In the press release that followed a small rate cut in April, the ECB said it sees "the risks to the outlook for economic activity as being broadly balanced." Another words, central bankers don't see a need to aggressively turn to monetary policy to stimulate demand, and they appear to be in a state of denial regarding the severity of the recession.
The major banks in Japan have not been hit nearly has hard by the subprime debacle and securitization as its counterparts in Europe and the US. But it has its own set of problems to deal with. Japan is heavily reliant on exports, and the strong yen, which raises the price of sales overseas, coupled with falling demand in the US, Europe, and weakness in China, are taking a heavy toll on output.
Prior to the failure of Lehman Brothers, many on the continent felt their banks could withstand the financial shocks emanating from the US, and leaders were caught flat-footed when the American tidal wave came ashore.
The always-inflation-vigilant European Central Bank (ECB) actually raised interest rates last summer and has reacted too tepidly as its benchmark rate still stands above 1%. Compare this to rates in the US, Japan, Canada and England, which all sit well below 1%.
In the press release that followed a small rate cut in April, the ECB said it sees "the risks to the outlook for economic activity as being broadly balanced." Another words, central bankers don't see a need to aggressively turn to monetary policy to stimulate demand, and they appear to be in a state of denial regarding the severity of the recession.
The major banks in Japan have not been hit nearly has hard by the subprime debacle and securitization as its counterparts in Europe and the US. But it has its own set of problems to deal with. Japan is heavily reliant on exports, and the strong yen, which raises the price of sales overseas, coupled with falling demand in the US, Europe, and weakness in China, are taking a heavy toll on output.
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