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The ongoing war in Lebanon is not doing anything good for the global economy, of course. But even without that new factor it is increasingly clear that the global boom has peaked and that we are now on the other side of the hill - going down.
That is not to say that global recession is imminent. However, what can be said with certainty is that the rate of growth in the key economies, and for the world as whole, has peaked and is now set to decline after the best two years the world has experienced since the early seventies.
The key economies are the US and China; the former is a market economy and its markets is plainly signaling that it is heading south, especially in the critical housing sector. The Chinese economy, despite all the reforms, is still directed by the government, and the top people in government are now saying in the plainest possible terms that they will increase their efforts to slow down the breakneck growth that China has experienced in recent quarters and years.
In neither case is there any intention to reduce growth to zero, let alone negative levels.
The American economy is likely to ease down to growth of less than 3 percent per annum in the second half of this year - and may even have reached that level in the second quarter. Thereafter, in 2007, many analysts expect/fear an outright recession, but an equal number believe that growth will remain positive, albeit at much lower rates than those seen in the last two-to-three years.
The Chinese story is the same, but there the numbers are higher. When the government talks of slowing the economy, it means to rates of around 8% per annum, and certainly not less than 6-7%. Anything less would be potentially disastrous in the context of Chinese society and politics. However, there is no guarantee that a slowing dynamic, once underway, will not result in growth rates falling well below the levels governments and markets would prefer, at least temporarily.
As for the other two main players, namely Japan and the EU, these are still on the upswing - but their ability to maintain that positive momentum is limited, especially if the American and Chinese economies do slow substantially. The latest German data have generated concern among analysts that the German recovery - never very dramatic to begin with, and largely export-driven - has run out of steam. The Japanese economy seems to be on a stronger footing, after more than a decade of crisis, but here, too, opinions are sharply divided as to whether a) growth is predicated on continued high demand from China and the US, and b) the policies of the government and central bank may not, once again, cause the recovery to wilt prematurely.
Everyone else will be impacted by the big boys, whatever their specific circumstances.
In the case of Israel, the specific circumstances have been turned on their head this month and the economic outlook will deteriorate with every day of continued fighting. But, precisely because of the negative development of July, the prospect of a global slowdown - or worse - is particularly bad news at this time because it blocks, or at least reduces, the possibility of increasing exports to offset potential weakness in the domestic economy.
To this gloomy short-term scenario at the local and global levels must be added the unfortunate - although hardly unexpected - news of the final demise of the Doha round. As we have noted here in the past, world trade negotiations attract little interest from the media and are largely meaningless to the general public. However, like most truly important things, the importance of global trade is not reflected in the number of column inches devoted to it, but in its role in promoting growth. Once again, in the case of a small, open economy such as Israel, in which trade flows are dominant elements in both ongoing economic activity and in long-term economic development, the prospect of slower growth in world trade or, much worse, a rise in protectionist sentiment generally, is entirely negative.
It's the time of year for bad news, and we seem to be getting it in spades this year. Fortunately, there are still bright spots - notably that the financial markets are taking all the bad news and data with remarkable equanimity, at least so far. But the black period for the markets is traditionally August-September, so let's hold back on the applause for the moment.