A brief review of several economic indicators from various regions of the world would seem to indicate a broad economic slowing is occurring. Although the U.S. economy continues to move along at a relatively positive pace, growth is being inhibited by domestic policies and widespread global weakness.
Concerns about a bubble in China’s property market have been voiced by a variety of financial analysts for several years. When values in larger Chinese property markets have shown signs of wavering in the past few years, the policymakers in those markets have responded with dramatic increases in credit. Easy credit enabled the prices to firm up as more investors were able to qualify for loans to purchase properties.
By one published measure, the prices of commercial and residential properties fell in 55 of the 70 largest Chinese cities in June. The reading of this same index showed falling prices in 35 of the 70 largest cities in May.
Staying in the same region of the world, the aggressive efforts by the Bank of Japan to revive the Japanese economy seem to yield less and less benefit. About three months ago, a value-added tax was instituted in Japan. Although it is not the only headwind facing the Japanese economy, consumers in that country have cut back on their spending. Retail sales in July are reported to have fallen by 0.5 percent.
Moving to the Americas region, the Brazilian economy has fallen into a technical recession. Two consecutive quarters of negative economic growth have been reported by Brazil’s national statistics agency.
Many had hoped the 2014 World Cup host country would benefit from the global focus, tourism and general increased spending. Now, some economists report business activity actually declined during the global soccer competition. Consumers and businesses appear to have been more interested in watching the latest match than in conducting transactions.
Not to be left out of these general economic trends, inflation in the eurozone was recently reported to have hit a five-year low of 0.3 percent. Although this latest reading from the European Commission’s bureau of statistics was generally what had been predicted, inflation at this level is well below the European Central Bank’s 2 percent target.
Inflation results such as this latest observation leave sufficient room for the ECB to move forward with its contemplated efforts to expand the supply of money. Given how low European interest rates are already, it is widely expected the ECB will institute a quantitative easing program like what has been put in place by the Federal Reserve in the U.S.
Given all these challenges in the integrated global economy, U.S. fiscal and monetary policies will need to contemplate slowing and relatively weak results beyond our own borders.
Kirby Brown is the CEO of Beneficial Financial Group, which is based in Salt Lake City.