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Global economies struggle to expand

By Paul Wiseman
Associated Press / May 27, 2011

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WASHINGTON — The global economy is showing signs of strain.

Most major economies are expected to keep growing. But evidence is mounting that many around the world are struggling to expand as fast as they did last year.

In China, interest-rate hikes designed to reduce inflation are slowing growth. European governments are struggling with debt and squeezing their budgets. Britain’s economy scarcely grew at the start of the year.

Even Europe’s strongest economy, Germany, faces a slowdown.

And after its earthquake and nuclear crisis, Japan has sunk back into a recession.

Overall, the world economy will probably grow just 3.5 percent this year, down from 4.1 percent in 2010, according to the research firm IHS Global Insight. IHS has cut that forecast from 3.8 percent.

As leaders of the Group of Eight rich democracies meet in Paris, slowing global growth is on an agenda already packed with concerns about instability in the Middle East, Greece’s debt crisis, and who will be the next head of the International Monetary Fund. It is not a priority item at the meeting, though.

“The eurozone is a big mess, and the Europeans don’t want to talk about it,’’ said Simon Johnson, former IMF chief economist.

The most serious such problems exist in Greece, Spain, Portugal, and Ireland, which are overwhelmed with debts run up during the financial crisis and in the recession that followed.

Financial markets have been signaling concerns about a worldwide slowdown. The Dow Jones industrial average has shed 450 points, or 3.5 percent, this month. Stocks have slid 3 percent or more this month in Japan, Britain, and Hong Kong.

Nariman Behravesh, IHS’s chief economist, said that “three headwinds are hitting the global economy at the same time’’:

■High commodities prices: Oil prices are up 50 percent over the past year, despite a recent decline. Rising food prices are hurting the middle class and the poor around the world.

■Government budget cuts: Many European countries had to slash spending after the financial crisis swelled their budget deficits.

■Japan’s earthquake and nuclear crisis: After factory production was disrupted, the Japanese economy shrank at a 3.7 percent annual pace in the first quarter. Economists expect a rebound in the second half of the year.