Euro debt crisis remains biggest threat to global economy, UN reports

UNITED NATIONS, June 7 -- The UN Department of Economic and Social Affairs (UNDESA) has released its mid-year World Economic Situation and Prospects (WEPS) report, in which it states that the continuous euro crisis remains a large threat to the world economy.

"The euro area debt crisis remains the biggest threat to the global economy," said the representative from the UN Department of Public Information, Newton Kanhema, to reporters during a press conference here on Thursday.

"An escalation of the crisis could result in severe turmoil in financial markets," he said.

The WEPS report reflects that, although some growth has been seen in developed countries, they continue to face significant challenges, particularly in Europe. The WEPS forecasts that the economic situation will "remain tepid" for 2012, with a slow- down in China's growth to an estimated 8.3 percent, while India is expected to grow between 6.7 to 7.2 percent during the 2012- 2013 term.

As a proposed solution to the dwindling global economy, assistant secretary-general for DESA, Jomo Kwame Sundaram, stressed the importance of cooperation between all countries.

"International cooperation is extremely important," said Sundaram. "International cooperation is important, because it will ensure, all countries, and all economies will benefit from [ it]."

As developed countries continue to struggle to bounce back, the report says they have to address four major issues: deleveraging banks, firms and households that continue to restrain normal credit flow; the continuous high rate of unemployment; the fiscal austerity responses to rising public debts; and the exposure of banks to sovereign debts, partnered with weakened economies that prolong the stagnation of the crisis.

The report also stresses that the "re-orientation of fiscal policies should be internationally, coordinated, and aligned with structural policies that support direct job creation, and green growth." -  Xinhua

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World Bank warning of another global recession; Mier: Worse to come!

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(Shanghai Daily)
 

THE World Bank is warning developing countries to prepare for the "real" risk that an escalation in the eurozone debt crisis could tip the world into a slump on a par with the global downturn in 2008/09.

In a report sharply cutting its world economic growth expectations, the World Bank said Europe was probably already in recession. If the debt crisis deepened, global economic forecasts would be significantly lower.

"The sovereign debt crisis in the eurozone appears to be contained," Justin Lin, chief economist for the World Bank, said in Beijing yesterday. "However, the risk of a global freezing-up of the markets as well as a global crisis similar to what happened in September 2008 is real."

The World Bank predicted world economic growth of 2.5 percent in 2012 and 3.1 percent in 2013, well below the 3.6 percent growth for each year projected in June.



"We think it is now important to think through not only slower growth but sharp deteriorations, as a prudent measure," said Hans Timmer, the bank's director of development prospects.

The report said if the eurozone debt crisis escalates, global growth would be about 4 percentage points lower. It forecast that high-income economies would expand just 1.4 percent in 2012 as the eurozone shrinks 0.3 percent, sharp revisions from growth forecasts last June of 2.7 percent and 1.8 percent respectively.

It cut its forecast for growth in developing economies to 5.4 percent for 2012 from its previous forecast of 6.2 percent.

It saw a slight pick up in growth in developing economies in 2013 to 6 percent. But the report said threats to growth were rising.

It cited failure so far to resolve high debts and deficits in Japan and the United States and slow growth in other high-income countries.

On top of that, political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects.

China's growth - forecast in the report at 8.4 percent - could help bolster imports and gives it "big fiscal space" to respond to changing conditions, Lin said.

But the World Bank report added: "No country and no region will escape the consequences of a serious downturn." 

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Mier: Worse to come

By LEONG HUNG YEE  hungyee@thestar.com.my

Eurozone crisis, slower China growth likely to hurt economy

KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) expects gross domestic product (GDP) for 2011 to be 4.9% but to decelerate to 3.7% in 2012.

MIER executive director Dr Za-kariah Abdul Rashid said this year would not be as bad as 2008 or 2009 but might not be as good as 2011, pulled down by the eurozone crisis as well as slower growth in China's economy.

He said if the eurozone crisis turned worse, the country's economy might be affected and the GDP could reach the 2008/2009 level.

“There's some avenue if the Government wants to spur the economy by spending on development. It will depend on the private sector whether our economy turns out to be strong this year,” Zakariah said at a briefing to present Malaysia's economic outlook.

Zakariah: ‘The private sector has done a lot for the economy.’

“However, the private sector has done a lot for the economy. We can't expect much more from the private sector.”

He said MIER had previously forecast 2011 GDP growth to be 4.6% but revised it upwards after looking at the latest numbers and the crisis in the eurozone.

