The fourth quarter growth tape is now broken and all the world’s main runners have crossed the line. Japan surprised by sprinting home at a 0.9% growth rate in the fourth quarter of 2007, while euro zone growth stumbled to just 0.4%.
And yet the faltering euro zone won the 2007 economic growth race overall with 2.7% growth, ahead of fast-finishing Japan’s 2.1% and the US’s 2.2%.
In 2008, the race is likely to be altogether slower.
The US’s subprime form is well known but Europe, too, looks ill-prepared to run in 2008. The two biggest euro zone economies, Germany and France, each recorded just 0.3% growth in the fourth quarter. Their handicaps were shared and will do mutual harm. Consumer spending halved from the third quarter to a 0.4% rate in France and fell outright in Germany. Exports fell in France. In Germany they are likely to have slipped, too.
The overall picture is clear. The strong euro is beginning to weigh on European exports and consumers in northern Europe are gloomy, while in Italy and previously frisky Spain—which still managed 0.8% fourth quarter growth— they are (un)positively dragging their feet.
Japan is, then, the unlikely recent star among the world’s big three. Japan’s exports held up well, towed along by the 11% gross domestic product (GDP) growth rate in China and supplying almost half the quarter’s GDP growth. Private investment also fared encouragingly well, supplying half apercentage point of GDP growth. But Japan’s consumer spending was weak, rising only 0.2% and residential investment continued to fall, as it has now done in the US for eight consecutive quarters. It’s hard to run with your home onyour back, as snails show.
Who will win in 2008? The euro zone’s lack of a housing bubble, except in now ill-fated Spain, has made it a favourite. But its consumers, like Japan’s, are rarely at the races. Not much money is being placed at present on the US. But the drastic reduction in the short-term interest rate and some ill-advised fiscal stimulants could provide surprising, if ultimately unhealthy, speed by year end.