Economic growth slows around the world

Posted: May 27, 2011

WASHINGTON - From the United States to Europe and even to booming China, the global economy is showing signs of strain.

Most major economies are expected to keep growing, but evidence that many are struggling to expand as fast as they did last year is piling up.

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

High unemployment, depressed real estate, and still-high oil prices are slowing the U.S. economy, which grew at a scant 1.8 percent annual rate from January through March. Even Europe's strongest economy, Germany, faces a slowdown. And after its earthquake and nuclear crisis, Japan has sunk back into a recession.

The world economy will likely 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 isn't 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, a former chief economist of the IMF.

IHS chief economist Nariman Behravesh said, "Three headwinds are hitting the global economy at the same time":

High commodities prices. Despite a recent dip, oil prices are up 50 percent over the last year. Those prices have squeezed household budgets in the United States and other rich countries and held back consumer spending. 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. Britain last year cut spending and raised taxes, choking the economy. Britain's economy eked out 0.5 percent growth in the January-March quarter after shrinking from October through December.

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. It will likely contract another 3.7 percent in the April-June quarter, according to the Organization for Economic Cooperation and Development.

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