Comments due by April 22, 2016
IS THERE a global economic crisis on the horizon? Probably not. Is the world in danger of falling into recession? Not soon. Yet the IMF’s latest update of its forecasts is nevertheless resolutely downbeat. Speaking this week in Washington, DC, its chief economist, Maurice Obstfeld, outlined yet another downward revision to its prediction for global GDP growth. It is likely that the next revision will again be down. One of the big threats to the world economy, he said, is from “noneconomic risks”—fund speak for grubby politics. A world economy stuck in the doldrums, he cautioned, may be a perilous place politically. The actual forecasts are far from horrible. The fund nudged down its estimate of global growth for 2016 from 3.4% to 3.2%. That is still a shade faster than in 2015. The revisions are broadbased: America, Europe and the emerging world as a bloc all saw similar downgrades (see chart). The forecast for sub Saharan Africa was pared back the most, in large part because of a gloomier outlook for oil rich Nigeria, the continent’s biggest economy. The recent recovery in crude prices will take some pressure off oil producers, but “we won’t be seeing prices at the $100 a barrel level for some time, if ever,” said Mr Obstfeld. Of biggish economies, only China escaped a downgrade. The fund is more confident than it was in January that stimulus measures there will work. But there is a concern about the quality of China’s growth, said Mr Obstfeld, as fresh credit is directed towards sputtering industries. The scenario the fund seems most concerned about is a steady slide in global GDP growth that feeds on itself by discouraging investment, thereby exacerbating political tensions, which in turn make fixing the economy even harder. Brazil shows how a bad economy can be made worse by political paralysis. Low growth might add to the “rising tide of inwardlooking nationalism” in 4/15/2016 System says slow | The Economist http://www.economist.com/node/21696883/print 2/3 the rich world, said Mr Obstfeld. Politics in America is moving against free trade. And there are various threats to 4/15/2016 System says slow | The Economist http://www.economist.com/node/21696883/print 3/3 Europe beyond the perennial problem of Greece. The refugee crisis has already put pressure on the European Union’s openborders policy and there is a “real possibility” that Britain might leave the EU. The IMF has some familiar remedies for the global economy: keep monetary policy loose, augment it with fiscal stimulus where possible and add some pro growth reforms to the mix. Such action is needed to insure against the risks the fund identifies. But the world should also be making contingency plans for a coordinated response if a financial shock hits. “There is no longer much room for error,” said Mr Obstfeld, with a certain weariness.
The world may still be recovering from the 2008 market crash, the recovery has been long and slow but there has been progress. The article explains that an estimate of global growth for 2016 went from 3.4% to 3.2%, so there are going to be continuous backslides, but with high market risks may come high rewards. As an example; The S&P 500 index rose more than 92% over the past five years until market volatility kicked in during the second half of 2015, in 2016 it has gone down by 9%, so the improvements are there but with the risks taken through government bailouts, loose monetary policy and huge injections of capital in the form of quantitative easing. Looking at China as an example of high GDP who have taken over the U.S as the highest globally, they impose capital controls so that its money stays within there borders allowing the growth of the middle class thus increases in stock and real estate investment. Mr Obstfeld states that “There is no longer much room for error", though without risks the economy can either stay still or decline.
ReplyDeleteThe world growth is getting low in coming days in spite of digitization that have geared up the speed of happenings but no avail as far as growth is concerned. The climate change can be accused of go slow world growth. Climatic changes is one of the worst threat facing by word in coming days. No cure is advised so far. The downgrades will never end until economic policy improves especially in America and China. In America the reduction in liberty has taken its toll over the last 15 years leading to poor growth which has been exacerbated by poor demographics and the heavy hand of government regulation. Easy monetary policy cannot solve all these ailments and leads to many distortions
ReplyDeleteThe economic data in the US continues to show promise and is being reflected by a strong US dollar. This however has its implications on the global scale because of the increased costs associated with our goods. The constant reassessment of the Chinese economy is speaking to the market manipulation their government has had and their plans to artificially inflate their economy, by deflating their currency, has not been successful. One of the largest economies in the world and one that the US thoroughly relies on for a source of cheap labor, we are interdependent and makes any recessionary period even more complex. The fracking revolution we have seen here in the US drove WTI inventory to record highs, bringing competitors to the market and allowing producers to produce at a much higher efficiency from their existing wells. This new technology bled over into off-shore rigs and international markets. The size of the oil and gas market is so large and the amount of capital tied up in the industry shocked the global economy. Loss of jobs and we are now seeing major amounts of chapter 11 bankruptcies in small to mid cap upstream companies. Naturally demand slowed, in the biggest economies of China and Europe and have been drudging along ever since. Negative interest rates also have plagued some economies in Europe and even in Japan. There are struggling economies out there but I think we have established a strong foundation which will allow the country to withstand another serious downturn.
