Results 101–150 of 226 found.
Fragile and Unbalanced in 2012
The outlook for the global economy in 2012 is clear, but it isnt pretty: recession in Europe, anemic growth at best in the US, and a sharp slowdown in China and in most emerging-market economies. Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition.
Down with the Eurozone
The eurozone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the eurozone's problems are much deeper. They are structural, and they severely affect at least four other economies: Ireland, Portugal, Cyprus, and Spain. With Italy too big to fail, too big to save, the endgame for the eurozone has begun. Sequential, coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to disintegration.
The Instability of Inequality
This year has witnessed a global wave of social and political turmoil and instability, with masses of people pouring into the real and virtual streets. While these have no unified theme, they express in different ways the serious concerns of the worlds working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. Any economic model that does not properly address inequality will eventually face a crisis of legitimacy.
How to Prevent a Depression
The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers. The risks of an economic and financial crisis even worse than the previous one-now involving not just the private sector, but also near-insolvent sovereigns-are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a depression and financial meltdown? The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.
Is Capitalism Doomed?
The massive volatility and sharp equity-price correction now hitting global financial markets signal that most advanced economies are on the brink of a double-dip recession. A financial and economic crisis caused by too much private-sector debt and leverage led to a massive re-leveraging of the public sector in order to prevent Great Depression 2.0. But the subsequent recovery has been anemic and sub-par in most advanced economies given painful deleveraging.
The Eurozone?s Last Stand
The eurozone crisis is reaching its climax. Greece is insolvent. Portugal and Ireland have recently seen their bonds downgraded to junk status. Spain could still lose market access as political uncertainty adds to its fiscal and financial woes. Financial pressure on Italy is now mounting. By 2012, Greek public debt will be above 160% of GDP and rising. Alternatives to a debt restructuring are fast disappearing. A full-blown official bailout of Greece?s public sector would be the mother of all moral-hazard plays: extremely expensive and politically near-impossible.
Tough Love: Hawkish Contenders for Bank of Italy Governorship Line Up
Mario Draghi appears well-placed to succeed Jean-Claude Trichet as the president of the ECB in October, leading to speculation about who will replace him as governor of the Bank of Italy. Four names are floating around: Lorenzo Bini Smaghi, Vittorio Grilli, Fabrizio Saccomanni and Ignazio Visco, the deputy director general of the Bank of Italy. Eurozone horse trading could support Bini Smaghi, but domestic politics could help Grilli, and frequently new governors have been sourced from within the Bank of Italy.
S&P Outlook Downgrade Reminds Washington to Do the Right Thing
S&P?s decision to cut its outlook for U.S. government debt from stable to negative?a historic first?sent markets tumbling: On April 18, the Dow Jones Industrial Average and the S&P 500 both recorded their biggest one-day drops in nearly a month (though U.S. Treasurys and the dollar did well). The landmark outlook downgrade reinforces what we have been saying since 2010: The United States is on an unsustainable fiscal path from which it cannot exit without political consensus. The key question is whether the gridlocked U.S. political system can respond in time to avert a bond market revolt.
Malaysia's Middle-Income Malaise
Malaysia?s policy makers have been forced to confront the factors blocking the country?s rise to high-income status. Facing higher labor costs, the economy has been unable to maintain a growth model based on low-value-added manufacturing that was largely successful for the 30 years prior to the 1997 Asian financial crisis.
Things Are Looking Up in LatAm
In our 2011 Outlook, we revised up our growth forecasts for Latin America, in anticipation of resilient domestic demand, improved external conditions and elevated commodity prices. We now envision annual growth rates of 4.7% in 2011 (compared to the forecast of 4.1% we set in September) and 6.1% in 2010 from 5.7% previously. If we are correct, 2010 will mark Latin America?s strongest economic performance of the last decade and its fastest growth since 1980.
Policy Cures for China?s Post-Stimulus Hangover
Though Chinese policy makers will spend most of 2011 cleaning up after the effects of their fiscal stimulus measures and loose monetary policies, all the while they will be laying the foundation for financial reforms that will lead to increased use of price controls in lending decisions, further internationalization of the RMB and eventually the opening of the capital account.
Will Egyptian Elections Scare Would-Be Investors?