“Growth in the last quarter of 2011 is expected to be much lower on account of external developments. The latest monthly economic indicators are already suggesting that,” MIER said in a report.

It added that economic growth would likely get “bumpier” in the months ahead.

Meanwhile, Zakariah said that there was “room for 25 to 50 basis-point downward revision” in the overnight policy rate (OPR). However, he said the revision would depend on the situation and had to be done vigilantly.

Based on MIER's Business Conditions Index (BCI), the business sentiment had worsened from the second quarter of last year. The BCI fell to 96.6 in the fourth quarter of 2011, the first time it had dipped below the 100 threshold since the fourth quarter of 2010.

“It usually shows a contraction mode when the index sinks below 100. The BCI had been dropping since the second quarter of 2011,” Zakariah said.

Sales, local and foreign orders, as well as capacity utilisation were significantly lower in the fourth quarter of 2011, with companies expecting to scale back production over the next three months as inventory builds up.

Concurrently, consumer sentiment also fell to a two-year low of 106.3 on the Consumer Sentiments Index as household incomes lost momentum, and finances and job became a growing concern.

Zakariah said the index pointed out that consumers were also holding on to purchasing big tickets items as spending plans took a backseat.

Separately, Zakariah said it would be better for the Government to call for general elections early as uncertainty over the nation's political future would hurt the economy.

He said private investors were currently holding back investments on concerns that government policies could change due to the political climate here.

“If you ask me as an economist, I would rather see the problem solved once and for all. The earlier they settle the political matters, the better, we can focus on the economy.

“Right now everything is still hanging. People are postponing because of the elections. So if they settle it once and for all and immediately, it would be better,” Zakariah said.  

Euro fallout is bad news for world economy

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Global Trends By Martin Khor

The IMF-World Bank meetings last week confirmed the global economy has entered the ‘danger zone’ of a new downturn and possibly recession. This time it could be more serious and prolonged than the 2008-2009 recession. 

THE last two weeks have seen a clear downward shift in expectations on the global economy. The dominant view now is that the world has slipped into stagnation that may well become a recession.

Warnings that the economy had entered a “danger zone” generated the gloomy mood at the annual Washington gathering of the International Monetary Fund and World Bank, as well as the G20 finance ministers’ meeting.

Prominent economists are predicting the new crisis will be more serious and prolonged than the 2008-09 recession.

If the United States and its sub-prime mortgage mess was the immediate cause of the last recession, the epicentre this time is the European debt crisis.

The eurozone’s GNP grew by only 0.2% in the second quarter, and the European Commission predicts the rates will be 0.2% and 0.1% in the third and fourth quarters.

As the domino effect of contagion hit one European country after another (rather like how Asian countries were affected in 1998-99), European leaders have scrambled for a solution.

But none has worked so far.

In the Greek debt tragedy, the government has had to announce one painful austerity measure after another, but its economic condition continues to worsen and the social protests and strikes indicate the approach of the political breaking point.



The costs of austerity are already being seen (by the public at least) to outweigh the benefits.

Several British newspapers last week reported a set of big measures to tackle the European crisis was reportedly being worked on by unnamed European officials.

The centrepiece is a Greek debt default with creditors repaid only 50%, and two measures to cushion that shock – an injection of fresh capital into European banks that would suffer big losses from the default, and the boosting of the European bailout fund from 400-plus billion euros to almost two trillion euros to enable hundreds of billions of euros in new credit to countries like Italy and Spain to prevent them from becoming new debt-crisis economies.

However, this leaked news of a big Plan B was not confirmed by any policy maker, so its status or even existence is unknown.

Instead, the news out of Washington last week was of continued paralysis in European policy.

Greece this week is facing a new crunch time – waiting to see if the European institutions and IMF will approve the next bailout instalment of US$8 billion to service loans that are coming due, and what would happen if they do not. Would it be time then to declare a default?

Meanwhile, the US has its own budget deficit tug-of-war between the President and Congress and between Republicans and Democrats.

What this means is that Europe and the US are not able to make use of the policies (massive increases in government spending, interest rate cuts and pumping of money into the economy) that pulled them quickly out from the last recession.

Moreover, the coordination of policy actions among developed countries (and several developing countries as well, that also undertook fiscal stimulus policies) that fought the last recession no longer seems to exist, at least for now.

Thus the new global slowdown or recession is likely to last longer than the short 2008-09 recession.

The developing countries should thus prepare to face serious problems that will soon land on them.

We can expect a sharp fall in their exports as demand declines in the major economies.

Commodity prices are expected to climb down; they have already started to do so.

