Three Peas in a Pod

Sharing the pain

By Jeff Thredgold, CSP
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Jeff Thredgold, CSP, President, Thredgold Economic Associates
Courtesy of Thredgold Economic Associates
Table of Contents

Economic pain in the United States is shared by major economic players around the globe. Much of the developed world is also in recession, while many developing nations are reeling from soft commodity prices, declining exports, rising unemployment, and extremely volatile stock markets.

Two principal players—Europe and Japan—are in worse shape than the United States. As noted frequently, the United States, Europe, and Japan are in recession simultaneously for the first time in the post-WWII period.

Europe

I have no doubt that European politicians and business leaders were
laughing at America 6-12 months ago for the enormous housing and
financial mess we got ourselves into. They stopped laughing last fall,
when the reality set in that European challenges exceeded those in the
United States.

The 16 nations sharing the euro currency saw the economy
contract 1.5% (after inflation, or real) during the final quarter of 2008,
when compared to the prior quarter. The U.S. decline in the same
quarter was reported at a 3.8% real annual rate.

However, apples and oranges are being compared. The 1.5% decline in Europe results in a 6% real annual rate of decline, exceeding that of the United States.

Besides
severe weakness within the financial system, a major problem is
exports. Export-dependent Germany, which comprises nearly half of
European economic output, actually fell at a faster rate, with
shrinkage of 2.1% during the October to December period.


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