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Eurostorm Batters Brazil

It’s hard to imagine a greater contrast than the pomp and ceremony surrounding the G-20 summit of world ‘leaders’ in the posh resort of Cannes with the turmoil and darkness of the world’s economic outlook.  But China, the US and many others are not onlookers in the European crisis; every major economy in the world will reel if the Europeans can’t get their act together.

Take a healthy ‘BRIC’ like Brazil.  Brazil’s industrial output is faltering amidst the chaos of Hurricane Europe. Like a modern-day Parable of the Wise and Foolish Builders, declining demand and a soaring currency are washing away growth in Brazil’s car manufacturing industry and eroding some of the country’s sandy foundations. The WSJ reports that in the face of European jitters:

Brazil’s industrial sector now has contracted for two consecutive quarters, the London-based Capital Economics research firm said Tuesday. […]

Brazil is an extreme example of how rising currencies are causing unexpected economic headaches in fast-growing emerging-market nations such as Colombia, Chile, South Africa and Indonesia that are attracting floods of investment capital as developed-world economies like the U.S. and Europe struggle. […]

Manufacturers here face other roadblocks. Decaying roads, ports and other infrastructure raise the cost of doing manufacturing. Meantime, Brazilian companies face a complex array of taxes that make business costly.

Brazil’s potential is great, but so are its challenges. With projected growth slashed from 5% GDP to 3% (see above article), Brazil’s ascent is far from inexorable and not immune to European woes.

Brazil is not alone; nobody is safe from Europe’s ever-unfolding sovereign debt crisis. Low, shaky growth is a problem everywhere. Also from the WSJ:

Manufacturing activity in parts of Asia sputtered in October, data showed Tuesday, reflecting strains on the region’s export-dependent economy from Europe’s debt crisis and efforts to cool inflation that has plagued several countries this year. […]

Purchasing managers indexes showed Taiwanese manufacturing activity fell at its fastest rate in almost three years in October, while South Korean output continued to shrink, though at a slower pace than in the previous month. […]

A PMI released by China’s government fell sharply in October, contrary to expectations for a third consecutive rise, hitting its lowest level since February 2009, when the global economy was suffering from a severe financial crisis.

It’s not just Obama that should worry about Europe — an old-world meltdown would threaten us all. Today’s surprise announcement to cut interest rates by the European Central Bank offers a rare glimpse of hope, but Europe is far from figuring out a path forward, much less from reaching agreement on the necessary steps.

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  • WigWag

    “Today’s surprise announcement to cut interest rates by the European Central Bank offers a rare glimpse of hope…” (Walter Russell Mead)

    A “glimpse” is right and even that is probably overstating the case. Considering the magnitude of the problems facing Europe, a quarter point drop is not only a joke, it’s way too little, way too late.

  • dearieme

    “Today’s surprise announcement to cut interest rates by the European Central Bank offers a rare glimpse of hope”: my guffaw at the news was unrelated to hope.

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