Thursday, May 21, 2009

World Economies Plummet

Steep declines in the economies of three of the U.S.'s biggest trading partners -- Mexico, Japan and Germany -- underscored the severity of the global recession and put pressure on major industrialized nations to revive moribund global trade talks.

On Wednesday, Mexico became the latest country to report a plunge in output. The country's gross domestic product fell at an annualized rate of 21.5% in the first quarter, the worst performance since the 1995 peso crisis led to an International Monetary Fund and U.S. Treasury financial rescue. This time, Mexico has insulated itself somewhat by arranging a $47 billion IMF credit line in advance.

Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.

Associated Press

Tourists enjoy at the nearly empty pool of the Hotel Gran Caribe Real in Cancun.

All three countries depend on exports to the U.S. But they have nose-dived as U.S. consumers cut back purchases of autos, electronics and other goods mass produced abroad. For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier. Mexico's ties to the U.S. are particularly strong because of the North American Free Trade Agreement, and Mexican auto production in the first quarter fell 41% from the year before.

Most forecasters and governments see signs that the current quarter will be better than the first, and the rise in global stock markets suggests investors believe the worst is past. Still, the decline in output overseas reduces the market for U.S. exports and opportunities for investment.

The U.S. economy contracted at a 6.1% annual rate in the first quarter. Federal Reserve officials said Wednesday that they anticipate only "a gradual recovery," beginning in the second half of this year. They foresee unemployment, now at 8.9%, will rise above 9% and stay there through 2010.

The recession's depth is bound to increase pressure to revive the stalled Doha Round of trade talks. Germany intends to raise the issue when leaders of industrialized nations meet in July.

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