World economy heads for another perfect storm
The International Monetary Fund’s latest “World Economic Outlook” makes for chilling reading. A perfect storm in which all parts of the world economy go down together seems fast to be gestating somewhere out in the mid-Atlantic.
By Jeremy Warner
TelegraphUK
16 Jul 2012
True enough, the IMF has not reduced its forecasts of world growth for this year and next by very much — just 0.1 and 0.2pc respectively — but it notes some key downside risks, and it is not just the problems of the eurozone it is talking about this time either. Already struggling to return to growth, the UK needs these new pressures like a hole in the head.
To the all too familiar economic threats posed by the eurozone must now be added the approaching “fiscal cliff” in the US, whose own nascent recovery is in any case fast losing momentum, and the evident slowdown in emerging markets.
All three cornerstones of the world economy seem now to be heading into the sand.
Let’s take each in turn. The IMF makes the heroic presumption in keeping its aggregate growth forecasts on a roughly even keel that the eurozone is on the mend, with financial conditions gradually easing for periphery nations. In reaching this conclusion the IMF assumes that the measures agreed at a recent summit of European leaders will be implemented soon and will work as prescribed in restoring market confidence. These assumptions both look questionable.
It’s still far from clear quite how serious eurozone member states are about the banking union they’ve agreed. Details remain confused and thin on the ground. Northern creditor nations also seem to be fast backtracking on use of the European Stability Mechanism to recapitalise banks directly and on use of bailout funds for intervention in secondary bond markets.
The Rest…HERE
