Above all, as Michael Mussa, the IMF's director of research, noted last week: "The US economy has supplied, over the past 18 months or so, roughly half of the total demand growth in the global economy." Year-on-year growth in US domestic demand rose, remarkably, from 3.6 per cent in 1996 to 4.2 per cent in 1997 and then 5.2 per cent in 1998. It remained at more than 5 per cent in the first two quarters of this year.
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If the US was the bulwark, is the protection it provides secure? This breaks down into two further questions: how likely is a sharp reversal in US performance and how well could the rest of the world cope?
Unhappily, behind the growth of US domestic demand lies behaviour that would, in any other economy, provoke serious concern. Even after their recent correction, equities are, in aggregate, extraordinarily highly valued. Ratios of private sector debt to gross domestic product are also higher than during the last recession. The private sector's financial deficit is expected to be more than 5 per cent of GDP this year (see chart), a level that preceded deep recessions in the UK and the Scandinavian countries at the end of the 1980s. Monetary growth also continues to be strong, with broad money expanding 8 per cent over the year to August.
Unemployment, at 4.2 per cent of the labour force, is below rates that would have been considered consistent with stable inflation, until very recently. Inflation has been kept down, temporarily, by weak commodity prices, by global excess capacity for many manufactured goods and by a high real exchange rate. Growth of domestic demand has also spilled over into the current account, which has deteriorated from a deficit of less than 2 per cent of GDP in 1997 to a forecast of 3.5 per cent this year, virtually the same as in the mid-1980s.
Economics is no exact science. But, taken together, these facts spell trouble. Each and every one can be explained away. But the vulnerabilities - to a rise in inflation, to a fall in the dollar, to a collapse in equity markets - are also self-evident.