World less dependent on the US

Based on article from The Economist, 27 February 2007

The common view is that America is the big spender of today's world and other countries are the savers but the tables have turned. World growth has often been dependent upon US growth and spending but the phrase 'When America sneezes, the rest of the world catches a cold' may not be true for much longer. Despite slowing US growth, countries around the world have found their economies growing at faster rates.

The US's annual rate of growth of domestic demand dropped from 4.4% in 2004 to 1.9% in the second half of last year. This has partly been caused by the slowing down of the housing market.

Japan's economy grew by 4.8% in the fourth quarter of last year due to stronger domestic demand. However, Japan's growth is often erratic but was enough for the Bank of Japan to be confident enough to raise raise interest rates by a quarter point. In the euro area, GDP per person is growing faster than it is in America and domestic demand around the world in Asia, the Middle East and Russia are also picking up.

Signs of America's drop in spending comes from the fact that they are exporting more and in the fourth quarter of 2006, their merchanise exports rose by 15% and import growth slowed to 4%. In fact, in 2006, sales to China increased by a third. Despite this America's trade deficit is still ungainly but has dropped from 6.1% of GDP to 5.3% of GDP late last year.

The rest of the world has started to pick up what America drops. The world is changing and is becoming less dependent on America's growth. However, the world will really be tested when the effects of negative wealth on house prices in the US really bite into American consumers appetite.

Links:
Switching engines - The Economist