International Herald Tribune – Economic trouble has spread far beyond the United States to major countries in Europe and Asia, threatening businesses around the world with the loss of the international sales and investment that have become increasingly vital to their sustenance.

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States.

Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

“The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere,” the IMF declared last month in its official World Economic Outlook.

One consequence of the changing dynamics of the global economy is a small but significant shift in currency trading. The dollar has been strengthening against many currencies in recent weeks — not so much because of a new-found belief in American prospects, economists say, but because investors are edging out of markets that are weakening, like Britain and other parts of Europe, sending down the pound and the euro.

“It’s the rest of the world going down, not the United States going up,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. …

As the United States and many other large economies slip in unison, the reality of integrated markets is being underscored: just as globalization spreads prosperity — linking cotton farmers in Texas to textile mills in China — the same forces spread hurt when times go bad.

“The slowdown has reached such a wide range of countries that they’re now feeding on one another,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

The impact of the downturn is reflected by the experience of the Vermeer Corporation in Pella, Iowa. The company, which manufactures farming and construction equipment, has become accustomed to looking abroad for growth as the real estate bust in the United States has crimped purchases of its gear by American home builders. Its overseas sales have doubled in the last five years as a percentage of its total business and now make up nearly a third of its revenue, the company’s senior director of international sales, Steve Heap, said.

But in recent months, even as growth has continued over all, some parts of the world have sunk into malaise.

“The U.K. has been really soft for the last six months,” Heap said. “Western Europe overall has been flat. We’ve not seen the growth we’ve seen in the last few years.”

Many other major economies are either stagnant or shrinking as well. In Japan, whose fortunes are tethered to exports, the economy contracted at a 2.4 percent annual rate from April through June after accounting for inflation. Germany, another export power, slid at a 2 percent clip. France and Italy slipped slightly.

Spain and the United Kingdom — both grappling with hangovers from their own real estate binges — were both flat amid talk that they have already slipped into recession. The festivity of easy money has given way to recriminations over bad loans, unemployment and inflation.

“The year 2009 in Europe is going to look significantly worse than 2008,” said Marco Annunziata, chief economist at the Italian bank UniCredit.

Even China and India, whose swift growth has occasioned talk of a new global order, have been cooling in recent months, though still expanding at rates that would bring envy in nearly any other land.  (08/24/08)
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