The World Trade Organisation has warned the outlook for global trade is deteriorating, citing the eurozone crisis as the main drag on growth. The WTO slashed its forecast for global trade growth this year from 3.7% to 2.5% onprevious 20-year average. The WTO director general, Pascal Lamy, said there was more risk of things getting worse than better.
The news came as Brazil's finance minister lambasted the US and Japan for their latest rounds of quantitative easing, which will devalue their currencies and, he said, trigger a global currency war.
Next year the WTO expects trade to grow by 4.5%, compared with previous forecasts of 5.6% growth. That forecast is, however, based on the assumption that current policy measures will be enough to avoid a breakup of the euro and that US politicians will reach an agreement to stabilise public finances and avoid the "fiscal cliff". The WTO is targeting 1.5% growth in exports from developed economies, down from its previous forecast of 2% growth. The situation has deteriorated even more for developing countries, where the WTO cut its forecast from 5.6% growth to 3.5%.
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Germany has weathered the slump so far but there are signs that extreme austerity and deepening slump across southern Europe has begun to engulf the country.
Germany’s IFO business confidence index has fallen for the past five months, sinking this month to its lowest since mid-2009. Capital Economics said the crash in the manufacturing expectations index points to a 10pc fall in industrial output. “It is only a matter of time before the economy starts to contract," it said.
The OECD expects a “light recession” in Germany, with grave knock-on effects for struggling EMU states relying on the German locomotive to pull them along.
Separately, EU diplomats said a taskforce is working on plans to boost the European Stability Mechanism (ESM) or bail-out fund from €500bn to €2 trillion by offering guarantees to private creditors to co-invest.
The package should be ready by early November. While it has support from Germany’s government, it may face trouble in the Bundestag and Finland’s parliament since it exposes taxpayers to bigger losses in any default. “We always find a solution in the end,” said one official.
Bloomberg
French industrial confidence probably fell to 89 this month from 90 in August, according to the median estimate of economists surveyed by Bloomberg News before the national statistics office Insee releases the report today.
The Bundestag is likely to continue to approve euro-zone aid requests, as it has done on all occasions since Greece first secured a bailout in May 2010, thanks to the support of left-leaning, euro-friendly opposition parties. But Ms. Merkel's lack of a majority in her own conservative camp for euro-zone bailouts—evident in several Bundestag votes over the past year—is politically embarrassing and threatens to increase the divisions within her fractious government. Many lawmakers in Ms. Merkel's junior coalition partners, the free-market Free Democratic Party and the conservative Christian Social Union, are hostile toward further loans for Greece and skeptical about ECB purchases of Spanish bonds.
The chancellor's coalition is already squabbling over a number of domestic issues, from expanding family benefits to quotas for women on company boards. Fresh fighting over Europe could damage the government ahead of German national elections in fall 2013, officials fear.
Although the ECB's offer in August to prop up teetering euro-zone bond markets has boosted markets' confidence that the euro will survive, the currency bloc's list of unresolved questions remains long.
In addition to Greece, Spain and Cyprus, Portugal is likely to need a fresh bailout by next year and is facing a popular backlash against austerity measures. Slovenia's worsening finances are raising concerns that it, too, will need help.
Germany and France are struggling to overcome their differences on how to turn the ECB into the euro zone's banking supervisor, while European officials are worried about the political course that Italy might follow after reformist Premier Mario Monti steps down next spring.
Olli Rehn, EU commissioner for economic affairs, comments on the Spanish budget:
The comprehensive reform plan announced today by the Spanish authorities is a major step to broaden and deepen structural reforms, building on important achievements made already. The reform plan includes concrete, ambitious and well-focused measures and establishes clear deadlines in many areas.
This new structural reform plan responds to the country specific recommendations issued to Spain under the European semester and goes even beyond them in some areas. The reforms are clearly targeted at some of the most pressing policy challenges. Further enhancing the flexibility of product and labour markets will indeed be critical to boost growth and employment and to support fiscal consolidation.
I particularly welcome the ambitious plans to establish an independent Fiscal Council, to further liberalise professional services, and to effectively reduce the fragmentation of the internal market in Spain. Labour market measures complement past reforms of collective bargaining and employment protection. The planned reform of the vocational education system is particularly pertinent.
Spain is facing important challenges to correct very sizable macroeconomic imbalances which require a comprehensive policy response. The measures announced today are a further important step towards addressing these challenges.
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