Global Economy Reviews

07.10.2011 13:04 World Economy Review - September 2011

HSBC Holdings Plc cut its forecast for global economic growth for the next two years and said the efficacy of any further stimulus measures will be limited. The world economy will grow 2.6 percent this year and 2.8 percent in 2012, compared with estimates published in June of 3 percent and 3.4 percent respectively, London-based HSBC economists including Stephen King and Madhur Jha said in an e- mailed note to clients. HSBC also lowered its euro-area and U.S. growth predictions, with the latter at “stall speed,” the economists said.
“Healthy economic recovery is now but a distant dream,” they wrote. “For the developed world, the downgrades are particularly aggressive whereas, for the emerging world, the reductions are more modest, helped by the ongoing support offered by China and India.”
Central banks such as the Federal Reserve and the European Central Bank may undertake further unconventional stimulus measures, including interventions in currency markets, while the Bank of England will keep its key interest rate on hold through 2012, King and Jha said. “These, though, are no more than reactive measures,” they said. “Permafrost has already taken hold: policy makers are now engaged in not much more than damage limitation.”
HSBC Holdings Plc also cut its economic growth estimates for most Asian economies, citing threats to exports and the impact of sliding stocks and currencies. Europe`s debt crisis and a struggling U.S. expansion signal Asian exports “will almost certainly take a large hit,” HSBC said in a report received today. Domestic demand “will also throttle down” as currencies and capital markets fall, with Asia excluding Japan growing 7.3 percent in 2011 and 2012, lower than earlier projections of 7.5 percent for both years, it said.
HSBC joins Goldman Sachs Group Inc. in dimming its Asian outlook after Europe`s plight and the threat of a recession in the U.S. roiled global markets. While the expansion in Asia will slow, Chinese growth will “hold up” and regional liquidity is “ample,” which should help avert a sharper deceleration, according to HSBC.
“The risks are certainly rising with every week that policy uncertainty persists in the West,” Hong Kong-based Frederic Neumann, co-head of Asian economics at the bank, said in the report. Still, Asia “may just avoid cracking under pressure” aided by China, he said.
HSBC cut its 2011 and 2012 projections for gross domestic product growth in Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. It lowered 2012 predictions for Japan and New Zealand. Europe`s biggest bank left its 2011 and 2012 estimates for China, India, Australia and the Philippines unchanged. It predicts 8.9 percent growth in China this year and an 8.6 percent expansion next year.

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27.08.2011 14:07 World Economy Review - August 2011

The global economy has entered a "new danger zone," World Bank President Robert Zoellick warned in Sydney on Sunday (August 14th). "There is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," Zoellick said.
Addressing members of the Asia Society at an annual dinner in Australia`s largest city, he said the turbulence on the world financial markets this month has undermined investors` confidence. "What`s happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," Zoellick said.
Stock and bond markets plunged into turmoil amid warnings that the debt crisis which has ravaged Greece, Portugal and Ireland is now spreading to two much larger Eurozone economies, Italy and Spain. Also stoking fears was the decision by Standard and Poor`s to downgrade the credit rating of the United States from triple A to double A plus.
France, the second largest economy among the 17 EU nations using the euro as their currency, was also the subject of rumors last week about its credit rating. "I think that those events combined with some of the other fragilities in the nature of the recovery has pushed us into a new danger zone. And I don`t say those words lightly," Zoellick said.
The World Bank chief stressed the need for strong action to appease market players. "It would be important that the primary economic actors take steps both short and long term to restore confidence," he said, calling on European leaders to enact structural reforms aimed at increasing productivity, job creation and free trade.
The Eurozone faces more serious problems than the United States, and decisions by governments and central banks often come "a day late", the World Bank chief said. If debt-laden countries, such as Greece and Portugal, are unable to show the prospects for growth, then the crisis in the Eurozone is likely to continue, Internet-based business wire service RTTNews quoted Zoellick as also noting.
Meanwhile, billionaire philanthropist George Soros suggested over the weekend that both southern European countries should leave not only the Eurozone, but the EU as well. "I think that the Greek problem has been sufficiently mishandled by the European authorities that this may well be the best solution," he told German magazine Spiegel in an interview, whose English translation was published on Monday. "Europe, the euro and the financial system could survive Greece leaving. It could survive Portugal leaving."

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02.08.2011 19:21 World Economy Review - July 2011