ReplyDeleteContribution to global slowdown includes mostly noneconomic risks. Although the large-scale economically sound regions, such as America, Europe and other countries are facing a growth decline, the smaller regions such as sub Saharan Africa is taking an even bigger hit. The article took a turn and explained how political paralysis can negatively affect the economy, as seen in Brazil. In the United States, many believe that foreign competition is one of our biggest threats. However, it is the political paralysis that the United States faces that keeps us from rising to the challenge of foreign competition. Does the dysfunction of politics in the United States weaken our economy? Would working together (despite divided government) to fulfill self-interest help prevent this financial shock? If and when this financial shock hits, it is crucial that countries are prepared to deal with them so that an economic depression can be avoided.
ReplyDeleteThe Fed, news outlets and especially politicians all cover at one point or another how the global economy is sluggish or otherwise just not doing as well as it should be. This could be perhaps a byproduct of increased risk-averse practices, but as this article illustrates is more importantly due to noneconomic risks (that ironically the news and politicians contribute heavily to).
ReplyDeletePolitical tensions, both domestic and international (in regards to the US), affect the aggregate economic outlook so much that perspectives are affected by broad sweeping economic outlooks that are perceived to be a collective as illustrated in the broad-based revisions in various economic blocs all over the world.
One of the most interesting aspects of this piece is how it underscores how "low growth" can be attributed to the "rising tide of inward looking nationalism" such as in the case of Europe. This is not just specific to Europe but also in America where politicians on either side of the political spectrum have advocated for specific economic policies that turns the country "inward" and focus on domestic development. While an emphasis on domestic, national development is a focus for any campaign in general, it becomes troublesome when international development is seen as a threat to economic development overall.
In financial matters, a recession is a business cycle compression which results in a general lull in monetary movement. Recession for the most part happen when there is a far reaching drop in spending. This might be activated by different occasions, for example, a money related emergency, an outside exchange stun, an unfavorable supply stun or the blasting of a financial air pocket. A retreat has numerous characteristics that can happen all the while and incorporates decreases in part measures of financial action (GDP, for example, utilization, venture, government spending, and net fare movement. These outline measures reflect basic drivers, for example, business levels and aptitudes, family unit funds rates, corporate speculation choices, loan costs, demographics, and government approaches. Governments more often than not react to retreats by embracing expansionary macroeconomic arrangements, for example, expanding cash supply, expanding government spending and diminishing tax collection.
ReplyDeleteThe above article depicts the economic slowdown being experienced. Major regions such as China and the U.S. are facing a decline in economic stability and growth, which can be caused my a number of things. Divided politics and foreign competition has impacted the U.S. negatively. Other factors, such as climate change have also seriously hindered economic growth and increased poor economic growth.
ReplyDeleteIn order for an economic depression to be prevented, we, in all regions, must come together and put political opinions aside. This would help the U.S. better their position in terms of foreign competition, and would also lead to a more overall stable economy.
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ReplyDeleteDespite recent adjustments to the IMF's outlook of the United States economy and those of others, it is important to note that there is very little chance that any severe economic downturn or recession will strike the United States. With a strong US dollar, steadily increasing employment and oil prices that remain low (despite a recent surge in price due to increased demand) the United States has an economic "buffer" for the time being that will likely provide protection against any strong economic slumps. China is an example of the complete opposite: an economy that currently does not look particularly strong (at least compared to the United States and other western countries), but is forecasted to grow in the short term. Other countries, particularly those within the EU, which is seeing a stagnation on a regional level coupled with rising tensions from the immigrant crisis and widespread terrorism, are not nearly as lucky. Like the United States, many countries within the EU are predicted to grow at rates that are lower than initially expected, or in some cases, stagnate or slightly decline. These countries unfortunately do not have the same safety nets that the United States currently have and are more vulnerable in the immediate future.
