世界経済は急速に悪化しています。当初はアメリカのサブプライムローン問題で生じた金融逼迫、さらにアメリカ経済の低迷が世界経済に深刻な影響を及ぼし、世界経済の成長を鈍化させると予想されていました。しかし、それに追い討ちをかけるように原油価格上昇が止まらず、さらに穀物価格上昇も経済に大きな影響を及ぼしています。５月に世界経済の分析をし、ブログに掲載しました。しかし、その後の状況は予想を上回るスピードで悪化しているように見えます。本ブログは「Japan Times」６月13日付けに寄稿した英文の記事（The Global Economic Storm Clouds Gather)です。今回は英語の勉強も兼ねてご一読ください。

Uncertainties and risks have been looming on the horizon of the world economy. As the year develops, the black cloud hanging over the world is becoming bigger and bigger. Oil price is forecast to increase over 200 dollar per-gallon. No sign is yet seen that souring commodity prices are hitting the ceiling. World inflation is becoming a real threat. As subprime mortgage issues in the United States have not yet to settle down, many financial institutions have been struggling to write off bad assets and strengthen their capital base. Though Secretary of Treasury Henry Paulson suggested that the credit crunch might have passed the worst time, banks are still charging a high risk premium for their lending.

According to the forecast of IMF, the growth rate of the world economy for 2008 might dip into below 3% growth, which is defined as the world recession. Under the deteriorating situations of the world economy, a close attention is paid to the recent developments of the American economy. Against the optimism of its policy makers, the American economy appears sliding into a recession. Sharp increase of unemployment in May has changed the optimistic sentiments to be totally pessimistic. Sooner or later the worsening labor market conditions would have a negative impact on the consumption, which has been the driving force of the American economy.

There are similarities and differences between the economic conditions after the bust of the IT bubbles and that of the housing bubble. Similarity is that the Fed took a prompt action to lower the federal fund rate. But the effects of extremely easy monetary policy are quite different. With short-term interest rates declining after the bust of the IT bubble, long-term interest rates fell as well because of low inflation expectation. Therefore the Fed did not care about inflation in implementing its monetary policy. Stable and declining prices of commodities including oil contributed to a decline of inflation expectation and a resultant decline of long-term interest rates. Falling long-term interest rates stimulated housing investment, which led the recovery of the American economy. Low long-term interest rates and housing boom boosted consumption through refinancing of housing loans. Combined effects of the housing boom and the Bush tax cut were pulling the American economy out of the recession. The recession at the time was shortest in the post war period. But the extremely easy monetary policy created excess liquidity and eventually caused the housing bubble.

This time, the economic situations surrounding the American economy is totally different from the previous case. In spite of lowering federal fund rate, long-term interest rates remain high because of higher inflation expectation. As prices of commodities and foods have skyrocketed, the Fed should be cautious about rising inflation expectation. Credit crunch caused by the subprime loan debacle also keep long-term interest rates from falling because lenders are asking for higher interest rates. Even though the Fed lowered the federal fund rate to 2 % by 3.25 percent points since last September, the tangible effect of easy monetary policy to stimulate economic activities is not yet witness. Without the decline of long-term interest rates, the economy would not gain steam. This time, that is happening.

High long-term interest rates would delay the adjustment of the housing market. Standard & Poor’s home price index plunged 12.7% last February 2008 from a year earlier. This is the biggest decline of the index since 2001. Home sales were also down by 18% in April. What’s more, home foreclosure exploded 112% for the first quarter of this year from a year earlier. The adjustment of the housing market is far from being completed. It means that the subprime mortgage problems would continue for some time. In spite of massive injection of liquidity by the Fed into the financial market, the credit crunch is still a big problem.

The growth rate of the American economy for the fist quarter of this year was disappointingly low at 0.6%. Fed Chairman Ben Bernanke said in the Congressional testimony in April that there would be some possibility that the American economy would suffer from a recession during the first half of this year. Fortunately, his prediction was not realized because the growth rate for the fist quarter was positive (the definition of a recession is the consecutive two quarter negative growth). But it seems inevitable that the economy would fall into a negative growth for the rest of the year. If that happens, the Fed will have to take another action to lower the federal fund rate to respond the sluggish economy. The market expects that the Fed might make a decision to lower federal fund rate in this fall. But the Fed should pay attention to the development of inflation. According to the minutes of the FOMC released in May 21, the members commonly expressed the concern about inflation. The Fed has to walk on a thin line between a possible recession and emerging inflation.

