The IMF global growth forecast for 2009 has been revised down from 2.2% to .5% which is the slowest growth since WWII. The growth for the G3 will all be negative with the US down 1.5%, the EU off 2% and Japan down 2.5%. The expected write-down of bad US credit has moved from $1.4 trillion in October of last year to $2.2 trillion, an increase of more than 50%. The largest problem for growth is that bank capital is falling from write-downs as past as the government injects funds. Because the capital base has been eroded there is less money to lend through global banking systems. There has been write-downs of banks of just under $800 billion and capital raised of just over $800 billion but $380 of the new capital is coming from public monies. The stock of bank capital is now a flow. Takes loses at one end of the pipe and ask for more money from the other end of the pipe.
There will be no gain from the emerging markets to help offset the problems in the developed market. With commodity prices down, those countries that rely on raw material trade will see a steep decline in trade. The economies who are very dependent on component assemblies for the developed economies are also seeing steep declines in exports as well as imports.
So much for the uncorrelated world economy. Globalization in banking has caused a common factor to drive world growth. This has only be accentuated with the wild swings in commodities. Nevertheless, we will still see currency markets move on the relative differences in growth and economic performance. However, for developed countries there may be more range-bound behavior especially in the first half of the year. The world hopes that the Fed actions to open up credit markets will have the ability to start to turn the US so it may serve as an initial engine for global growth and allow enhanced credit flows to emerging markets.
What is needed is a IMF plan to help with the flow of credit to many countries. Swap lines have been increased by the Fed to some countries but the use of any financial support from the IMF has been limited and only on a country basis and not in the form of systematic lending. This the time that financial coordination is needed more than ever around the globe.
There will be no gain from the emerging markets to help offset the problems in the developed market. With commodity prices down, those countries that rely on raw material trade will see a steep decline in trade. The economies who are very dependent on component assemblies for the developed economies are also seeing steep declines in exports as well as imports.
So much for the uncorrelated world economy. Globalization in banking has caused a common factor to drive world growth. This has only be accentuated with the wild swings in commodities. Nevertheless, we will still see currency markets move on the relative differences in growth and economic performance. However, for developed countries there may be more range-bound behavior especially in the first half of the year. The world hopes that the Fed actions to open up credit markets will have the ability to start to turn the US so it may serve as an initial engine for global growth and allow enhanced credit flows to emerging markets.
What is needed is a IMF plan to help with the flow of credit to many countries. Swap lines have been increased by the Fed to some countries but the use of any financial support from the IMF has been limited and only on a country basis and not in the form of systematic lending. This the time that financial coordination is needed more than ever around the globe.
No comments:
Post a Comment