In Egypt, although the National Democratic Party (NDP) has a solid grip on power, the election cycle is adding to policy uncertainty that could worsen prospects for the foreign investment needed to kick-start domestic investment and diversify growth away from consumption. As RGE notes in its 2011 Global Economic Outlook, policy implementation delays in Egypt could add market volatility and restrain inward FDI as investors monitor the country?s political risk.
Assessing the Next North Korean Flare-Up
Claiming insight into what Pyongyang will do next is self-delusion. Judging from recent revelations by WikiLeaks, this frustration and confusion goes right up to the highest levels in China and the U.S., leaving their respective intelligence agencies to make educated guesses. The current heightened tensions between North and South Korea are unlikely to erupt into an all-out military confrontation, given the inherent human and economic costs as well as the shared interest of China and South Korea in avoiding a collapse of the North?s dictatorial regime.
No Comfort in November for U.S. Employment
November data clearly calls for caution. The stall in the improvement in wages and the average workweek is especially concerning. Sustainable growth in aggregate consumption will be driven by wage growth, which needs to improve from its severely depressed levels. Most importantly, it is quite clear that future employment gains will be well below the levels required to make a meaningful dent in the unemployment rate, which will continue to be just shy of double-digit territory for some time.
A Spanish Inquisition
Spain shares some of Ireland's key vulnerabilities, including a housing bubble more pronounced than that in the United States and large nonperforming loan overhang in the banking sector. Though Spain's housing bubble is less severe than Ireland's, and though the Spanish banks' commendable loan-loss provisioning system is providing a buffer, a comparison of price-to-rent ratios shows that the bulk of the housing price correction and loss recognition has not yet come. Thus, the pressure on the banking system is bound to increase going forward.
Rescuing the Emerald Isle: A Q&A on the Irish Debt Crisis
RGE considers the extent of public and bank debt held by non-residents, as well as the external balance sheet of other sectors of the Irish economy, as these factors will influence negotiations and the ultimate burden sharing between domestic and foreign creditors.
Shifting Politics, Tightening Policies in China
The Central Economic Work Conference in early December should signal an end to the 'moderately loose' monetary policy that has allowed the long cycle to dominate the short since late 2008. There will likely be little commentary about renminbi (RMB) flexibility at the conference; nevertheless, we expect that technocratic control of China's monetary policy should marginally increase the rate of RMB appreciation against the USD.
Will GOP Gains Mean Ethanol Producer Losses?
Following the Republican Party?s capture of the House of Representatives in the midterm elections, U.S. policy on the use of biofuels for transportation could be about to change. Current policy is based on the use of "blender credits" to encourage the mixing of biofuels with gasoline and a US$0.54/gallon tariff levied on imports of ethanol, the most widely used biofuel. These policies are due to expire at the end of this year, and Republican deficit hawks do not want them renewed, though the ethanol industry generated US$2 billion-3 billion in tax revenues (net of subsidies) in 2009.
Uncertainty Now, Stability Later for Argentina
The sudden death of former president Nestor Kirchner, widely considered Argentina's most powerful politician, has called into question the sustainability of the current administration's mandate. In the short term, Kirchner's death will fuel political uncertainty, especially regarding who will represent the Peronist Party in next October's presidential elections. In the medium term, however, the death of the man widely thought to be the power behind the current president - his wife Cristina Fernandez de Kirchner - opens the door to greater political stability.
What's Ahead for the Fed?
Fiscal stimulus and the effects of the inventory-restocking cycle in 2010 will not only fade by next year, but will become a drag on growth. House prices are projected to correct downward in 2011, and consumer spending will remain anemic as consumers continue the process of deleveraging and repairing their balance sheets and the slack in the labor market depresses growth in wages. These factors point to slow growth and easing inflation in 2011.
The Fed Debates: Is Unemployment Structural or Cyclical?
Federal Reserve Chairman Ben Bernanke weighed in on the unemployment debate in an October 15 speech, stating that the current elevated jobless rates are probably due more to the continued shortfalls in aggregate demand than structural reallocation of workers across industries and regions. With this pronouncement, along with the FOMC's reiteration that it will continue its efforts to return inflation to levels consistent with its mandate, Bernanke underscored the Fed's belief in additional monetary accommodation, and raised expectations for Fed actions as early as November.
