Record Trade Gap Hits U.S. As Export Markets Falter; China Takes On Crucial Role
By GREG IP and PATRICK BARTA
Staff Reporters of THE WALL STREET JOURNAL
August 16, 2004; Page A1
An economic slowdown is spreading around the world as record oil prices, falling stocks and weak technology spending ripple from South Korea and Japan to the U.S. and Germany, casting doubt on a global recovery taken for granted just a few months ago. Global weaknesses are an added worry for the U.S. because a three-year spending spree by American consumers is winding down, and economists had been counting on higher exports to help keep the U.S. expansion on track in the coming year.
(snip)
"The risks that the global economy will enter an extended soft patch are rising," economists at J.P. Morgan Chase & Co. wrote in a report to clients Friday. They estimate that world growth probably slowed sharply to a 2.7% annual rate in the second quarter after several quarters above 5%. Asian economies are particularly exposed, because many are more oil-dependent than the U.S., while China, their fastest-growing market, is slowing as monetary authorities work to cool inflationary pressures. Oil jumped $1.08 a barrel to a record $46.58 at the close of trading Friday on the New York Mercantile Exchange. A refinery fire in Indiana, the potential threat from hurricane Charley to oil production in the Gulf of Mexico and jitters over yesterday's referendum in Venezuela on Hugo Chavez's presidency all added to fears of interrupted supply.
To be sure, the latest data could prove to be anomalies, and indeed, some more-recent figures, such as August unemployment-insurance claims in the U.S. and July business and consumer-confidence surveys in Japan, portray a more upbeat picture. Strong commodity prices suggest that there has been no dramatic falloff in global demand, even from China. Furthermore, higher oil prices are a net positive for countries that export oil, such as Canada, Mexico and the U.K. "It's very easy to tell either side of the story," said Bruce Kasman, head of economic research at J.P. Morgan. And oil prices could retreat in coming weeks if fears of supply disruptions prove unfounded. Nonetheless, some policy makers around the world are worried. "Growth in the rest of the world appears to be slowing," U.S. Treasury Secretary John Snow said in Boca Raton, Fla., Friday, where he addressed a business group. "The price of oil is causing an economic headwind."
(snip)
Any global slowing of exports will help make clear why developments in China also are crucial. Authorities there have been trying to cool their overheated economy since the spring, and higher oil prices are making the task more urgent... Europe faces less of an oil risk because it uses less of it per unit of output. Furthermore, because it hasn't enjoyed a vigorous recovery as has the U.S., higher energy prices there are less likely to aggravate inflation... Still, higher energy prices make it harder for Europe to shift from dependence on exports to consumer
Write to Greg Ip at greg.ip@wsj.com1 and Patrick Barta at patrick.barta@wsj.com1
URL for this article:
http://online.wsj.com/article/0,,SB109239958691690961,00.html