There may be a reversal of capital flows, as foreign funds return to their countries of origin.

The currencies of several developing countries are already declining and it may be the start of sharper falls.

It’s beginning to look like 2008 all over again.

But this time the developing countries are starting this downturn in a weaker state than in 2008, since they have not yet fully recovered from the last shock.

And as the downturn proceeds, there will be fewer cushions to blunt the effects or to enable a rapid recovery.

It is also clear that there is an absence of a global economic governance system, in which the developing countries can also participate in.

All countries are affected when the global economy goes into a tail spin.

Once again, the developing countries are not responsible for the new downturn, but they will have to absorb the ill effects.

Yet there is no forum in which they can put forward their views on how to lessen the effects of the crisis on them and what the developed countries should do.

As the new crisis unfolds, there will be renewed calls for reforms to the international financial and economic system.

This time there should be a more serious reform process, otherwise more crises can only be expected in the future.

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A new dawn in world economy?

Review by Thomas Lee tomlee48@gmail.com

A new dawn in world economy?
Title: Uprising
Will Emerging Markets Shape or Shake the World Economy?
Author: George Magnus
Publisher: John Wiley & Sons Ltd

At first glance, the title Uprising gives one the impression that the book is concerned about rebellion or revolt, or matters related to violent political conflicts involving armed resistance.

However, after reading its small-print sub-title Will Emerging Markets Shape or Shake the World Economy? and a quick browsing through its content, one realises that the book is actually an in-depth analysis of the contemporary global economy, in particular the influence and impact of the new emerging markets with the focus on the shift of economic power from the West to the Orient, especially China.

Its author George Magnus is a prominent investment banker and global economist, who has been acknowledged as the key analyst who had predicted the recent world financial crisis in early 2007. He is a senior economic adviser at the UBS Investment Bank in London, and had held similar posts at the Union Bank of Switzerland and SG Warnurg.

Magnus is also a popular and respected public commentator on world financial matters, contributing frequently to the Financial Times of London, the BBC, Bloomberg, the CNBC and several other prominent economic, business or financial publications. He is also author of the 2008 definitive international economic analytical book The Age of Aging: How Demographics are Changing the Global Economy and Our World. 

Hence, Uprising is not simply any ordinary run-of-the-mill book, but a major authoritative book which anyone concerned with the contemporary global economy and the direction it is moving should read and reflect deeply on. What Magnus said in his book should not be treated lightly as he is no false prophet when it comes to matters of international economic wheeling and dealing.



Magnus begins his book with an incisive narration and analysis of the world events building up from the first year of the new 21st century to the current global economic scenario. He gives a sharp observation, and penetrating and critical analysis of events in China, including the implications of a world sporting event like the August 2008 China Olympic Games, which took place sandwiched between the May 2008 Great Sichuan Earthquake which claimed nearly 70,000 lives, and the October 2008 world financial earthquake following the collapse of the US investment bank Lehman Brothers, which, as Magnus puts it, “brought the world economy to the brink of an economic Armageddon, unrivalled since the Great Depression of the 1930s”.

In his 358-page book, Magnus sets out to explain the impact and effect that the 2008 financial crisis has on the major emerging markets, and why the rich developed Western nations is going all out to challenge and curb their increasing threats, especially of China and India, in the global economic order.

A major theme of the book as Magnus puts it, is that “the West’s financial crisis sparked a major change in the structure of the world economy, and that China’s capacity to also embark on structural change voluntarily is weak, unless it is specially geared to the long-run interests of the Communist Party’s grip on power”.

This authoritative definitive book examines the two major economic powers and leading emerging markets in Asia – China and India – and several minor but significant markets in Eastern Europe, and also Turkey.
Currently, the emerging markets are headline news. And the question uppermost in the minds of political and business leaders in all these emerging markets of the world is what will happen following the 2008 world financial crisis and what does the future mean and hold for global finance, trade and commerce.

Magnus provides significant suggestions and pragmatic guidelines to resolve this global economic dilemma.

He presents a persuasive and cogent perspective on China and the other emerging markets from a post-financial crisis situation, urging those with economic potency to seriously reconsider their attitude and approach to the emerging new world economic order. A fundamental matter to critically and analytically examine is the question of what economic reforms are needed to meet the new global goals.

Magnus should most be appreciated for offering a convincing critical analysis of what the future global economy may look like – not merely for the emerging markets, but for policy-makers, businesses, financiers, investors, economists, and even ordinary citizens concerned with the economic well-being of their nation and the world.

