- The Washington Times - Monday, June 25, 2001

Global growth is slipping rapidly, posing new perils for a U.S. economy that shows few signs of recovering despite a massive dose of interest-rate cuts this year.
Japan is sinking into recession and growth in Europe is stalling, a combination that has caused a collapse in U.S. manufacturing and technology exports.
U.S. industries from technology to transportation are in deep recessions that threaten to drag down the rest of the U.S. economy. Thousands of layoffs in those industries have pushed unemployment claims to nine-year highs and hang like a cloud over American consumers, the last bastion of strength in the U.S. and global economies.
"The big global slowdown is hitting American companies and causing them to go through a secondary set of cutbacks. Its another leg down for U.S. manufacturing and another leg down for our economy," said Allen Sinai, president of Primark Decision Economics Inc.
"My sense is weve entered a recession" that could turn into a global recession that touches the United States, Japan, the euro zone, Canada and Mexico, he said. "Its the result of the U.S. slide in the last year, which directly and indirectly hurt growth in other countries. Now, its coming back to haunt us."
U.S. economic growth during the fall and winter hovered around an anemic 1 percent annual rate. An international trade report released Thursday showed drops in both exports and imports in April, a trend that probably continued through the spring, signaling profound weakness globally with demand dropping both here and abroad, economists say.
Spending by U.S. consumers has continued to grow this year, but at much slower rates than last year. Housing and service industries that operate largely outside the global marketplace also have maintained growth, but that is not likely to continue as long as global industries remain in distress and jobs are steadily eliminated, Mr. Sinai said.
"The job losses will hurt consumers," he said, predicting that the next unemployment report due out July 6 will be "very, very ugly."
Most economists agree that the economy looks dangerously weak. But many are optimistic that the rate cuts engineered by the Federal Reserve since January, and $100 billion in tax rebates on the way this summer, will start to restore healthier growth in the second half of the year.
Mr. Sinai said the sharply lower rates and tax cuts will help to cushion the downturn but cannot stop it once economic momentum has turned from positive to negative — an event that may have occurred this spring.
"Theres no doubt about it, the momentum is negative at this point," he said. "Its hard to see where it will end. These kinds of things take time to work out."
Nariman Behravesh, chief economist with DRI-WEFA, also sees a danger of the United States slipping into recession, with growth here and around the world hanging on the slim thread of continued spending by Americas army of 290 million consumers.
Other previous strong points in the economy — construction, exports and housing — are waning, he said, and will not contribute to growth in the months ahead.
"While the tax rebates should give some kick to consumer spending, consumers are not in a position to offset all the weakness in these other sectors," he said. "Should consumers actually reduce their spending, the economy would quickly tip into recession."
Manufacturing and technology are likely to remain in recession for a long time, holding growth down to lackluster levels around 1 percent to 2 percent in the next year and driving up the unemployment rate from 4.4 percent to as high as 6 percent, he said.
Mr. Behravesh nevertheless expects the larger economy to escape recession because the Fed will continue to aggressively lower interest rates as long as needed. The Feds rate-setting committee is scheduled to meet again tomorrow and Wednesday and is widely expected to cut rates for a sixth time this year.
"Certainly, the situation in the U.S. is still quite precarious. We matter more to the rest of the world than they matter to us," Mr. Behravesh said.
Japan started plunging back into recession this year after a drop in exports to the United States dealt a fatal blow to its long-ailing economy. Ironically, economic reforms just introduced by Japans new prime minister, Junichiro Koizumi, will help Japans economy in the long run but are likely to worsen the downturn in the short term.
The darkening outlook in Europe comes after months of hopes that continuing healthy growth there would help spawn a recovery in the United States. Instead, growth in Europes biggest economy, Germany, appears to have stalled and is weighing down growth on the rest of the continent.
"The contagion effect of the U.S. slowdown is a lot stronger on the euro-zone economy than anyone figured it would be," said Thomas Benfer, a director at Bank of Montreal. "Economists are all revising growth estimates down for Germany and the euro zone as a whole."

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