Currency Wars Heat Up as Growth Chills
As global growth stagnates, governments are increasingly focusing on monetary policy as a last resort to prop up ailing economies. The U.S. Federal Reserve recently signaled that it will refocus away from eventual exit strategies and toward the possibility of further intervention in the ailing U.S. economy. Between the Fed's second round of quantitative easing, the European Central Bank's stubbornness, and a new round of currency wars as countries fight each other for export growth, the path out of the recession remains unclear.
Discounting China's Demographic Dividend
China's population will reach an inflection point in 2011: The increase in the number of retirees will start to outpace the growth of the labor pool. Roubini Global Economics projects that the rising cost of labor should translate into a higher Chinese inflation rate of 4 percent, which in turn will push up the cost of capital. As investment gradually decelerates, China's GDP growth rate should decline by about two percentage points over the next five years, with potential growth down to about 8 percent in 2015.
Multiple Risks From a Multispeed Eurozone Recovery
Although the euro zone's recovery from recession has been better than initially envisaged, there are still external and domestic pressures - some persistent, some new - as potential threats to 2011 growth. The standout performance of the core and Northern European economies, particularly Germany, alongside renewed weakness in the periphery is giving rise to a multi-speed recovery. This adds a new set of risks - such as the implications of one-size-fits-all monetary policy - to the existing list.
Too Soon to Call for Asian Decoupling
Even without a double-dip, weak U.S. and EU recoveries will cause export-dependent Asian economies to grow below their 2003-07 trends in the coming years. Nonetheless, widening growth differentials with the G7 countries and healthy public- and private-sector balance sheets - along with rising incomes and expanding middle classes - will drive economic growth and foreign investment in Asia and increase intra-Asia and EM trade and investment.
A Balancing Act For the Bank of Canada
The Bank of Canada adopted a hawkish tone at its September 8 policy meeting, despite signs of slowing growth. Less need for balance sheet repair should indeed allow Canada to continue to outgrow most of the G7. The country cannot decouple from U.S. growth, however, in part because most Canadian exports are U.S.-bound. These dynamics and a moderate core inflation rate call for the Bank of Canada to maintain the current, accommodative interest rates for the rest of 2010, despite its concerns about excessive debt practices.
Brazil's Economy Exhales
Brazil's cooling economic growth in the second quarter resulted from the withdrawal of excess accommodation, a less benign global backdrop and a high base. Looking into the second half 2010, the country's growth could temper further if July's industrial output figures and the purchasing managers' index for August are any indication. Although demand drivers such as labor conditions, credit and consumer confidence remain resilient, they are easing, which suggests economic activity will keep settling into more sustainable levels.
No Chance of a V-Shaped Recovery
Given political and fiscal constraints and banks' unwillingness to lend, it is doubtful that policy can prevent a double-dip. Even if a new round of monetary and quantitative easing can provide limited stimulus, the real issue facing the U.S. is the need for balance sheet deleveraging and repair, and that will be a multi-year process. The U.S. must brace itself for a long period of below-potential growth.
Mind the (Current Account) Gap
Turkey's current account deficit is unlikely to show a sustainable decrease without significant reforms. This means country needs to keep attracting sufficient capital flows from abroad to finance the shortfall. Increasing short-term capital flows, however, are raising Turkey's vulnerability to sudden shifts in global risk appetite. The danger is that an increase in risk aversion could place upward pressure on interest rates to attract the necessary external financing.
FOMC Warms Up the Helicopter
The Fed has been laying the verbal groundwork for further monetary stimulus. The August 10 announcement by the Federal Open Market Committee appears to be another signal of a gradual policy shift. On its own, the latest move is likely to have limited implications for the broader economy. More importantly, however, the decision to reinvest the repayments in Treasury bonds reflects the preference many FOMC members have expressed for an expeditious return to the Fed's traditional Treasury security-only portfolio.
The Sick Man is Europe
Something other than leaves will fall in Europe this autumn. American attention, no doubt, will focus on Barack Obama's date with an angry electorate this November. Yet across the pond, governments of the right, left and center in Europe appear ready to crumble, their positions eroded by a wave of austerity and high unemployment and government debt, plus a smattering of nasty corruption scandals.
