Asia is driving a global economic rebound, but Greece could spoil the recovery and provides an object lesson for the U.S. to get its economic house in order, Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, said in Naples, Fla, Monday.
“Emerging Asia is driving the global rebound, led by China and India. China’s economic growth has been especially strong, lifting global demand for raw materials and capital goods,” he said in a speech released to the press the afternoon of March 22 that was delivered to the Naples Council on World Affairs.
He also said that Latin America has “weathered the global crisis much better than previous downturns thanks to stronger economic fundamentals. The region is further benefiting from rising commodity prices.”
What he termed both “the Greek crisis,” and “the Greek drama,” however, may impact the recovery, which the United States currently is undergoing.
With Greece’s public debt now estimated at 125 percent of its gross domestic product, it could dampen economic growth throughout the European Union, thereby dampening U.S. exports to the European continent, he said.
In addition, the dollar might appreciate due to “safe haven” flows of euros into dollars that also would cut into U.S. export competitiveness.
Finally, Greece’s fiscal crisis could lead to what Mr. Lockhart called “a broad shock” to financial markets, which in turn would hurt the world’s banks and make sovereign debt less attractive to financial institutions.
Mr. Lockhart said that in his opinion the U.S. recovery began last summer and accelerated in the fourth quarter by slowing inventory liquidation.
“Business spending on equipment and software is helping to offset softer housing and commercial construction,” he added. Yet, he also said, that the U.S. has a long way to go before it solves its unemployment problems while containing inflation.
“The Greek drama we’re watching with such great interest should heighten recognition of the urgent need here in the United States for a credible path to fiscal sustainability,” he said. “Rising public awareness of the country’s serious fiscal imbalances should serve as a call to action.”
For a podcast of the full speech, click here.