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Global economy at risk as US, Europe, Asia slow

WASHINGTON (AP) — The global economy’s foundations are weakening, one by one.

Already hobbled by Europe’s debt crisis, the world now risks being hurt by slowdowns in its economic powerhouses.

The US economy, the world’s largest, had a third straight month of feeble job growth in May. High-flying economies in China, India and Brazil are slowing, too.

Fears of a global economic downturn have sent investors rushing toward the safest possible investments: US and German government bonds. As a result, the interest rate on the 10-year US Treasury note has hit a record-low 1.46 percent. The rate on the German 10-year bond is even lower: 1.17 percent.

“Treasurys are at 1.46 because people are freaking out,” says Mark Vitner, senior economist at Wells Fargo Economics.

The gravest fear is Europe. The most urgent threat is that in mid-June, Greek voters will reject the terms of a $170 billion bailout — which called for painful budget cuts — and abandon the euro. The move could ignite economic and financial chaos as Greek debts shift from denominations in euros to Greek drachmas of uncertain value.

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Yet the global economy’s troubles go well beyond Greece. Here’s a look at the global economy’s vital signs:

American employers added just 69,000 jobs in May. Since averaging a healthy 252,000 a month from December through February, job growth has slowed to a lackluster average of 96,000 a month.

On Friday, after the government issued the May jobs report, the Dow Jones industrial average sank 275 points. It was the Dow’s biggest loss since November, and it’s now down 0.8 percent for the year.

The dismal news suggested that the US. economy is enduring a midyear slump just as in 2010 and 2011.

Unemployment rose to 8.2 percent from 8.1 percent in May as 642,000 more Americans poured into the work force, and only 422,000 more people got jobs.

The jobs report came out a day after the government said the US economy grew at just a 1.9 percent annual rate in the first three months of 2012. That’s a meager pace nearly three years after the recession officially ended in June 2009. And it’s too slow to generate many jobs or to lower the unemployment rate. In good economic times, the rate would be below 6 percent.

Many U.S. companies are finding it more efficient to invest in machinery, not people.

“We’re not hiring, and we’re not replacing” workers who leave, says Joe Glenn, who runs Glenn Metalcraft in Princeton, Minn.

His sales jumped 40 percent last year. Yet Glenn’s shop has kept employment flat at about 35 workers. He’s added more computer-controlled metalworking machines and robots to load the raw material into them.

“We’re producing as much as we were with a lot less manpower,” Glenn says. “And I don’t foresee that those jobs are going to come back.”

Borrowing rates for consumers and Given the size of the US economy, further weaknesses could worsen the slowdowns in European and Asian countries that depend on sales to American consumers.

Unemployment in the 17 countries that use the euro is already at 11 percent, the European Union’s Eurostat office reported Friday. It’s the highest rate since the euro was introduced in 1999.

European countries have been struggling with their debt crisis for three years. Three nations — Greece, Ireland and Portugal — have already required bailouts because of unsustainable levels of debt.

Austerity has been the main prescription for the crisis. But spending cuts and tax hikes are causing economies to shrink across the eurozone.

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 eSince 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 eight 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.

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.

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