America Plods Forward, Much of the World Slows
12:00 AM, May 26, 2012 • By IRWIN M. STELZER
America is the best house in a run-down neighborhood: The famous BRICs are crumbling.
Start with B: Brazil’s manufacturing sector is contracting. The nation’s finance minister, Guido Montega, blames this and the country’s other ills on the crisis in Europe. Not to worry: President Dilma Rousseff assures us that Brazil “is 100 percent, 200 percent, 300 percent” prepared to prevent the global economic downturn from spreading to Brazil. In response to the slower growth, Montega is flirting with protectionism to reduce the massive trade deficit, and Rousseff has announced $1 billion in temporary tax reductions that favor the auto industry, in return for an industry pledge to lower prices and maintain employment. Inflation is running at a rate in excess of 5 percent, but the central bank is lowering interest rates, hardly likely to drive inflation down. More important, no significant effort is being made to introduce supply-side reforms to bring down the “Brazil Cost,” described by Emerging Money (a website) as “a combination of bureaucracy, taxes, and infrastructure,” added to a “level of intervention and politicking … a little too reminiscent of other leftish leaders within the region.” The Wall Street Journal calls Brazil “one of the world’s most expensive places to do business.”
R: Russia, once again in Vladimir Putin’s safe pair of hands, is an oil-based economy and not much else. Putin is desperate to increase Russia’s oil output, especially now that crude prices are falling, but has appointed Igor Sechin, a long-time co-worker in the KGB, as head of Rosneft and de facto energy czar. Presumably Sechin will attract foreign capital and know-how from companies that have not heard of Yukos and are unaware of the hostility reflected in Putin’s warning that the government will prohibit “private companies holding licenses for offshore projects [in the Arctic] to resell them to ExxonMobil, Chevron or other foreign players.”
I: India’s finance minister Pranab Mukherjee reminded many here in America of Herbert Hoover’s 1932 reassurance that “prosperity is just around the corner” when he reassured investors, “I have full faith in the resilience of the Indian economy…”—which he is confident will overcome double-digit consumer inflation, a falling rupee, a rising trade deficit, a growth-stifling bureaucracy, and a host of other ills.
C: China’s growth is slowing. Activity in its manufacturing sector has declined for seven consecutive months; its banks are loaded down with dicey paper from state-owned enterprises (SOEs) while they cannot find healthy companies interested in borrowing (new bank loans fell 8 percent in April); the wealthy are setting up bolt-holes in the U.S.; bank deposits are being transferred to safer places; and political instability has the regime close to paralyzed in this year of transition to a new set of rulers.
Li Keqiang, due to take control of the country next year, says that “man-made” GDP figures that show growth of around 8 percent, are unreliable and that what counts are data on electricity output, rail cargo volumes, and bank loans—data this writer used over 50 years ago during his short-lived career as a forecaster of the U.S. economy in the days before econometric models provided the accurate forecasts to which we have become accustomed—all of which are dropping like stones. In an unmistakable reference to the political paralysis gripping the regime, Premier Wen Jiabao called for “timely” action “to prevent the economy from slowing down too rapidly.” That could mean another stimulus package, although the limited success of the last one might cause a re-think.
Which brings us to Europe. Its ills need little retelling. A majority of countries want to send more of Germany’s hard-earned wealth to periphery countries, and now, right away. Not surprisingly, Germans are less enthusiastic about that idea, as Chancellor Angela Merkel told François Hollande, France’s new socialist president, when they gathered last week for still another meet-greet-eat and disagree session. The eurozone economy is contracting at a rapid rate, unemployment is in double digits, German business confidence is at its lowest ebb in six months, and the Grexit fans are at loggerheads with the “more Europe” crowd that fears contagion and would have Germany pay any price necessary to keep Greece in the eurozone, including issuing eurobonds that transfer Germany’s fine credit rating to less worthy countries.