Deflation in the World

Deflation in the World is a common phenomenon in recent times. As a common economic occurrence, Deflation in the world was missing for more than a century or half, after which it suddenly re-appeared and began knocking at the doors of the central banks and the finance ministries in the contemporary industrial world.

Deflationary trends were noticed recently, during the close of 2002, when the possibilities of long-term development of worldwide capitalist economy became complicated. It was at this time that Deflation started affecting the 3 main determinants of global economy, namely the United States of America, Japan and the European Union.

Deflation in United States of America:

With respect to Deflation in United States, the nation’s expenditures are already 5% more than its income. This difference gets revealed in the American balance of payment deficit. Currently, this deficit needs a cash inflow worth $1.4 billion to $2 billion on a regular basis, in the form of foreign finances, if such situation persists. Since the global economy is dependent on the economic performance of America, the U.S. Federal Reserve had decreased the rate of interest in November, by 0.5 percentage points more, in order to assure that any slackening down will not amount to loss in the consumer demand or investor’s faith. However, if payment deficit persists in United States at the current rate of 5% of the Gross Domestic Product (GDP), the current net American liabilities which is more than 20% of the GDP is expected to rise up to 50% within the coming 5 years.

Deflationary trends in Japan:

Deflationary trends in Japan are in its full and disastrous form, reaching a stage where the Japanese economy is virtually on the verge of collapse. Looking at the present condition of Japan’s economy, it seems like Deflation is more or less a permanent phenomenon here, and there is very little scope for improvement. All types of wholesale and consumer prices, starting from 3-piece suits to compact discs, are going down tremendously for the past two years, indicating no signs of halting. In fact, it is quite difficult for the nation to evade from the deflationary trend which is on constant rise.

In fact, Deflation in Japan had originated from the stock market, to exert the greatest impact on the national economy. Several other factors have also contributed towards the development of Deflation in Japan. The situation has made the Japanese consumers apprehensive, and they have become reluctant to make purchases. Moreover, the overbuilt Japanese industries are making the prices of their products dynamic, and cheap Chinese and Asian imports are flooding the Japanese market. The outcome is that the progress of the commercial activities of different Japanese sectors like building and housing, food, consumer electronics and apparels are being severely hampered. However, according to the common view regarding global economy, Japan is expected to increase its economic growth by a small 2% in times to come.

Deflation and the European Union:

The European Union countries are also equally affected by Deflation. Owing to the existing deflationary tends in the European Union economy, its effect are evident in the commercial activities of the EU. Riksbank of Sweden had decreased its interest rates from 2% to 5% recently, confirming the fast decline of the economic condition of EU. Deflation in European Union is characterized by lowering of the investor’s confidence and consumer expenditure levels, followed by high unemployment rates and organizational restiveness. Similar conditions also are prevalent in other European nations like France, Italy and Germany, taking the continent to the pinnacles of severe Deflation.