EoW September 2012

Transatlantic cable

To place this in perspective, at the bottom of the recent recession the American economy was 5.1 per cent smaller than it had been at the peak. The only other such episode since the Great Depression to shave as much as 3 per cent from gross domestic product (GDP) was the 1973-1975 recession, brought on by the shock of high oil prices. It took seven quarters for the American economy to regain all its losses from that downturn. This time, the recovery from recession – the deepest since World War II – took twice as long. But, as noted by Mr Norris, when its economy hit its low the United States appeared to rank in the middle group of industrialised countries in terms of severity of recession. Portugal appeared to have escaped, with a maximum decline of just 4.1 per cent; Spain, with a loss of slightly less than 5 per cent. † Now, Portugal has su ered a total decline of 5.2 per cent; and Spain may be headed to a new low. Italy, which like Spain is nding lenders hesitant to buy government bonds, has reported declines in GDP for three quarters. Greece has endured 13 consecutive quarters of decline, with no end in sight. Ireland for a time appeared to be a relative success story, as its GDP grew at a rate of more than 4 per cent in the rst half of 2011. But it fell back later in the year. While comparisons may seem particularly odious during the current euro crisis, con rmation of the resilience and steady strengthening of the world’s largest economy has to be reassuring. Of related interest… † Mexico has also been generating some welcome economic news. When Mexican President Felipe Calderón hosted the Group of 20 major industrialised and emerging economies 17 th -19 th June, he was able to point to 17 years of macroeconomic stability, low in ation, manageable debt, an open economy, and increasing competitiveness. Mexico’s GDP expanded 3.9 per cent last year, ahead of Brazil’s growth of 2.7 per cent, and appears set to outpace that of its larger Latin American rival again in 2012. Nissan, Mazda and Honda have all announced that they would build new plants in Mexico, and investments in aerospace and electronics are also on the horizon. In the meantime, fuelling the modest expansion, Mexican factories are exporting record quantities of TV sets, cars, computers and appliances, replacing some Chinese imports in the United States. The reversal in the fortunes of Mexico and Brazil (which as recently as 2010 achieved annual growth of 7.5 per cent) can be traced in a 10-year-old automotive trade accord between the two countries. For most of the pact’s life, Brazil sent more cars to Mexico than it took in; but in 2011 that changed, with imports of Mexican-made cars surging 70 per cent to $2.4 billion. This March, Mexico agreed to cut its exports to Brazil to an average of $1.55 billion annually for the next three years, to be followed by restoration of free trade.

The “Wikileaks-esque” name is a reference to the ITU’s December summit in Dubai, the World Conference on International Telecommunications, or WCIT.

Elsewhere in telecom . . . † As it continues to shrink its wireline business, Verizon Communications Inc on 4 th June announced that it had sent out the latest in its series of buyout o ers: this one to 1,700 workers, mainly call-centre employees and technicians. The buyout programme is part of a Verizon e ort to cut its wireline costs as households either drift to competing carriers or cancel their land-based phone lines, opting instead to rely on cellphones. A company spokesman said the target was to have the employees leave by the end of July. If not enough acceptances were received, layo s were to be a possibility. The o er applied to less than one per cent of Verizon’s overall workforce – 191,800 as of 31 st March – and about two per cent of its wireline workforce. Verizon is the second-largest xed telephony provider in the United States, after AT&T. Through several subsidiaries it provides local landline services in 11 states and the District of Columbia. As well as being a likely major issue in the presidential election in November, the apparently slow pace of the American economic recovery is a matter of concern worldwide. A credit crisis in the United States sent the world into recession in 2008, and as a bellwether of economic health the US has only grown in signi cance in the interim. What, then, in mid-2012, can reliably be said about the American economy? Floyd Norris, the chief nancial correspondent of the New York Times , recently supplied statistics indicating that, by the standards of other developed countries, the American economy has in fact been doing rather well. Adjusted for in ation, it was 1.2 per cent larger in the rst quarter of this year than it was in the peak quarter before the recession. (“A Slow Recovery in the United States, but It’s All Relative,” 15 th June). Mr Norris charted the performance of the Group of 7 industrialised nations, including three members of the euro zone, and that of seven other countries that use the euro. Of the 14, the United States is alone in showing consistent growth over the four quarters through March. Even if its pace of growth has not been very fast, the nation has reported a growing economy for 11 consecutive quarters. Only Canada among the Group of 7 has done better than the US, having bene ted from being an exporter of natural resources to China. It also escaped the worst of the downturn because Canadian banks, better regulated than their American counterparts, did not nance a real estate bubble. But Mr Norris noted that even Canada posted a decline in one quarter of last year. The economy While the pace of growth in the US may not be very brisk, the economy has grown for 11 consecutive quarters

Dorothy Fabian USA Editor

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September 2012