Well it certainly looks like the topic of the day should be the growing divergence between the different components of the global economy. (Incidentally, it's clear that the greatest divergence is still between Africa and Latin America and the rest, but this is fairly obvious, and non-controversial. Still, it is an unfortunate habit we get into of talking about the global economy, and then speaking OECD with India and China as 'add-ons'. This leaves out the majority of humanity, and this shouldn't be like this. My own personal 'get out' is that I'm trying to understand something, and this means focusing. I don't know enough about Africa and Latin America, and since I don't think it need be a defining characteristic of an economist that you have to have an opinion on absolutely everything (save this for the politicians), I think it is not only necessary, it is even healthy to say 'don't know'. But one day, one day).
Returning then to the OECD, the different short term perspectives between Euope and the US couldn't have been made clearer yesterday - and, of course, the changing fortune of the euro-dollar valuation reflects this perfectly. The reasons that this is happening in Europe have, I feel, been pushed fairly forcefully by me over recent months. Yesterday I commented long on Japan. I am not convinced that we are about to see the end of a ten year problem, if this were to be the case I would surely have to think again, and hard. What we might see, and this depends on the US outlook, is more export driven growth, but internally, aggregate demand in terms either of personal consumption or government spending, I doubt it. And without an increase in internal demand it's hard to see how the capex spurt can be sustained. But before looking a bit more closely at the US situation, a bit of news from S Korea, where last year's growth seems to be turning all to rapidly into this years recession. What happens to a tiger when it grows old?
Growth in South Korea's economy contracted 0.7 per cent in the second quarter, as a decline in domestic consumption and waves of labour unrest continued to exacerbate the country's slowest period of economic expansion since the 1997-98 Asian financial crisis. Gross domestic product fell a seasonally adjusted 0.7 per cent in the second quarter compared with previous quarter, according to the Bank of Korea, the country's central bank. The contraction followed a 0.4 per cent decline in the first quarter. On a year-on-year basis, South Korea's GDP expanded 1.9 per cent. Such a modest figure is a painful contraction for an economy that saw on average 8 per cent annual growth during its rapid economic development of the past 40 years. Strikes by militant workers, a corporate accounting fraud, North Korea's nuclear weapons programme and the impact of the Sars virus have all contributed to a slowdown from last year's 6.3 per cent growth rate. But the main factor has been the collapse in domestic consumption after a four-year spending spree came to an end beneath a mountain of credit card debt.
Source: Financial Times