Magnus deals with matters such as climate change, commodity prices, and world demographic trends, and gives valuable insights into the implications of these issues for the world economy.

One significant question Magnus deals with is whether the 21st century belongs to China. The Communist nation operating on enterprise capitalism for the last 30 years is now all set to regain what Magnus has pointed out in his book as its premier economic power it held from ancient times till the early part of the 19th century.

For all intent and purpose, China is set for an economic renaissance. It will soon regain its ancient mantle as a world economic power it lost when its reticent conservative bureaucracy forced it into international relation isolation while Europe moved economically forward with an industrial revolution in the 19th century.

The Uprising by the plucky economic seer Magnus is certainly essential reading for anyone who wants to understand and care about the future of the global economy.

Understanding the context, content and challenges of the world economic scenario during the first decade of this century is certainly vital for those responsible for making policies, plans and programmes to chart the direction, set the trend, and strive for vigorous economic success in their nations.

Thanks to Magnus, his book has provided the seeds for the planting, growing and harvesting of serious objective thinking, critical pragmatic evaluation, constructive practical ideas, and effective and efficient creative implementation of economic policies, plans and programmes.

Understanding The Rise Of China [VIDEO]

http://www.dump.com/2011/01/25/understanding-the-rise-of-china-video/

Debt-consolidation plans vital

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MAKING A POINT By JAGDEV SINGH SIDHU

IT'S easy to picture the worst when the news around us is not savoury at all.

The platter for such troubles will include the second-quarter slowdown induced by the earthquake and tsunami in Japan. Output around the world has been shaken by the ramifications of the supply shock from Japan.

Then there is the report card on the US Federal Reserve's second round of quantitative easing (QE2). For many, QE2 really did not help the foundation of the economy. Unemployment is still sticky and there is still weakness in the housing sector but the stock market and commodities boomed with cheap liquidity flooding the market.

Inflation jumped as raw material prices surged and that, in effect, robbed a lot of people of purchasing power.

Looking at Greece, one has to assume a default is a certainty and is just a question of time. In fact, the CEO of Pimco, the world's largest bond fund, expects that to happen and many, too, agree looking at the economic structure of Greece.

Despite the gloom, the prognosis for the global economy really has not changed much.

The International Monetary Fund (IMF) expects the world economy to grow by 4.3% for 2011, which is 0.1% lower than previously estimated.

It has cut its growth forecast for the United States to 2.5% in 2011 from an earlier estimate of 2.8% in April.

IMF's Olivier Blanchard, who is its economic counsellor and the director of the research department, said predicting the economic direction for the US was too early but felt the slowdown of the US economy was more of a bump on the road than something worse.



“But assuming that oil prices are going to stay roughly stable, which is what the markets seem to predict at this point, we think that spending by consumers and firms should remain steady in what is, however, very clearly a very weak recovery. This has been a longstanding forecast of ours. The recovery in the US is a very weak one,” said Blanchard last week.

The outlook for Japan saw the biggest change as the earthquake and tsunami are expected to see that economy contracting by 0.7% this year from an earlier forecast of a 1.4% growth made in April.

The IMF has stuck to its projections for the two most populous countries, estimating growth for China and India to register 9.6% and 8.2% respectively this year. Those estimates were unchanged from April.

With troubles in Greece hogging international financial news and people wondering about the repercussions of a default by Greece on financial institutions in Europe and the US, the IMF said the risk of contagion was real and could derail European recovery and even that of the world but thought advanced economies, in which Europe features prominently, was forecast to grow at 2.2% for 2011, down 0.2 percentage points from earlier thought.

Its forecast for emerging and developing economies is 6.6% for 2011, which is up 0.1 percentage points since April.
While forecasts are relatively flat, the IMF did say risks were visible and highlighted the debt issue not only in Europe to be one of the hazard points for the global economy.

It feels debt-consolidation plans, even in the US, needs to be in place for the medium term to avoid higher borrowing costs and slower economic growth in the future.

In Asia, asset and price inflation are seen as the key risks and it feels countries with large current account surpluses should allow their currencies to appreciate.

“All countries must choose the right combination of instruments at their disposal fiscal, monetary, macro prudential to slow their economies in time and avoid costly boom-bust cycles,” said Blanchard.

Whether the bad news translates to most people's economic nightmare is something most businesses and investors are keeping an eye out for. It would appear that, for now at least, prospects and risks are balanced.

Deputy news editor Jagdev Singh Sidhu has filled nearly every large container at home with water to prepare for a dry couple of days but water is still flowing strongly from the main pipe.