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In a blunt warning, European Central Bank chief Mario Draghi last week called the euro currency union "unsustainable" without stronger political and financial ties among eurozone countries. The fear is that Greece will drop the euro, and other weak countries, such as Spain and Portugal, will be forced to follow. Financial chaos could rage across Europe. Spain is facing punishing borrowing costs on bond markets because investors fear it won't be able to pay its debts. Prime Minister Mariano Rajoy declared Saturday that his government will stick with harsh austerity measures as long as necessary. But Spain's unemployment is already 24.4 percent. For those under age 25, unemployment is 51.5 percent. Businesses are being crushed. "This shop has been here for close to 100 years, and I've worked here for 48 years," says Manuel Cabrejas, a salesman at a cushion store in Madrid whose shop windows were covered in signs saying, "Closing down sale, big discounts, everything must go." "For the last two years, we have only just been covering running costs," Cabrejas said. "It's time to let go." ASIA AND SOUTH AMERICA Since the global recession ended in 2009, the world economy has been fueled by rising powers in the developing world led by China, India and Brazil. Now, all three are running into trouble. China's manufacturing weakened in May, according to surveys out Friday. Factory output was the weakest in three months. Some economists say China's economic growth will fall to an 8 percent rate in the April-June quarter. That's high by Western standards, but it would be the weakest growth for China in nearly three years. In response, China is rolling out an economic stimulus program. Having rebounded strongly from the recession of 2007-2009, China's economy grew a sizzling 10.4 percent in 2010 and 9.2 percent in 2011. For the past two years, it's helped drive global growth. Australia and other Asian countries have come to rely on Chinese markets for their exports. India is suffering an even sharper slowdown. Its economic growth slowed to a 5.3 percent annual rate in the January-March quarter, the lowest in nine years. Output from India's factories has declined. Its consumers have seen inflation
-- which has averaged 9.2 percent a year since the start of 2010 -- devour their wages. "It's beyond anything that we would have imagined," said Samiran Chakraborty, head of research at Standard Chartered in Mumbai. "Real wages are falling ... The consumption slowdown along with the investment slowdown has been a double-whammy for the GDP number." As recently as last year, Indian politicians were claiming their economy could rival China's and surge into double-digit growth, lifting hundreds of millions out of poverty in the process. Instead, India is mired in a deepening crisis of confidence. Asia's third-largest economy is widely regarded as performing below its potential. Indians are losing hope that their country's fractious political system will deliver the policies that might unlock a rebound
-- investments in roads, ports and other projects and lighter regulations to attract more foreign investment. One encouraging corner of Asia has been Japan's economy, the world's third largest. It grew at an annual rate of 4.1 percent in the first quarter of 2012 as it recovered from last year's earthquake and tsunami. But factors that could crimp expansion, such as weaker European demand for Japanese exports, have raised fears that Japan's growth will slow or even stall. In Brazil, the economy practically stalled in the first quarter of 2012. It grew at just a 0.2 percent annual rate from the final three months of 2011, the government said Friday. That was below expectations of 0.5 percent growth. Flooding punished farmers. But Brazilian officials, like analysts in China, also pointed to another culprit, one that shows how problems in one part of the world cause problems in another: The ongoing trouble in Europe is taking a toll on exports.
[Associated
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