World economy continues decline

The world economy isn't as safe a place now as it was one year ago. The United States is suffering from swooning stock markets and slowing GDP growth while it appears Japan's decade-long stagnation might get worse before it gets better. \n"There is a lack of confidence in the global economy, and the two largest economies in the world are in dire straits," David Ebata, a market strategist for Thomson Capital Markets told The Globe.\nAll of America's major stock markets are in bear territory, which means they are down 20 percent or more. The hardest hit has been the tech-laden NASDAQ, down a gut-wrenching 62 percent. According to CNNfn.com, growth in U.S. GDP will slow from its brisk 5.4 percent pace in 2000 to about 1.1 percent in the first quarter of 2001. The Web site further expects growth to stay around this level for the rest of the year.\nAccording to Great Britain's Financial Times, Japan's banks hold a whopping $141 billion in bad debts, which will eventually need to be reconciled. Further damping Japan's prospects, the Nikkei Stock Index recently fell to a 16-year low.\nIn another blow to Japan's banks, a change in Japanese accounting laws starting at the end of this month will force companies to write all stock holdings to their market value. Because banks are the largest holders of stock in Japan, they stand to post the largest losses. This, coupled with their saturation of bad debt, has many fearing a possible Japanese financial crisis, according to The Economist.\nThe European area appears to be the only part of the world that is faring the storm well. Its expected growth for 2001 has only dropped from 3.2 percent to 3 percent. Inflation is tame and the Euroland isn't nearly as dependent on the United States buying its goods as most other regions are. The biggest downside is that many worry that the European Central Bank won't correctly navigate the rough waters of a global slowdown.\nTim Duy, a senior currency analyst at G7 Group told The Wall Street Journal, "Investors aren't confident the European Central Bank can respond effectively."\nArguably, the countries most at risk of being pummeled by a global slowdown are the emerging markets in Latin America and the Pacific Rim. Argentina and Brazil, Latin America's two stalwart economies, are suffering from excessive government debt and other economic woes, according to Reuters News Service. Because much of their debt is denominated in dollars and their currencies are weakening, their interest payments are increasing.\nAsia's emerging markets, also known as the Asian Tigers, are heavily reliant on Japan and the United States to import their goods.\nThese countries, which supply the processing chips, circuit boards and other electronic components that go into U.S. and Japanese products, are seeing their companies' output fall dramatically as demand for their goods drops. With such a reliance on the United States for fuel growth, the Asian Tigers are at the mercy of American consumers.\nThe economic outlook for 2001 is mediocre at best and bleak at worst. The outcome seems to be riding on the Federal Reserve's ability to prevent a recession and the Japanese government's ability to prevent its banks from sparking a financial crisis. The only sure thing about the world economy in 2001 is that it will be eventful.