The Global Stall

By Michael Elliott

UNITED STATES: Looking Up?

WHAT HAPPENED: Simply, the high-tech boom went bust. After five years of astonishing growth, fueled by an irrationally exuberant stock market that showered money on everything to do with the Internet, both businesses and consumers decided they had all the gizmos they needed. That left companies with massive amounts of inventory on their shelves. The downturn then began to spread to the rest of the manufacturing segment, such as autos. High levels of household debt--all those credit cards and home-equity loans--don't help.

OUTLOOK: U.S. stocks and bonds remain the best value for investors around the world. Housing remains strong. And interest-rate cuts are lowering the cost of capital, so businesses may start to invest again next year. Meanwhile, be patriotic and spend that tax-refund check.

LATIN AMERICA: Same Old Story

WHAT HAPPENED: Argentina has a debt crisis again, its exports hurt by the peso's link to the strong dollar. A weak government faces real unpopularity in the streets. Mexico--a star for the past two years--is suffering because its economy is now so closely tied to that of the U.S. Brazil takes a hit whenever other Latin American economies are in the news for the wrong reasons.

OUTLOOK: Troubling. Economic populism seems to be making a comeback in the region, though protectionism never did Latin America much good. Argentina's stable for now--but for how long? Keep an eye on Brazil, which is the key to South America's economic stability. Mexican President Vicente Fox will have much to say to his pal Dubya in Washington next week.

EUROPE: Nobody's Buying at Home

WHAT HAPPENED: As the U.S. slowed, Europe was supposed to be the motor of the world economy. It doesn't have much horsepower. Exports to the U.S. are down, hurt by the slumping American economy. Domestic demand has been depressed by relatively high interest rates. Manufacturing is in recession, and telecom firms are hobbled by the obscene amounts they paid to license 3G cell phones.

OUTLOOK: In January, 12 European countries will start using the same currency, which optimists hope will boost consumer spending. Tax cuts in Germany will start to find their way to pocketbooks. But red tape and regulation still inhibit the development of an entrepreneurial culture.

ASIA: Let the Chips Fall

WHAT HAPPENED: Exports of high-technology components have been hammered by the Silicon Valley bust. Japan's recession removes another potential buyer of Asian goods. Reform programs that followed the financial crisis of 1997-98 have stalled, leaving many banks and corporations heavily indebted. Political instability has hurt prospects for the Philippines and Indonesia.

OUTLOOK: Until the U.S. picks up, there's little hope for a recovery in Taiwan, Thailand and South Korea, which is facing economic-reform issues much like Japan's. The region's bright spot: China, boosted by high levels of foreign investment, may grow by 8% this year (if you believe the official figures).

JAPAN: More Pain to Come

WHAT HAPPENED: Ten years after its real estate bubble burst, the world's second-largest economy is a mess. Prices are falling, which means consumers won't buy, thinking goods will be cheaper next week. Banks are crushed by bad debts. Prime Minister Junichiro Koizumi wants to reform the economy and let bankrupt firms go to the wall. Result: in the short term, more pain and record levels of unemployment.

OUTLOOK: The Bank of Japan will probably pump money into the economy to stimulate demand, and let the yen slump to boost exports. That threatens to destabilize other Asian currencies.

SOURCES: World economic growth forecast by DRI-WEFA. Other data from Commerce Department, World Bank, European Commission Directorate General for Economic and Financial Affairs