How the Other Half Looks
The global adjustment process has been delayed. In order to support growth and income generation, the over-saving investment- and export-driven nations - China, emerging Asia, Germany and Japan - continue to look to the overspending countries following an Anglo-Saxon model. There is a risk of a weak recovery of global aggregate demand relative to supply, which could contribute to deflationary pressures. As such, the recovery will continue to be multi-speed and rocky, exit strategies will remain uncoordinated and the risk of policy gridlock is high.
Still Stressed After Tests
According to the Committee of European Bank Supervisors, only seven of the continent's banks failed to pass muster out of the 91 assessed in recent stress tests. These tests contained a crucial flaw, however: the absence of a sovereign default scenario. Optimistic commentators point to the rebound in U.S. markets after the Supervisory Capital Assessment Program, which faced significant criticism, as Europe's equivalent is now. However, while the U.S. SCAP tests modeled the key concern of the market - future property risk - and forced banks to recapitalize, the European tests did neither.
No Golden Ticket
Why aren't we giddy about gold? In the abstract, gold is most attractive as a hedge in one of three extreme scenarios: high inflation, persistent deflation, or when the risk of global financial meltdown is large. Once national balance sheets are repaired through a protracted and gradual deleveraging of households and governments following the relatively rapid deleveraging of the financial sectors, particularly in the United States, excessive deflation and inflation fears will subside.
Emerging Asia's On/Off Switch
In 2009 and the first half of 2010, low interest rates and an uncertain global outlook led to strong, volatile capital inflows into some of Asia's most promising economies. Policymakers in these places - which include, among others, Hong Kong, Taiwan, Singapore, South Korea, Indonesia and India - need to tighten monetary policy sooner rather than later. New inflows from the rest of the world might prove problematic, but at present low or negative real interest rates seem to be fueling speculative investment by domestic players, and that too is a dangerous dynamic.
Gloomy News on U.S. Employment
The most recent U.S. employment report was even worse than we thought it would be, less because headline employment retreated (this was expected due to Census layoffs) than because weekly hours worked, average hourly earnings, and private sector payroll gains all took a plunge. The second half of the year should bring even weaker growth as personal consumption growth aligns with income growth, inventory growth aligns with final sales (still a weak spot) and fiscal stimulus turns neutral or becomes a drag on growth.
Will Debt Problems Metastasize to ?Core? European States?
One of the major issues is whether the problems of the PIIGS will metastasize from the eurozone periphery into the ?core? countries of the continent. This commentary focuses specifically on Belgium, which has the third highest debt-to-GDP ratio in Europe. It is uncertain how Belgium?s necessary belt-tightening measures can be implemented, particularly given the dim prospects of a durable political consensus.
What a Flexible Yuan Means for the Economy
Even if the Chinese authorities allow two-way movement of the yuan against the dollar to reduce speculation, Chinese policies could support the U.S. Treasury market, commodities and risky assets more generally - especially if other emerging market countries take a cue from China and allow only gradual depreciation. However, a sharp appreciation against the euro and dollar without other policies to support Chinese consumption could contribute to much slower global growth and higher inflation as increased Chinese production costs are transmitted to G10 consumers.
The Economics of the World Cup
Although the short-term gains from hosting the World Cup are rather limited, if the event goes well and the country avoids labor strikes and other destabilizing events, it could provide a chance for South Africa to showcase its institutional development and help cement its longer-term recovery. There are, however, several structural challenges to overcome, such as limited access to services, transportation bottlenecks, worsening demographics and extensive inequality, which could hamper the country's potential output growth.
Hungary Suffers from Foot-in-Mouth Syndrome
While Hungary may not be 'another Greece,' the country's government announced an economic action plan last week aimed at reining in public finances amidst growing investor concern. The plan includes a special bank tax, public sector spending cuts, a cut in the corporate tax rate, and a recommendation to ban foreign exchange-denominated mortgage lending. It's unclear, however, that this plan will be enough for Hungary to reduce its deficit to meet this year's 3.8 percent of GDP target agreed upon with the IMF.
Whither the Regulatory Winds?
While reforms like eliminating the 'too-big-to-fail' card and adopting Glass-Steagall-like regulations to unbundle different types of financial activity are necessary to ward off asset bubbles and combat systemic risks, they might not be feasible for political reasons. In the event of a Glass-Steagall type separation, we would expect a divergence in credit spreads between banks with and without insured deposits, but expect the cost of credit for depository institutions to be very close to sovereign risk. On the flip side, dilution risk would be concentrated in depository institutions.
