Global Economies: Why the
Slowing’s a Red Flag

George takes a look at the global situation, especially the slowdown in growth and what it could mean.The world economies are slowing. Japan’s credit rating was just downgraded to Aa3 from Aa2 by Moody’s due to slow growth and credit issues.

My global economic analysis is that problems are brewing globally and there is a real possibility that the stalling will impact global growth and perhaps lead to another recession.

In Europe, Greece is in a major sinkhole and expects its recession to worsen. Heck, after two bouts of emergency funds, Greece may have to ask for more money down the road. This cannot be good for Europe. The situation in Europe continues to focus on the debt and growth, along with the funding. And until it settles down in Europe, markets will likely continue to be shaky on this side of the Atlantic.

The concern towards Germany’s sluggish growth is conjuring up fears of another potential recession if the top country cannot reverse its growth. France is also slowing. There are also concerns that the major European banks with exposure to bad debts within the weaker European countries will be in trouble, which could trigger a financial crisis.

Several moves to cut global gross domestic product (GDP) are a red flag.

Morgan Stanley cut its global GDP forecast for 2011 and 2012 and added that the U.S. and the Eurozone were “dangerously close to a recession.” Not exactly an endorsement.

On Thursday, UBS and Citigroup cut the forecast for global and domestic GDP growth, but added that another recession was unlikely. Are they sure?

Citigroup cut its global GDP forecast to 3.1% for this year from 3.4% and to 3.2% in 2012 from 3.7%. For the advanced economies, GDP was cut to a miniscule 1.4% in 2011 from 1.8% and down to 1.7% in 2012 from 2.2%.

Over in China, the Chinese economy is facing higher interest rates and inflation.

UBS cut China’s GDP to nine percent this year from the previous 9.3% and to 8.3% in 2012 from nine percent. While the cuts are not major, they do indicate stalling in the massive Chinese economic engine. This is something that we do not want to see, as weakness inChinawill impact Chinese exports. Slowing also indicates less foreign demand for Chinese goods, suggesting slowing global demand.

The impact from the slowing in foreign markets will impact growth domestically and this is not good given that America is still trying to dig itself out of the credit and deficit mess.

The reality is that the next several years will not be easy and will be littered with more obstacles. And if the U.S. cannot manage its debt, the global situation will worsen.