- The U.S. trade deficit will widen in the upcoming months and thereby trigger a slowdown in the U.S. economy. Why? Japan has officially fallen into a recession with two straight quarters of economic contraction. Eurozone economies are barely hovering at zero growth. China has markedly slowed down, no longer roaring at a 10 percent clip. The Russian economy is falling apart because of economic sanctions and from falling oil prices. Brazil is fighting hard not to contract. All of this adds up such that foreign economies will have less capacity to buy American products. U.S. exports will no longer rise while American consumers will continue to buy imported goods.
- The U.S. economy did show some sparks with the GDP expanding 4.6 percent and 3.5 percent in the past two quarters on an annualized basis. Above 3 percent is desirable and good and below 3 percent is subpar. However, based on softening exports, GDP in the final quarter of the year may only be 2 percent. Such a slowdown means job gains will also slow.
- U.S. exports to foreign countries already started to contract in September, falling 1.5 percent. Meanwhile U.S. imports were about the same. Therefore, the trade deficit increased. This type of trend will further continue for the foreseeable future because foreigners will have less capacity to spend. Moreover, the U.S. dollar has strengthened, which makes U.S. products more expensive and foreign products cheaper. In a pronounced case of Russia, its currency has tumbled by more than 30 percent against the dollar. Therefore, there will be less Russian buyers of Miami properties in the upcoming year.
- Forecast? The U.S GDP growth in the fourth quarter will be sluggish at around 2 percent. If subpar growth continues into early next year than the pace of job gains will surely slow. Job growth is currently projected at 2.5 million for 2015. But if exports struggle to expand and the economy grows slowly at 2 percent throughout next year then the job gains may slow to only 1.5 million.
- Russia’s economy is potentially facing shambles because of sanctions. This weakening will have some reverberations across the global economy. Finland for one, an innocent bystander, will suffer a deep recession as Russian tourists stop coming. But the sanctions on Russia will not be lifted as long as it misbehaves, like invading a foreign country. Back during the U.S. Civil War, European countries wanted to continue the cotton trade with the Southern states despite the sanctions placed by the North. To reaffirm the sanctions and prevent violations for good, Abraham Lincoln came out with Emancipation Proclamation, something he had pondered for several years. Lincoln knew with his announcement there was no way Britain and France, who both had abolished slavery several years earlier, could now violate the sanctions. The Southern economy subsequently collapsed. Moral reasons will always triumph over economic reasons.
By: Lawrence Yun (Economists’ Outlook)
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