A hopeful start to 2012 has been belied. The West is slipping back into recession, as Table 1 shows. The US and Germany remain strong, but many other powerhouses — even the UK — have begun to contract. And, as Table 2 makes clear, there is little hope for a recovery soon. The Purchasing Managers’ Index (PMI) for the euro zone, for example, are solidly below 50 for both manufacturing and services — even for German manufacturing. A PMI below 50 indicates a contraction; it is clear that producers’ sentiment across Europe is still very weak. A rally seems unlikely.
The US’ numbers appear more healthy, but its recovery is slowing, too. Jobs growth had begun to look healthy but, as Table 3 shows, has tailed off sharply in the past few months – especially in April. Meanwhile, the problems associated with peripheral euro-zone countries like Greece are spreading. The UK’s and Spain’s fiscal deficit-to-GDP ratio — as shown in Table 4 — are worrying investors. And Italy and Portugal have debt-to-GDP ratios that are similarly of concern, as Table 5 indicates. (Click here for tables)
As it becomes increasingly clear that these problems are not going away, an initial decline in sovereign bond yields for Spain and Italy — following solid support for their banking systems from the European Central Bank — has ended. They are now, as Table 6 shows, back near the dangerous 6 per cent mark.
For India, the continuing weakness of the West is a very real problem. Its own external vulnerability increases along with its imported fuel bill; exports have not kept up with the increase in imports. As Table 7 documents, what appeared to be a steady increase in exports in 2011 has now stagnated. With no end to the North Atlantic crisis in sight, strong export growth might be too much to hope for.
The first sign of trouble appeared in January this year. Fifteen-year-old Alzira’s class teacher summoned her mother, Tina, and warned her that if ...