The tentative deal to avoid a crushing debt default is at best a mild relief for the U.S. economy that nearly stalled in the first half of the year and has yet to show signs of any realistic pickup. The plan for $2.4 trillion in spending cuts over a decade, if backed by lawmakers, would help lift some of the uncertainty that has weighed on investors, businesses and consumers unsettled by talk about a possible new and deep U.S. financial meltdown.
Still, it does not decisively remove the threat that the nation`s AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating. "This will have minimal impact on the economy. The cuts are not there for the first couple of years, which really makes you wonder if they`re really going to happen at all," said Peter Morici, an economics professor at the University of Maryland. The prospect of spending cuts is the last thing the U.S. economy needs right now, many commentators say.
Economists were stunned on Friday when data showed the U.S. economy grew just 0.4 percent in the first three months of this year -- perilously close to contraction -- and picked up unimpressively to 1.3 percent in the second quarter.
Against the backdrop of the weak economic recovery, the divided political parties in Congress appear to have agreed on one thing early on in their dispute over how to raise the U.S. debt ceiling: that spending cuts to narrow the deficit should be phased in slowly. They will be phased in from 2013.
President Barack Obama said that the initial discretionary cuts, expected to be about $917 billion, "wouldn`t happen so abruptly that they`d be a drag on a fragile economy." He added that "job-creating" investments in education and research would be preserved.
But the bulk of the austerity has yet to be defined. About $1.5 trillion of the planned savings will be decided by a bipartisan congressional commission, leaving unanswered the question as to whether the United States has the political will to tame the country`s growing debt pile once and for all.
Troy Davig, U.S. economist at Barclays Capital, estimated that the deal would only cut $25-30 billion from government spending in the first year, which could shave about a tenth of a percentage point off economic growth. "It`s not a major drag on growth but when the economy is only growing a point and a half, a lot of economists feel that this is not the right time to be finding fiscal restraint. We will be shifting from massive stimulus to massive restraint."
Steeper and faster spending cuts could have dealt a knockout blow to an economy reeling from high fuel prices, bad weather, Japan`s earthquake and a depressed housing market, plus a labor market that shows few signs of recovery.

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09.07.2011 17:46 World Economy Review - June 2011

Global rating agency Fitch has revised the GDP forecast and lowered it for a number of countries and regions, stressing that it was a more moderate pace of growth rather than a sharp slowdown in a report, entitled Global Economic Outlook (GEO).
Global economic recovery continues, experts from Fitch Ratings reported. According to them, the current weakening of global economic growth is related to temporary factors, including the negative impact of high oil prices and the consequences of an earthquake in Japan that took place in March. Emerging economies remain to be the engine of global growth. However, outlook downgrade was common for them, as well as a result of tighter monetary policy within the context of high inflation. Despite the fact that the debt crisis in the Eurozone remains the most discussed topic, the region`s economic growth rates in the first quarter of 2011 surpassed Fitch`s expectations. Germany`s economic rebound was one of the key factors in this respect.
Fitch has revised only a notch downwards its global growth forecast to 3.1 percent in 2011, from 3.2 percent in its previous global economic outlook report. The latest report also projects that global economic output will rise to 3.4 percent in 2012 and 2013 (up from 3 percent projected earlier) as it expects the major advanced economies to grow by 2.3 percent for 2012 and 2013.
Fitch has said that current soft patch in global economic growth is temporary and the recovery is on track, though at an uneven pace, even as it has revised growth forecast for the BRIC economies downward to 6.9 from 7.1 percent for 2011.
Stating that the current weak trends are primarily a fallout of higher oil prices and the Japanese disaster of March 11, Fitch Ratings , in its latest global economic outlook, says the emerging- market dynamism is still the main driver of the global recovery, though the overall growth numbers will see a minor dip.
"The emerging market dynamism is still the main driver of the global recovery. However, evidence of deceleration from 2010 is emerging as monetary policy tightening takes hold in the context of rising inflation," says the report.
Fitch`s sovereign team director Maria Malas-Mroueh says, "The fragility of the global recovery is highlighted by the weak Q1 numbers in several major economies, slowing global production indicators, and concerns about the impact of monetary policy tightening in key emerging markets. "This growth moderation, combined with increased inflationary pressures, raises a policy dilemma for the central banks, particularly in the major advanced economies," she adds.

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05.06.2011 14:01 World Economy Review - May 2011

The euro zone economy will grow 1.6 percent this year with inflation well above the European Central Bank`s target, but the aggregated budget deficit will fall more than previously thought, the European Commission said. In its twice-yearly economic forecast the European Union executive kept its forecast of 1.6 percent growth in 2011, first made in February, and raised its inflation forecast for this year to 2.6 percent from the 2.2 percent projected in February. "The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence and tensions in the sovereign debt market," Economic and Monetary Affairs Commissioner Olli Rehn said.
The Commission said the overall budget deficit of the 17 countries using the euro would shrink to 4.3 percent of gross domestic product this year from 6.0 percent in 2010, rather than to 4.6 percent from 6.3 percent as forecast last November. Next year, the overall euro zone government deficit will fall further to 3.5 percent of GDP rather than 3.9 percent as forecast in November.
"Public deficits are clearly declining. It is now essential to strengthen these trends of growth and consolidation and also ensure that they translate into more and better jobs," Rehn said. "This calls for continued fiscal consolidation and determined implementation of structural reforms that help job creation and improve the competitiveness of our economies," he said.
But the Commission also forecast that unless policies changed, Greece, which is struggling to put its public finances in order under a joint EU and IMF bailout programme, would miss its deficit and debt targets this year and next. The Commission forecast that without policy shifts, Greece would have a budget deficit of 9.5 percent of GDP this year and 9.3 percent in 2012, rather than the 7.6 percent and 6.5 percent respectively envisaged in the EU/IMF programme.
Greek debt would rise to 157.7 percent of gross domestic product this year and to 166.1 percent in 2012, rather than be 145.2 and 148.8 percent as under the EU/IMF plan targets. Ireland, also under an EU/IMF programme would be broadly on track with its fiscal deficit adjustment, the Commission said.

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