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An Unbalanced Global Economy


Economic Trends

An Unbalanced Global Economy

Growing signs of weakness abroad

For many months now, the red-hot U.S. economy has surprised both foreign observers and the American economics profession itself--growing more rapidly than even the most optimistic forecasters thought possible and providing vital support to an ailing global economy in the process. Meanwhile, economies overseas have repeatedly failed to match downwardly revised projections of groups like the International Monetary Fund.

The question troubling economists these days is how long this situation can last. While most have raised their forecasts of U.S. growth this year, few expect it to approach the heady pace of 1998. Instead, many expect that a moderating U.S. economy will be offset by a gradual upswing overseas. The problem is that there is scant evidence that foreign economies--in Europe, Japan, or elsewhere--are picking up steam, and a lot that they are weakening.

Economist Edward Hyman of International Strategy & Investment Group, who regards industrial commodity prices as the most sensitive indicator of global economic conditions, notes that they just hit a 12-year low and are still plunging (chart). "The clear message is that rapidly slowing growth abroad is more than offsetting the U.S. boom," he says.

With non-Japan Asia accounting for 65% of global demand growth for industrial commodities in the early 1990s, the ongoing price slide underscores the fact that most Asian economies are still contracting. But falling prices are also taking an increasing toll on commodity exporters, from oil producers in the Middle East and Latin America to copper producers like Chile.

Indeed, Hyman notes that a growing number of economies are either in recession or have been posting negative growth recently--including not only Japan, Brazil, Russia, and most Pacific Rim nations but also Germany, Norway, South Africa, Mexico, and most of South America and Eastern Europe. At the same time, Great Britain's economy was flat last quarter and is widely expected to slip into at least a mild recession.

Economist Edward Yardeni of Deutsche Bank Securities Inc. thinks the odds now favor a recession developing in Europe later this year. Export-led growth in 1997, he notes, has been replaced by export-led weakness and sagging industrial production in a number of countries, including Italy, France, Germany, and Great Britain.

Surprisingly, few economists seem to believe this threatens the U.S. expansion--yet. Policymakers overseas are widely expected to stimulate their faltering economies before long. And Hyman points out that weakness overseas could actually bolster U.S. growth, as it has in recent years.

Excess capacity abroad and cheap imports, he notes, helped drive down inflation and thus pushed up U.S. real incomes. And falling inflation pushed down interest rates--fostering the stock market surge and fueling consumption, housing, and investment booms.

"If we're lucky," says Hyman, "we'll see more of the same this year--growth above 3% and even lower inflation." But that, he adds, assumes that the protracted slowdown in foreign economies does not turn into something far worse.BY GENE KORETZReturn to top

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Fewer Kids Are Having Kids

Teen pregnancies fell in the '90s

With teenage birth rates rising sharply, the second half of the 1980s was a period of intense public concern about teenage pregnancy. The good news, according to an article in the latest issue of Metropolitan Life Insurance Co.'s Statistical Bulletin, is that this trend has turned around in the 1990s, with birth rates falling 15% between 1991 and 1997 (chart). Moreover, report Stephanie J. Ventura and Sally C. Curtin of the National Center for Health Statistics, the rate for African-American teenagers, while still far higher than that for whites, has fallen to the lowest level on record.

The bad news is that teenage pregnancy rates are still far higher in the U.S. than in other developed countries, registering 53 per 1,000 at last count, compared with 4 in Japan and 29 in Britain. Further, with less than 7% of U.S. teenagers married today, 71% of white births and 95% of black births occur out of wedlock.

Still, it's encouraging that falling birth rates reflect declines in both pregnancy and abortion rates. Several recent surveys also indicate that teenagers are becoming less sexually active, while those who are active appear more likely to use contraceptives than in the past.BY GENE KORETZReturn to top


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