Around The World, A Sluggish First Half Is `Baked In The Cake'

What makes the current fiscal stance of major industrial nations so worrisome to many observers is a lack of monetary stimulus. Economists at Merrill Lynch & Co. calculate that the real global money supply (the sum of inflation-adjusted broad monetary aggregates in five key advanced nations, weighted by gross domestic product) has been stagnant for about six months. Indeed, in Japan, the money supply has been declining for the first time in the postwar period.

Since real monetary growth tends to lead economic activity by 6 to 12 months, Merrill Lynch economist Stephen R. Waite says that "a very sluggish first half for the global economy in 1993 is more or less baked in the cake."

To be sure, with interest rates low in the U.S. and Japan and likely to tumble in Europe in coming months, Merrill Lynch thinks the preconditions for a worldwide recovery by the second half of next year are falling into place. But that assumes that expansionary monetary policies will prove more effective overseas than they have in the U.S. in rapidly reversing the pervasive slowdown afflicting the global economy.

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