November 3, 2003

Where did that come from?  That is what many economists are asking after seeing third quarter GDP statistic increase at a 7.2% annual rate!  Jeez, that’s a lot.  What makes it even more surprising is that it wasn’t just the American consumers this time.  Business spending on equipment and software was up 15.2%, overall business spending was up just over 11%.    Heck, even the much battered manufacturing sector saw some decent growth in October and the rest of the third quarter.  While these GDP growth rates surely are not sustainable (3.5 to 4.5% is more likely) it does suggest that the economy is bouncing back strongly.

The British also seem be enjoying an economic recovery.  October saw a strong boost in retail sales in the UK as well as growing consumer confidence levels.  Just as in the States, the British manufacturing sector is picking up nicely, seeing some of the strongest growth in over four years.  There is even talk in London that the Bank of England might have to raise interest rates to tame the expanding economy a bit.  But the BoE might be reluctant to do so if it fears such a move might choke off the recovery.

And then there is Continental Europe…Germany, France and Italy have seen their economies go…well…no where.  Hopefully, Euro zone growth might eek up to 1.2% or 1.5% in 2004.  Much of this growth is expected to come from an expanding United States economy.  The big guns of the Euro Zone still seem mired in high unemployment, bloated government budget deficits and even persistent inflationary pressures.  It looks as though the U.S. economic engine is going to be pulling Europe along…again.

Let’s (please) not forget Latin America.  This past month has seen the overthrow of Bolivia’s pro-U.S. President Gonzalo Sanchez de Lozada.  Following weeks of protests over the government’s plan to sell natural gas to the United States Sanchez de Lozada was forced from office and fled to the United States.  Many fear that growing anti-American sentiment across Latin America might threaten the pro-market economic reforms that these countries have undertaken over the past decade and a half.  Many of us have warned that if the people of Latin America do not see tangible results from these economic reforms, populist, leftist politicians might use these anxieties to turn the economic clock backward.

These fears may be premature.  Perhaps the future model of Latin American economic reform will be along the paths of President Luiz Inacio Lula da Silva in Brazil.  Lula, the former trade unionist, has talked a good populist game, but his policies are more in line with sound, long term, market reforms.  Lula may not do everything the American Administration wants, but many of his policies are sure to benefit the Brazilian economy in the long run.

One potential silver lining to the current anti-American feeling in Latin America is that many in Latin America are beginning to realize that more might be gained from trading with other Latin American countries than depending solely on the U.S. market.  Many economists have argued for years for more intra-Latin America trade.  Perhaps this will be the impetus for such a change.

Finally, many Latin American polls show that while the people of Latin America may not be trilled with the current American Administration’s neglect of the region, they realize that closer economic ties with the United States are important for the long run survival of their economies.  Now…if the Americans will learn to listen to our Latin American neighbors.

 

All the best,

-MB