June 2001
US growth will outperform all others
Which economic bloc is going to perform best this year,
Europe or North America? The consensus is that the US is heading
for very low growth, say under 2%, while Europe will do better,
with 2.5% at least.
But, contrary to the European Central Bank, I reckon Europe will
perform worse than the US over the next 12 months. Europe, with its
decades of declining investment-to-GDP ratio, has none of the
hidden springs of productivity the US can draw on. Furthermore,
Europe is going backwards on economic reform. That's particularly
so in France, where half-witted socialists are attacking profitable
corporations that rationalize their operations to make money for
shareholders. No wonder the euro continues to languish. Perhaps if
Silvio Berlusconi carries out the reforms he promises for Italy, it
will kick Europe's bureaucrats and politicians into action. But
don't hold your breath.
In the US, by contrast, the productivity gains that the new
economy imparts to the old economy should ensure that enough
American people are gainfully employed - despite the recent small
rise in unemployment - to keep consumer demand growing at more than
2%. And the same productivity should mean that the corporate sector
will be making enough profits to prevent asset markets destroying
too much wealth. As the rest of the world gets sicker, the Federal
Reserve will cut interest rates faster too.
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