There is another headache for the Fed to deal with, which is the falling exchange rate of dollar. Weaker dollar would have a benefit to increase exports to compensate for decline of domestic sales, but it would add to inflationary pressure. If the Fed lowers short-term interest rates to cope with a recession, it would promote a further decline of dollar. It is reported that the European Central Bank is considering the rise of interest rates to counter the rising inflation pressure. The ECB action would widen the differentiation of interest rates, which would lead to the further decline of dollar. If the decline of dollar continues, the Fed has to take measures to stop it. Taking these factors into a consideration, policy options for the Fed are greatly limited.

The Bush administration made an optimistic forecast of the economy by citing the effect of tax break. They said that its effect would be fully felt in the second half of this year. But who spends money when they are faced with possibilities of losing their jobs. Telling from the experience of Japan, tax break or tax reduction was not effective to encourage consumers to spending more under a high degree of uncertainty for the future. We cannot expect a so-called multiplier effect. Tax break would be just a one-shot fiscal stimulus. The unemployment rate of May jumped to 0.5 percent point to 5.5%, which is the highest level since October 2004. In addition, according to the household survey, employment fell by 285,000. When employment fell 28,000 for April, which was far less than forecasted, many economists said that it would be unlikely that the American economy slips into a recession. But the rise of the unemployment rate has wiped away optimistic views on the economy. The fear of recession is now revived. If employment declines, earning income also declines. So does consumption.

There is another drag on consumption, which is home equity loan. Home equity loan has been a big source of money for the household. Declining home prices would make difficult for homeowners to borrow money from banks by using their homes as collateral. On the contrary, many of house owners might not roll over borrowing or might be asked to pay it back. If the increase of income stops and borrowing ability is lost in addition to the worsening job market, people have to reduce consumption. Besides, rising prices of gasoline and foods would reduce the disposal income of the household. Consumption accounts for two thirds of GDP. After checking with these facts, a rational conclusion would be that the American economy slips into a recession.

OECD forecasted that the growth rate of the American economy for the second quarter would be minus 0.5%. The growth rates for the third and fourth quarter are expected 0.7% and 0.2%, respectively. For the full year of 2008, the growth rate is expected to reach 1.2%. This is certainly based on an optimistic analysis that “the response of macroeconomic policy will help to moderate these (negative) effects, as will a dynamic external sector (meaning increase of exports)”. Lowering short-term interest rates and increasing export are not sufficient to help the American economy grow.

The Japanese economy is also in a difficult situation. The first quarter of 2008 posted a rather high growth rate at 3.3% on an annualized base. But A half of the growth attributed to the increase of export. The export is heavily dependent on the American and Chinese economy. Business investment, which contributed to the growth for the fourth quarter of 2007, fell for the first time in the three quarters. As corporate profits for fiscal 2009 is expected to decline in addition to sluggish increase of final demands, capital investment would remain sluggish. According to the date released in June by the Ministry of Finance, the combined pretax profits for the first quarter of this year declined by 17.5% for the first time since the fourth quarter of 2001 because of increasing costs of materials. For the same period, capital investment fell for the fourth straight quarters.

Consumption is a key to predict the future course of the Japanese economy. But consumer confidence index for April showed the decline from March and the lowest level since March 2003. As a result of the deregulation of the labor market under the leadership of former Prime Minister Junichiro Koizumi, companies posted record high profits in the course of the economic recovery. On the contrary, wages and salaries remained stagnant, which is the main culprit of sluggish consumption. Rise of prices of food and services has been eroding disposal income. Japan has been struggling to make a domestic-demand-led growth of the economy. But we cannot see such changes yet.

Policy options for Japan are very limited. Interest rates are already very low so that there is almost no room to lower interest rates to stimulate the economy. On the contrary, the Bank of Japan has a strong desire to normalize interest rates as soon as possible. OECD recommends that “the Bank of Japan should not raise the short-term policy interest rate.” The Japanese government puts a highest priority on the reduction of the budget deficit. Fiscal expansion is out of the option. Both monetary and fiscal policy could not be used to support the economy. If the Japanese economy suffers from sluggish economy, there are no policy measures to be used.

The growth of Euro zone will also fall from 2.6% to 1.7% according to the estimates of OECD. The total growth rate of OECD countries is expected to fall to 1.8% from 2.7% . The center of the world economy growth is certainly shifting from the advanced nations to the emerging countries, in particular to the Chinese economy, of which growth rate for this year is forecasted reach 10%.