yzed the effects that the U.S economy which is on the verge of and perhaps already in outright recession will have in the general performance of the world economies but particularly to countries with which it trades with heavily such as the economies of Canada, Mexico, Caribbean among others.
A U.S recession in 2008 will have a negative effect on real GDP growth of the rest of the world. This will be especially so, in Mexico and Canada. In other countries which would otherwise be threatened by a U.S recession, measures including easing of monetary and fiscal policy would cushion them from the effects, however it is still yet early to undertake any of the macroeconomic measures as a recession in the U.S is still just a prospect.
Some countries, such as Australia, china and Sweden have already taken steps to curb any possibility of inflation, they have tightened their monetary policies. However, other countries such as Canada and the United Kingdom have eased their monetary policies in response to their weakening economic growth.
Most countries and currencies such as the Euro and the Yen have appreciated against the dollar. Whereas these economies to some extent are being affected by the financial turbulence in United States, with the euro zone economies already showing a slow growth, the appreciation of their currencies against the dollar impedes any chances of inflation. With Japan’s weakening exports to the United States couple with a decrease demand dampens any possibilities of an upsurge in GDP growth.
China’s economy continues to grow at an increasing rate, however with a high growth rate comes the problem of inflation, therefore the authorities are being faced with the problem of inflation, and this is necessitating them to tighten their policies both monetary and fiscal. To do this, the best option is to appreciate their currency against the dollar and stimulate domestic demand, however their authorities are not willing to employ this measure.