As the Great Recession was taking hold in America, economists and investors wondered how, in this age of globalization, other countries and markets could avoid the financial fallout. The Chinese and Indian economies continued growing. Australia’s gross domestic product expanded. Indonesia’s economy remained positive.
Decoupled was the description. No longer was the world economy in sync, if it ever was. But global profits are another matter.
As the current American economic debate is focused on when the Federal Reserve may raise interest rates, European fiscal leaders are poised to go the opposite direction. In the new week the European Central Bank is expected to repeat a strategy used in the United States — buy billions of dollars worth of government bonds with hopes of lowering interest rates further. The goal is to entice European consumers and companies to spend again.
While the U.S. economy has returned to growth, albeit underwhelming compared to other post-recession periods, the European economy is stuck. Just one year after the end of the Great Recession, the European economy fell backward again through the middle of 2013. It has turned positive since, but barely.
Many U.S. companies have warned about their European businesses. In recent weeks, Goodyear, Alcoa and WD-40 have cited Europe as a source of weak sales. As more companies report fourth quarter financial results in the weeks ahead, expect to hear similar alerts.
The European Central Bank’s efforts on Thursday may be focused on that continent, but its effects could be coupled to the bottom line of American companies and their investors.
Tom Hudson hosts The Sunshine Economy on WLRN-FM. Follow him on Twitter @HudsonsView.