Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Incredible Shrinking Global Economies Bullish for the U.S. Dollar

Currencies / US Dollar May 17, 2009 - 02:49 PM GMT

By: Money_and_Markets

Currencies

Best Financial Markets Analysis ArticleBryan Rich writes: Germany is the world’s largest exporter. And in the broadest global recession on record, demand for its exports has come to a virtual standstill.

As a result, Germany, the core of the Eurozone, is shrinking at a record pace. And Germany isn’t alone. Many of the world’s largest economies have rested on the export model.


Americans became dependent upon overconsumption and leverage, and world economies became dependent upon supplying American demand. And now that that demand has dried up, the pain is playing out across economies, especially in Asia.

Take Japan for instance. In Japan, exports make up 17 percent of their economy. In total, the country’s exports are down 46 percent from this time last year. And its all-important auto exports to the U.S., Japan’s biggest customer, are down an astounding 76 percent!

Japanese Exports Have Collapsed!

Source: Bloomberg

As a result, Japan’s economy is contracting at an annual rate of 12 percent. That means we’re on pace to see the second largest economy of the world lose 12 percent of its value in a year.

Other export-driven economies in Asia are spiraling downward, too. Singapore is contracting at 20 percent a year; Thailand is contracting at 22 percent.

Exports are king in Asia and account for:

  • As much as two-thirds of the GDP in Hong Kong and Singapore,
  • Almost half of the output of Malaysia and Thailand,
  • And one-third of the output for South Korea and Taiwan.

What about China, the world’s factory?

Goldman Sachs recently upgraded the growth outlook on China. They expect China to grow at more than 8 percent this year. Still shy of the numbers they were putting up over the past several years, but above the 6 percent area that is said to be the equivalent of recession for the Chinese economy.

China's $586 billion stimulus package attempts to revive exports rather than domestic demand — worsening its global imbalance problem.
China’s $586 billion stimulus package attempts to revive exports rather than domestic demand — worsening its global imbalance problem.

However, it’s widely known that reporting out of China is not exactly reliable …

In reality, conditions in China are far from good. Exports are down 22 percent. Economist.com estimates that between one-third and one-half of all of the factories in China have closed in the past year.

China has stepped up and rolled out a stimulus package of more than half-a-trillion dollars. But experts suggest that this plan attempts to revive exports rather than domestic demand — exacerbating the global imbalance problem.

Furthermore, China has frontloaded its spending …

More than 80 percent of the allotted stimulus for 2009 is said to have already been spent. So where does that leave the economy for the next seven months? Is China making a bet that the predictions of a late 2009 recovery for the U.S. are going to materialize? If so, they could be in for a rude awakening.

And so could those who think China is going to lead the world out of recession. Indeed, recent energy consumption in China, a good indicator of economic activity, fell 3.5 percent in April from a year ago.

Global Demand Tumbling …

Take a look at the following chart of the Baltic Dry Index, which measures the price customers pay to have raw materials shipped. It’s a good gauge of global demand and of future economic activity. From its peak in May of 2008, the index is down 79 percent.

Baltic Dry Index

Source: Bloomberg

This chart shows precisely why export dependent economies are having such a hard time.

It’s common sense: An export driven economy can’t recover without global demand. Right now, global demand has evaporated.

China, for instance, is an economy dominated by cheap labor and low margins in producing commoditized goods. Not exactly a sustainable economic model, nor one with the legs, at this stage, to morph into a more sophisticated economy.

What’s more, the IMF’s study on historical recessions that share the two common features of this recession, global synchronization and financial crisis, suggests that the U.S. is only a third of the way through this recession. So economies expecting to recover from resurgence in demand from the U.S. have a long way to wait.

The more plausible answer is that world economies will have to fix themselves. They will have to endure the pain of slowly rebalancing their economies.

Global rebalancing means we’re all in a rebuilding period. A period where more sustainable independent economies are developed. And in the process a more sustainable and efficient global economy is developed, too.

Trade surplus countries will have to focus on domestic demand. And trade deficit countries will be rebuilding the production model and improving innovation.

I expect the dollar to get stronger as the visibility of a global recovery becomes more and more cloudy.
I expect the dollar to get stronger as the visibility of a global recovery becomes more and more cloudy.

In a Highly Synchronized Global Recession, Imbalanced Economies are Becoming a Threat …

According to the World Bank, government officials around the world have proposed more than 60 new trade restrictions since the beginning of the financial crisis. In a downward spiraling economy, governments embrace these types of protectionist policy decisions to try and protect employment and generate internal economic activity.

But history shows, these are exactly the type of actions that make recessions worse and longer! In fact, trade barriers enacted during the Great Depression resulted in a 33 percent decline in global trade.

So what does all this mean for currencies?

It likely means currency devaluations for those exporting countries that are struggling to find demand. And I expect to see a stronger dollar, as the visibility of a global recovery becomes more and more cloudy.

Regards,

Bryan

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules