Home > Archives (2006 on) > 2019 > How the US Economy is thriving in a war-war Situation in the (...)

Mainstream, VOL LVII No 44 New Delhi October 19, 2019

How the US Economy is thriving in a war-war Situation in the World

Sunday 20 October 2019

by Monaem Sarker

This summer’s fears about escalating trade tensions and war, slowing global growth and an inverted yield curve in the United States have been let up somewhat as the year has progressed. The economic mood swings have become commonplace, however, with the trade standoff with China intensifying or de-escalating with the speed of a tweet or offhand comment.

Despite this turbulence, the US economy has shown great resilience. Growth has slowed but remained strong enough to keep the unemployment rate from rising. Hiring slowed in August and factory activity eased, while consumer spending remained strong. Businesses have grown more cautious, however. Capital spending has slowed, particularly in the light of the inverted yield curve and all the subsequent speculation about a possible recession. But a recent batch of housing data has pointed to a firming up of the US economy.

The erratic nature of trade talks has undoubtedly contributed to a falloff in consumer confidence. This downturn in expectations could see consumers holding back on spending. Indeed, consumer spending slowed more than expected in August. On the upside, incomes rose while price pressures are steady.

The Federal Reserve cut its benchmark interest rate by a quarter-percentage point for the second time in as many months to cushion the economy against a global slowdown amplified by the US-China trade war. The Fed is essentially taking out insurance with these rate cuts to prevent those risks from turning into something bigger.

Global economic growth has continued on its gradually slowing path as US-China trade tensions have persisted, Brexit issues remain unresolved and monetary easing by several major central banks has yet to have much effect in terms of stabilising and strengthening the global economic activity.

While the underwhelming performance of the major economies has contributed to slower growth, some key emerging economies have also contributed to the less favourable outlook. In particular, China’s economy remains on a slowing path, with export growth turning negative in US dollar terms. India’s economic growth has been very disappointing during the first half of 2019, though, unlike China, some recovery is expected in Indian growth over time.

How should the relatively good domestic economy in the US and forecasts for the second half of this year be seen against significant risks from trade, a slowdown in some of America’s trading partners, and the low long-term rates creating an inverted yield curve? At times like these, it is important to carefully study incoming economic data. If the risks become pronounced and threaten the US outlook, then further monetary easing may be appropriate. However, if the data continue to indicate a US economy growing slightly above the level considered to be the economy’s potential growth rate, with persisting gradual increases in wages and prices, then no immediate policy action is likely required.

In fact, the gradual slowing of GDP growth is not really that surprising—and is not necessarily a signal of a weakening economy headed for a recession, but instead a natural pattern. As resource constraints, for example, the availa-bility of workers become more binding and the effects of the fiscal stimulus wane, with monetary policy only marginally accommodative, actual economic growth should settle in the vicinity of the growth rate associated with the economy’s potential.

The outlook continues to be shaped by expectations that a truce will eventually be found in the trade dispute, which will reduce some of the uncertainty hanging over the economy. Domestic demand is holding up well and continues to maintain strong momentum, given the higher levels of employment, solid income growth and strong position of overall household and corporate balance-sheets. The inverted yield curve is a warning, however, that even the less globally exposed US economy is not immune to the effects of slower global growth. A forecast for real GDP growth of around 2.2 per cent in 2019 is reasonable given the developments of the first three quarters. However, the longer-term economic outlook remains uncertain due to cooling global growth, a faltering manufacturing sector, the fading effects from the 2017 tax cut and trade frictions.

Concerns over tariffs and geopolitical uncertainties have increased discussion around a possible economic downturn. However, to date, these elevated risks have not become a reality, at least for the US economy. Because the Trump Administration’s machination through the Pentagon and NATO keep the world in a war-war situation. Specially Iran, Afghanistan, Iraq and some other countries in the Middle-East allow the American armaments industries to thrive at the cost of economic crises in the Middle-East and South Asia.

The present-day world is facing a new problem of terrorism that occurs throughout and is known as global terrorism. There are about 174 or more terrorist organisations all over the world. But now a new phenomenon has developed, that is, religious terrorism.

The days of Imperial Dominances have gone long ago. The present world will not tolerate the dominance of the dollar and American inter-ference. The NATO alliance is struggling militarily under the US leadership. There is no doubt that the NATO is at the cross-roads. Peace-loving democratic people around the globe are striving for a humane world order.

The author is a politician, columnist and currently the Director-General, Bangladesh Foundation for Development Research, Dhaka.

Notice: The print edition of Mainstream Weekly is now discontinued & only an online edition is appearing. No subscriptions are being accepted