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The European Commission predicts the 17-country eurozone economy will shrink 0.3 percent this year. Many economists fear it could be worse. Capital Economics says a recent drop in eurozone business confidence is consistent with a 1 percent decline in economic output. In the latest wallop to the global economy, China said last week that its economic growth fell to a three-year low. The world's second-largest economy grew 7.6 percent in the April-June quarter compared with the same quarter last year. That was the slowest growth since early 2009. Countries like China need fast growth to serve growing populations and millions of people leaving farms to seek work in cities. Chinese growth has decelerated for eight straight quarters. That's the longest slowdown in records dating to 1992, according to Yu Bin, a government researcher. The slowdown is partly deliberate. In 2010 and 2011, Chinese officials raised interest rates and took other steps to tame inflation and cool an overheated real estate market. "Mission accomplished," says Cameron Peacock, a market analyst at Australia's IG Markets. "China now has the room to re-stimulate its economy." But China is also feeling Europe's economic squeeze. Chinese exports to Italy dropped 24 percent in June from a year earlier. Exports to France fell 5 percent, those to Germany nearly 4 percent. Europe buys about 17 percent of China's exports. The impact of weak European demand for Chinese-made furniture, shoes, toys and other goods has fallen hardest on export-oriented manufacturers along China's southeastern coast. Some companies have closed. Others are cutting staff. China is the biggest trading partner of Brazil, which has the world's eighth-biggest economy. Brazil is likely to grow only 1.8 percent in 2012, according to Sao Paulo Federation of Industries. China's slowdown has reduced demand for Brazilian soy and iron ore. Brazilian manufacturers, such as aircraft maker Embraer, are hurting as Europe reduces its demand for manufactured goods. A relatively strong currency isn't helping. It makes Brazilian products more expensive to foreign buyers. Brazil also has a U.S.-style problem with consumer debt: Since 2003, about 40 million Brazilians have entered the middle class and brought a strong appetite for consumption. Brazilian leaders credited those consumers with invigorating the economy in recent years and helping protect it from external shocks. But most of the buying has been on credit. And those bills are adding up. In a report last week, London-based Capital Economics estimated that debt payments now eat up 20 percent of household income in Brazil. "The current pace of credit growth in Brazil remains unsustainable
-- and the longer it continues, the bigger the risk of a messy ending further down the line," Capital Economics warned. Similarly, the outlook has dimmed for India, the world's fourth-biggest economy. Its growth slowed to a 5.3 percent annual rate in the first three months of 2012, the slowest rate in nine years. Over the past two decades, India has emerged as a powerhouse in services
-- writing software, running call centers, making movies, drafting engineering plans. In a report last month, Andrew Kenningham, senior global economist at Capital Economics, said India's troubles are mostly self-inflicted. "Weak governance, although not new, is the most plausible explanation for the slowdown," he wrote. The government has reneged on promises to make it easier for foreigners to invest in India. It has taxed Indian firms that acquire companies overseas. Indian factories have cut production. And the pay of many Indians has been diminished by inflation, which has averaged more than 9 percent a year for the past two years. The slowdown in the developing world could make it harder for the economies of Europe and the United States to climb out of their ruts. And the weaker the rich countries get, the harder it will be for developing economies to regain their old fast pace. "In today's interconnected world, we can no longer afford to look only at what goes on within our national borders," IMF Managing Director Christine Lagarde said earlier this month. "This crisis does not recognize borders. This crisis is knocking at all our doors."
[Associated
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