Shrinking global economy

Despite the government's latest moves to bail out its ailing financial companies, the US, as well as the world economy, now appears to be on the verge of a recession. The International Monetary Fund, in a forecast released last Friday, predicted that the economies of the United States, Europe and Japan will shrink in 2009. If that turns out to be the case, it would mark the first annual decline by such "advanced economies" since World War II.

To deal with the worst "financial crisis since the Great Depression", the new US administration has to work more closely with other nations. Over the past weeks, there have already been signs of this trend as central bankers around the world opted to lower interest rates almost simultaneously.

"The new US administration will need to work with its trading partners like China to take corrective action to stimulate the economy," said James Zimmerman, chairman of the American Chamber of Commerce in China.

Zimmerman said AmCham-China believes that ongoing dialogue and engagement between the US and China benefits both countries, and especially during this time of international economic crisis.

The new US administration is expected to continue to sell Treasury bonds to other countries to finance its stimulus package. As a result, the world's fourth-largest economy, with nearly $2 trillion in foreign-exchange reserves, will prove to be an important loan source.

"If we don't buy US Treasury bonds, Obama will not be able to get enough money for his stimulus package, and a quick recovery in the US will be more difficult," says Lu Chengyuan, an analyst with Haitong Securities. "But by doing that, China will also suffer."

(China Daily November 10, 2008)