Renewed Risks and Multi-Speed Global Recovery to Restrain World Trade Flows
Global trade growth is unlikely to reach its pre-recession highs in the short term, with exports of several trade-dependent economies, particularly emerging markets, growing at a slower pace due to weaker import demand in the U.S. and EU amidst consumer deleveraging, fiscal austerity and slow recoveries in labor markets and household wealth. In the medium term, however, structural reforms in emerging markets and surplus countries to increase domestic demand will boost trade among emerging markets, as well as global trade flows, changing their direction and composition.
Currency Considerations at the U.S.-China Summit
The U.S.-China Strategic and Economic Dialogue will recommence in Beijing on May 24, 2010. Behind closed doors, Chinese leaders will repeat their complaints about the U.S. dollar's role as a reserve currency and their concerns about the safety of their massive $1 trillion U.S. Treasury holdings given the eroding U.S. fiscal position. Meanwhile, the U.S. will struggle to prove it has a workable long-term plan to reduce the fiscal deficit. These constraints will soften the U.S. approach to the renmibi.
Has the EMU Skirted Disaster?
Although many operational questions remain unanswered, the ?750 billion headline number for this week's euro area stabilization mechanism - in addition to the European Central Bank liquidity facilities and quantitative easing - should help fight contagion. It is now up to euro area periphery countries to fulfill the fiscal consolidation requirements. In addition, the relatively high interest rates on joint loans should serve as an incentive for euro area members to put their fiscal houses in order without recurring to the facility.
Greek Contagion Spreads?Time for Plan B
The euro continued to plunge this week, and long-term government bond yields in Greece and in the periphery countries, including Italy, spiked upward again after a short rally before the recent International Monetary Fund-European Union rescue agreement. The market?s lukewarm reaction to the financing package confirms RGE?s view that a traditional financing package, extended at unsustainable interest rates, will not allay solvency fears, but rather will lead to a disorderly outcome and contagion.
Focusing in on Latin America
Latin American economies will expand in 2010 after contracting more than 2 percent in 2009. Better global growth prospects and solid commodity prices will support growth in the region. Inflation will grow, but will remain within central bank target ranges, except in Mexico. Current account deficits will widen and surpluses will narrow as growth in domestic demand outpaces external demand. Wider growth and interest rate differentials, as well as a relatively weak U.S. dollar and solid commodity prices, will continue to support currencies.
Reading the Tea Leaves for Q2 and Beyond
While the second half of 2009 brought signs of stabilization in growth rates and industrial production for many economies and early 2010 has brought continuing strong global trade and improvement in output, the path to a self-sustaining recovery is not yet clearly shaped, at least in advanced economies. The recovery will be multi-speed. Most advanced economies, weighed down by debt, excess capacity and slack in labor markets will grow well below potential and in many cases, their potential output growth has fallen.
What are the Political Implications of Poland's Tragedy?
The April 10 plane crash that killed Polish president Lech Kaczynski and a number of other top public figures, including the head of Poland's central bank, has caused major distress in the Polish political landscape. However, the country's constitutional mechanisms should facilitate a smooth institutional transition and ensure long-term stability. The event is unlikely to cause major geopolitical tensions, and RGE thinks speculation in some media outlets about increased tension with Russia is overdone.
Iraqi Oil: A Riddle in the Sands
Iraq has the potential to be a major source of new oil in the next 5 to 10 years, but the process of scaling up production faces many obstacles. Modernizing and expanding the country's energy infrastructure will be costly, given Iraq's fiscal position, and this may tempt the government to extract as much revenue as it can in order to meet the country's fiscal vulnerabilities. And as Iraq's oil production gradually climbs, it will face pressure from OPEC to adhere to quotas. Given these uncertainties, Iraq's plans to more than double output within 5 years seem very optimistic.
The Perils of Name-Calling
In mid-April, the U.S. Treasury is expected to publish its biannual report on foreign currency arrangements, and there is a higher probability than ever before that China will be branded as a currency manipulator. Such a move could start a trade war and force Chinese officials to clam up even further on the currency issue while stubbornly maintaining the peg to save face. Things have gotten so bad, however, that even traditional supporters of free trade are now saying it is time to get tough with explicit threats of trade sanctions.
Results 101–150 of 226 found.