Already hobbled by Europe’s debt crisis, the world now risks being hurt by slowdowns in its economic powerhouses.
The US economy, the world’s largest, had a third straight month of feeble job growth in May.
Fears of a global economic downturn have sent investors rushing toward the safest possible investments: US and German government bonds.
As a result, the interest rate on the 10 year US Treasury note has hit a record low 1.46 percent.
The savings rate as a percent of after tax incomes dipped to 3.4 percent, matching a low hit in February.
“Treasurys are at 1.46 because people are freaking out,” says Mark Vitner, senior economist at Wells Fargo Economics.
The most urgent threat is that in mid June, Greek voters will reject the terms of a $170 billion bailout — which called for painful budget cuts — and abandon the euro.
The move could ignite economic and financial chaos as Greek debts shift from denominations in euros to Greek drachmas of uncertain value.
Part of the season for the drop is that employers added 1.5 million jobs during that time.
Since averaging a healthy 252,000 a month from December through February, job growth has slowed to a lackluster average of 96,000 a month.
The Dow Jones industrial average fell 275 points, its worst day of the year, and for the first time was down for 2012.
The dismal news suggested that the US economy is enduring a midyear slump just as in 2010 and 2011.
The unemployment rate rose to 8.2 percent from 8.1 percent in April, the first increase in 11 months.
After tax income adjusted for inflation rose at an annual rate of just 0.4 percent in the first three months of this year and that followed an even smaller 0.2 percent increase in the final three months of 2011.
That’s a meager pace nearly three years after the recession officially ended in June 2009.
Most economists say it takes almost twice as much growth to lower the unemployment rate by 1 percentage point over a year.
“We’re not hiring, and we’re not replacing” workers who leave, says Joe Glenn, who runs Glenn Metalcraft in Princeton, Minn.
He’s added more computer controlled metalworking machines and robots to load the raw material into them.
Other companies are reluctant to hire until they feel more confident that their customer demand will keep growing.
Adding to their uncertainty are Europe’s troubles and America’s dysfunctional politics.
Americans are buying more homes, suggesting that the housing market is on the mend.
Manufacturing activity continues to grow, and so does consumer spending, which drives about 70 percent of the economy.
Tame inflation has given the Federal Reserve leeway to keep interest rates low.
The national average is now $3.61, and experts predict further drops in coming weeks.
Still, unless Congress and the White House reach an agreement by year’s end, federal taxes will jump and deep spending cuts will kick in.
To the extent the federal government didn’t fully do its job right, we take responsibility,” Bush said at a joint White House news conference with Jalal Talabani, the president of Iraq.”.
Should that happen, the Congressional Budget Office says, the economy would likely fall into another recession.
Given the size of the US economy, further weaknesses could worsen the slowdowns in European and Asian countries that depend on sales to American consumers.
EUROPEUnemployment in the 17 countries that use the euro is already at 11 percent, the European Union’s Eurostat office reported Friday.
European countries have been struggling with their debt crisis for three years.
Three nations — Greece, Ireland and Portugal — have already required bailouts because of unsustainable levels of debt.
But spending cuts and tax hikes are causing economies to shrink across the eurozone.
In a blunt warning, European Central Bank chief Mario Draghi last week called the existing setup of the euro single currency “unsustainable” without stronger political and financial ties among eurozone countries.
The fear is that Greece will drop the euro, and other weak countries, such as Spain and Portugal, will be forced to follow.
Spain is facing punishing borrowing costs on bond markets because investors fear it won’t be able to pay its debts.
Prime Minister Mariano Rajoy declared Saturday that his government will stick with harsh austerity measures as long as necessary.
“This shop has been here for close to 100 years, and we’ve worked here for 48 years,” says Manuel Cabrejas, a salesman at a cushion store in Madrid whose shop windows were covered in signs saying, “Closing down sale, big discounts, everything must go.”.
— ASIA AND SOUTH AMERICASince the global recession ended in 2009, the world economy has been fueled by rising powers in the developing world led by China, India and Brazil.
They estimate growth at an annual rate of between 2 percent and 2.5 percent in the April June quarter.
That’s high by Western standards, but it would be the weakest growth for China in nearly three years.
Having rebounded strongly from the recession of 2007 2009, China’s economy grew a sizzling 10.4 percent in 2010 and 9.2 percent in 2011.
Australia and other Asian countries have come to rely on Chinese markets for their exports.
Its economic growth slowed to a 5.3 percent annual rate in the January March quarter, the lowest in nine years.
That was down from 4.2 percent in the first quarter and was the lowest savings rate since it stood at 2.5 percent in the fourth quarter of 2007.
Its consumers have seen inflation — which has averaged 9.2 percent a year since the start of 2010 — devour their wages.
“It’s beyond anything that we would have imagined,” said Samiran Chakraborty, head of research at Standard Chartered in Mumbai.
The consumption slowdown along with the investment slowdown has been a double whammy for the GDP number.
As recently as last year, Indian politicians were claiming their economy could rival China’s and surge into double digit growth, lifting hundreds of millions out of poverty in the process.
Asia’s third largest economy is widely regarded as performing below its potential.
Indians are losing hope that their country’s fractious political system will deliver the policies that might unlock a rebound — investments in roads, ports and other projects and lighter regulations to attract more foreign investment.
It grew at an annual rate of 4.1 percent in the first quarter of 2012 as it recovered from last year’s earthquake and tsunami.
The savings rate fell to 3.6 percent of disposable income in the first quarter.
But factors that could crimp expansion, such as weaker European demand for Japanese exports, have raised fears that Japan’s growth will slow or even stall.
In Brazil, the economy practically stalled in the first quarter of the 2012.
It grew at just a 0.2 percent annual rate from the final three months of 2011, the government said Friday.
The annual savings rate climbed to 5.4 percent in 2008 after dipping to a low of 1.5 percent in 2005, a year when soaring home prices made Americans feel less of a need to save.
But Brazilian officials, like analysts in China, also pointed to another culprit, one that shows how problems in one part of the world cause problems in another: The ongoing trouble in Europe is taking a toll on exports.
___AP Staff Writers Joshua Freed in Minneapolis, Harold Heckle in Madrid, Sarah DiLorenzo in Paris and David McHugh in Frankfurt contributed to this report.
Ciaran Song is a business journalist based in Seoul, Korea. Ciaran has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Ciaran spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.
