The US economy strengthened considerably in December, leading the global economic recovery and leaving Europe and Japan behind, the Organisation of Economic Cooperation and Development (OECD) said today. The upbeat assessment of the US economy from the OECD came just hours ahead of a meeting of finance ministers from the G7 group of leading industrialised countries, with the weakness of the dollar the prime subject of concern. "Moderate to strong recovery lies ahead in the OECD area," the organisation said in a statement. "December data signal continued strong improvement in the United States but weaker development for Italy."
For the 30-nation membership of the OECD, the December leading indicator - a pointer of future economic activity - rose to 123.6 from 122.8 in November. The reading for the US was 133.3 (up from 131.7), the 12-nation euro currency zone struggled up to 123.8 (from 123.5), and Japan managed a weak increase of 0.2 to 102.3. Of the G7 economies, only Italy showed weaker development, its index slipping to 106.3 in December from 107.8 in November. The OECD’s data will give John Snow, the US treasury secretary, something to crow about amid unease - especially in the eurozone - at the fall of the dollar, which threatens to hurt European exports and, by extension, the fledgling recovery in continental Europe.
Joseph Stiglitz, the Nobel-prize-winning economist - and a critic of US economic policy - predicted that Mr Snow would oppose any efforts by the G7 to counter the fall in the dollar. In interviews with the French media, Mr Stiglitz, a former chief economist at the World Bank, also called on the European Central Bank (ECB) to act to bring down the euro’s strong exchange rate against the dollar. "The Bush administration will make no concession," Mr Stiglitz told the French business daily La Tribune, ahead of the meeting of G7 finance ministers and central bankers in Boca Raton, Florida. "George Bush needs the fall in the dollar to support American growth and to be re-elected, even if that is to the detriment of Europe."
| If he was president of Europe, I'd think that was a bad thing... |
Economists acknowledge the need for the dollar to fall as it was overvalued and a decline would help to trim the enormous US current account deficit, the broadest measure of trade. But the euro has been bearing the burden of adjustment as Asian central banks have been intervening in the foreign exchange markets to mop up dollars at a record rate to keep their own currencies from rising and choking off exports. Mr Stiglitz urged the ECB to act in order to bring down the value of the euro. "The European Central Bank should intervene to bring down the exchange rate of the euro and it should also lower interest rates," he told France Inter radio. "If it did this, and it could do this if it wanted to, almost surely the euro would decrease in value relative to the dollar." The ECB left interest rates unchanged at 2% yesterday - twice the 1% level in the US. Jean-Claude Trichet, ECB president, warned of the risk of excessive exchange rate movements but declined to comment on what action the G7 finance ministers might take on currencies. |