The consensus six months ago was:
- the US had "decoupled" from the rest of the world economy,
- Globally diversified US companies would be saved by strong growth in Europe, Asia, and emerging markets
Oops.
Asia and emerging markets are still sputtering along, for now, although the latter are beset by frightening inflation. Europe, however, has ceased to be a savior and may soon start being a drag on the global economy. One by one, the dominoes are starting to fall...
Europe thought it could escape the worst of the global slowdown. Now it looks like the euro-currency zone, the world's second-largest economy after the U.S., is headed for a hard landing and perhaps even recession, compounding growth troubles around the globe.
Spain suffered its largest-ever business failure Tuesday as construction group Martinsa-Fadesa filed for bankruptcy protection, making it the first big victim of Europe's bursting real-estate bubbles. (See related article.)
On the same day, the euro touched a record high of just over $1.60, while investor sentiment in Germany, Europe's biggest economy and until now a rare bright spot for growth among developed economies, fell to its lowest level since the recession of the early 1990s.
The rising risk of recession in Europe shows that despite the strength of emerging-market economies such as Russia and China, the economic downturn that began in the U.S. last year is spreading to other regions, battering hopes that the global economy might have "decoupled" just enough that the rest of the world could coast through a U.S. downturn relatively unscathed.
