The G3 economies are coupled and that is a global problem. World economic growth usually does not turn negative because most of the business cycles of individual countries are not correlated. There will be a slowdown but not likely a full global recession. For the last 15 years, the engine of growth has been the US economy which has often been immune to the slow growth problems of other regions. With the US in recession, the expectation is that other regions will be able to take up the slack in world growth, yet the G3 are now closely coupled.
The US, Japan, and the EU are all in recessions. These recessions are growing longer and deeper in all cases. he US recession will be the worst since the Depression. The EU numbers have seen the steepest fall on record. Japan is moving back to levels that suggest massive help is required.
All three countries have deflation fears. CPI in the US showed a strong negative reading. Japan is still registering deflation. The IPS market is suggesting deflation in both. The EU has seen a slide in inflation even though there are no explicit expectations for deflation. There still is a growing bias in that direction and inflation will be below the ECB target of 2%.
The monetary policies in all these regions are calling for strong easing. The US is following a de fact quantitative easing . Japan has driven rates back down to zero and may have to again engage in quantitative easing. The ECB has used stronger language concerning worries about about dropping rate below 2%, but the central bank has engaged in providing significant liquidity for the banking system since the beginning of this crisis.
Fiscal policy is all stimulative. The US stimulus package will be massive and create a $1 trillion deficit. Japan is looking for added fiscal stimulus to offset the decline in private investment. The EU budget plans have been less aggressive at this point in time but that may only be a function of the surprise turn in the economy.
While there is an expectation that growth will come from the BRIC's, they have been having their own problems. The export nature of the Chinese economy means that it is closely linked to the US and Europe. Russia is in the process of currency devaluation because of the fall in oil prices. Brazil has been rocked by the credit crisis in spite of having a strong balance sheet relative to previous emerging market problems. India's growth has also slowed and may not have enough internal demand to affect the rest of the world.
There is little joy for the season as we enter the end of the year period.
The US, Japan, and the EU are all in recessions. These recessions are growing longer and deeper in all cases. he US recession will be the worst since the Depression. The EU numbers have seen the steepest fall on record. Japan is moving back to levels that suggest massive help is required.
All three countries have deflation fears. CPI in the US showed a strong negative reading. Japan is still registering deflation. The IPS market is suggesting deflation in both. The EU has seen a slide in inflation even though there are no explicit expectations for deflation. There still is a growing bias in that direction and inflation will be below the ECB target of 2%.
The monetary policies in all these regions are calling for strong easing. The US is following a de fact quantitative easing . Japan has driven rates back down to zero and may have to again engage in quantitative easing. The ECB has used stronger language concerning worries about about dropping rate below 2%, but the central bank has engaged in providing significant liquidity for the banking system since the beginning of this crisis.
Fiscal policy is all stimulative. The US stimulus package will be massive and create a $1 trillion deficit. Japan is looking for added fiscal stimulus to offset the decline in private investment. The EU budget plans have been less aggressive at this point in time but that may only be a function of the surprise turn in the economy.
While there is an expectation that growth will come from the BRIC's, they have been having their own problems. The export nature of the Chinese economy means that it is closely linked to the US and Europe. Russia is in the process of currency devaluation because of the fall in oil prices. Brazil has been rocked by the credit crisis in spite of having a strong balance sheet relative to previous emerging market problems. India's growth has also slowed and may not have enough internal demand to affect the rest of the world.
There is little joy for the season as we enter the end of the year period.
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