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  Author Name : K Ramesh Babu Posted on : July-7-2009 Total Hits: 2083
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The global economic slowdown had taken a serious proportion as evident from President Bush’s talk and former IMF economist Simon Johnson outlined apprehensions over future retrieval.   


During the last nine months US job lost accounted for 7, 60, 000 till this year and 1, 59,000 jobs in the last month alone.


European belts also tightened as major banks giving deposit guarantees and asked Johnson to reduce interest rates to face contraction in liquidity supply.


The reasons behind are continuous US and EU economies downturn in growth path during this year and worried about their long term prospect. Their economic growth level always performing around 1 per cent or something and going beyond 2 or 3 per cent and plus are considered as best growth rates. Since they have a developed market structure and less population addition with 0.1 per cent or even negative growth levels effectively reduces larger demand for needs and consumption.


In another way they import large scale food, cloth and other necessary items from cheaper locations across the globe, export technology and other services to these locations to get advantage of cost at both ends. These cost cutting measures slow down internal demand and purchasing power and left with negative stimuli for economic activities. However, many argue against the theory saying that it is helping to return to disciplined practices which encourage saving and avoiding disasters by pumping more money in to the economy. 


But reduction in population and outsourcing jobs even might affect in short term, but creating new jobs and expanding the strong segments of the economy may balance the job cuts as well growth. Changing structure and lifestyle too affect the rich countries to some extent.


The real problem now they face is reducing contribution from traditional segments and increasing import from developing markets. Globalization has opened up several possibilities to gain trade surplus for developed world. But in fact they experience negative trend in BoT for past some years. 


In case of the US recently from its Department of Commerce report shows the dilemma of the country to keep with up hand in international trade and expanding the domestic economy. The report notes that, Commerce estimated on July 31 that the narrowest trade deficit in seven years added 2.42 percentage points to growth, the most since 1980, and prevented the U.S. economy from shrinking in the second quarter. Excluding the effect of trade, the economy would have contracted at a 0.5 percent pace, instead of expanding 1.9 percent.


The trade gap with China widened to $21.4 billion from $21 billion in the prior month. Some U.S. lawmakers accuse China of keeping its currency undervalued to boost exports.


U.S. Treasury Secretary Henry Paulson, writing this month on the Web site of Foreign Affairs magazine, said Yuan strengthening still has ``much further to go.'' Of the advance since a fixed-exchange rate ended in July 2005, Paulson said 70 percent has come about after he initiated semiannual economic talks with China in 2006.


The deficit with the Organization of Petroleum Exporting Countries, expanded by $200 million to a record $18.1 billion.


The U.S. trade deficits with Canada, Japan and the European Union widened. The gap with Mexico shrank as exports to that country reached a record.


U.S. manufacturers have received a boost from export orders as economies overseas grew and the dollar weakened. 


The current meltdown in the financial sector reflects the long term crisis brooding to explore at an end. 


Not alone US many EU countries may soon experience the ‘glut’ caused by continuous decline in growth parameters.


In August, European Central Bank chief, Jean-Claude Trichet told a press conference that the risks facing the euro zone economy were starting to materialize.


"The uncertainty surrounding (the) outlook for economic activity remains high," Trichet said with the global economy hit by high energy costs, on-going financial market tensions and weakening economic growth.


This has become true in case US and now it may extend in to EU in near future.

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