ReplyDeleteSince the 2008 market crash the united states' economy has been very slowly crawling its way back up. The IMF's most recent forecast on the global GDP is a negative outlook predicting a decline. A huge contribution to this predicting decline in the world GDP is due to " non economic risks". So to answer our question how serious is this world economic slow down? Should the United States be concerned about the downbeat forecast by the IMF? No the United States is not facing any real downturn anytime soon. We have been on the steady incline since 2008, Their have been tiny dips in the economy but as an overall we should not be concerned. That does not mean that nothing should be done. The article states how "non economic factors" such as political divides contributed to the decline.This especially when just looking at the united states is a silly reason to have a decline in economic growth because these factors can be controlled. Could our different views and political party opinions be put aside to reach a common goal economic growth could be seen at a much quicker rate.
ReplyDeleteSince the great recession the economy has been rebuilding itself, although slowly, everyone has a hesitancy to believe in the economy entirely for fear of another bubble. This does not seem possible, however, given the strong dollar, any slow down in the economy is normal and there is no reason to believe that this will inevitably become another recession for the United States. A weary eye on economic activity is acceptable given the cautionary action to reboot the economy since 2007, but this slow down should be understood as non-economics, and no reason to worry.
ReplyDeleteI think that politics always play a part in the market. People are a major determinant of the success of businesses, and consumer behavior is what directly impacts the market itself. Notice how the article mentions that the sub-Saharan Africa was pared back the most, in large part because of a gloomier outlook for oil-rich Nigeria,…”
ReplyDeleteThe Oil price drop issue, according to NY Times (1), came from a re-entry into the oil market by Iran, which was out of the game due to sanctions, along with the over production of oil last year, being referred to as an “oil glute”. So essentially it seems like added competition, and not enough demand for the supply, both consumer affected behaviors, are the problem. However, despite the effects caused by the oil market, overall it doesn’t seem like we are headed for a major economic downturn because overall we have been making steady recovery as an economy after the recession ended. People are finding work, homes are getting sold, and although not at the rate preferred oil is getting sold. Based on the current issue, I will say I agree that it will not be sold at the higher price of $90 or $100 any time soon.
1. http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0
Jack Salisbury | ECO-360
ReplyDeleteAs you mentioned above, the forecast predicting a decline in GDP cites non economic risks as the largest contributing factor in that prediction. I think that is quite telling because, generally, these kinds of forecasts air heavily on the side of caution. Is there a global economic crisis on the horizon and should the U.S be worried? In short — No.
Of course, the crash in 2008 came without any overwhelming and public amount of prediction. That said, I think we are relatively safe from encountering a similar scenario due to the Dodd-Frank Act and the protections that it provides.
Furthermore, I agree that political tensions can lead to uncertainty, but am hopeful and somewhat confident that the US will not start moving quickly against free trade, despite some of the rhetoric among political candidates. The US can also take some solace in a strong dollar, less market volatility relative to recent times, and a strong position in regards to domestic oil.
That said, I do wonder how long the US will be able to sustain the massive inflation of corporate profit margins we have seen over the past decade and what effects those margins might have on the US labor market in the future. In summary, I do not believe we are on the verge of some sort of massive crisis.
The global economy as a whole is slowing down and the monetary fund contributes this decline to dirty politics. The economy faced a bad begging of the year with many in the financial industry having awful losses in February and economies such as Brazil to tumble. Oil dropped to industry lows and Brazils GDP relies on the commodities market since their largest export is oil. Not only does brazil face a dependence on oil there political system is riddled with corruption. Petrobras, the state run oil company was used as a money machine for many politicians. There were many attempts to impeach their president but they are unable to do so with strong political ties. While some doomsayers believe oil will drop believe $30 again it is highly unlikely. The instability of oil also comes from political corruption and market making. Last week at the Doha convention their was a meeting planned with OPEC to make a market freeze of oil. Saudi Arabia has increased their oil fields and Russia makes claims to start to produce more. All of these factors around oil are made up from political tension. If the world is not able to operate collaboratively in trade we will continue to see decline in economic growth across the board.
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