High imports and weak exports suggest U.S. GDP could be hindered by sluggish international economies as G20 summit kicks off in Istanbul.
By Andrew Soergel, US NEWS
Top finance officials from 20 of the world’s largest economies have gathered in Istanbul this week to discuss a wavering global economy plagued by Greek uncertainty and largely reliant on a strong U.S. dollar.
This week’s international G20 economic summit begins only two weeks after Alexis Tsipras, representing Greek’s radical Syriza political party, was elected Greece’s new prime minister.
The Greek economy plummeted in 2009 and has since been a drag on the rest of the Eurozone. Though Greece has received $268 billion from Germany, the European Union and the International Monetary Fund in the form of bailout loans, Tsipras indicated Sunday that he was dedicated to renegotiating terms of these agreements that he describes as “five years of bailout barbarity.”
“[The government] has taken the irrevocable decision to stick fully to its pre-election commitments,” Tsipras said Sunday in reference to his previous promises to abandon what he describes as restrictive bailout conditions. “If our [European Union and financial] partners are willing, we can agree [on revised terms] tomorrow morning.”
The newly minted prime minister has vowed to reinstitute a tax-free threshold for extremely low-income individuals and eventually elevate the country’s minimum wage – both of which would violate the previous Greek government’s agreed-upon bailout terms, according to Bloomberg.
Greece’s current bailout arrangements expire at the end of the month, and the country is still beleaguered by public debt in excess of $362 billion.
Greece’s GDP was roughly $242 billion in 2013, and the country’s most recent unemployment figures towered at 25.8 percent in October. Its unemployment rate and more than 170-percent debt-to-GDP ratio are both the highest among Eurozone-member nations.
Greek officials are expected to meet with creditors on Wednesday in Brussels to discuss bailout arrangements. If financial terms are not renegotiated by the end of the month, there is a possibility that Greece would withdraw from the Eurozone. A loan default or departure from the Eurozone could open a floodgate for other nations to follow suit, bringing unintended consequences to both the Eurozone and the global economy at large.
“The euro is fragile. It’s like building a castle of cards. If you take out the Greek card, the others will collapse,” Greek Finance Minister Yanis Varoufakis said Sunday in an interview with Italian TV network RAI, according to Reuters. “I would warn anyone who is considering strategically amputating Greece from Europe, because this is very dangerous. … Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity.”
Standard & Poor’s Ratings Services last week downgraded Greece’s credit rating to “B-,” citing the financial ratings system’s “view that the liquidity constraints weighing on Greece’s banks and its economy have narrowed the timeframe during which the new government can reach an agreement on a financing program with its official creditors.”
American markets are not immune to economic ripples abroad. The Dow Jones industrial average (down 0.53 percent), S&P 500 (down 0.42 percent) and Nasdaq composite (down 0.39 percent) all contracted Monday as Greek uncertainty persisted and trade data issued Sunday showed China’s year-over-year imports down nearly 20 percent. Year-over-year Chinese exports were also down 3.2 percent.
The U.S. has been a relatively solid economic performer in recent months, but its growth has been hindered by the underwhelming financial situations of the international community at large. The U.S. last week saw employment figures in January exceed expectations as the domestic economy added 257,000 positions and 703,000 Americans entered the workforce.
But GDP numbers released the week before suggest the U.S. economy cooled in the fourth quarter, due in part to a rise in imports and lower-than-expected export growth.
It’s profitable for companies in the U.S. to import goods and services when the U.S. dollar is performing relatively well, but high import figures ultimately drag on domestic GDP. And export-heavy sectors like manufacturing have suffered as international trade partners make fewer orders from American industries.
Summit attendees are expected to discuss individual, regional and global economic trends this week, along with financial forecasts and plans to meet last year’s agreed-upon 2 percent combined GDP growth target by 2018.
Oil prices that have plummeted 60 percent from June highs, at various points throwing U.S. and international stocks into turmoil, are expected to be among international economic officials’ list of talking points. Bank of Japan Gov. Haruhiko Kuroda said Monday he views cheap oil as a good thing as he addressed a group of reporters covering the G20 summit in Istanbul.
“For the world economy, without a doubt, weaker oil prices are a plus,” Kuroda said Monday, suggesting the benefits cheap oil provides to certain industries and consumers ultimately outweigh the negatives. “We could see some movement toward upgrades of economic forecasts [if prices remain low].”
