The World Bank has slashed its global growth forecast and told developing nations to prepare for the worst, warning that Europe’s debt crisis could trigger an even deeper slump than the post-Lehman collapse three years ago. "While contained for the moment, the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains. The willingness of markets to finance the deficits and maturing debt of high-income countries cannot be assured. Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out. The world could be thrown into recession as large or even larger than that of 2008-09." The consequences would be dire for 30-odd countries with external finance needs above 10pc of GDP. The bank advised these states to "prefinance" their needs while the credit markets are still open, reducing the risk of a sudden crunch. Commodity exporters should brace for a fall in oil and metal prices of almost a quarter. Emerging markets have already seen a rise in average bond spreads of 117 basis points since last July. Global trade volumes contracted at an 8pc annual rate in the three months to October. Capital flows to developing countries fell to $170bn in the second half of 2011 from $309bn a year earlier. In a veiled attack on Europe’s austerity policies the bank said "it is not yet clear whether there is an end in sight to the vicious circle whereby budget cuts to restore debt sustainability reduce growth and revenues to the detriment of debt sustainability". The bank’s "downside scenario" involves a credit freeze in two "larger Euro Area economies". Such an event would cause a further contraction of Euroland’s GDP by 6pc over the next two years. The bank stopped short of modelling what would happen if the eurozone breaks up altogether. 
Access Investments-Building Awareness - European Union-ROMANIA
Thursday, January 19, 2012
The World Bank has slashed its global growth forecast and told developing nations to prepare for the worst, warning that Europe’s debt crisis could trigger an even deeper slump than the post-Lehman collapse three years ago. "While contained for the moment, the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains. The willingness of markets to finance the deficits and maturing debt of high-income countries cannot be assured. Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out. The world could be thrown into recession as large or even larger than that of 2008-09." The consequences would be dire for 30-odd countries with external finance needs above 10pc of GDP. The bank advised these states to "prefinance" their needs while the credit markets are still open, reducing the risk of a sudden crunch. Commodity exporters should brace for a fall in oil and metal prices of almost a quarter. Emerging markets have already seen a rise in average bond spreads of 117 basis points since last July. Global trade volumes contracted at an 8pc annual rate in the three months to October. Capital flows to developing countries fell to $170bn in the second half of 2011 from $309bn a year earlier. In a veiled attack on Europe’s austerity policies the bank said "it is not yet clear whether there is an end in sight to the vicious circle whereby budget cuts to restore debt sustainability reduce growth and revenues to the detriment of debt sustainability". The bank’s "downside scenario" involves a credit freeze in two "larger Euro Area economies". Such an event would cause a further contraction of Euroland’s GDP by 6pc over the next two years. The bank stopped short of modelling what would happen if the eurozone breaks up altogether. 
Subscribe to:
Post Comments (Atom)
6 comments:
Berlin said growth this year was likely to be 0.7pc, lower than a previous estimate of 1pc, before rebounding in 2013 to 1.6pc.
Philipp Roesler, Germany's economics minister, insisted "there can be no talk of recession."
He said the German economy likely shrank by 0.3pc in the fourth quarter of 2011, but expected growth of 0.1pc in the first three months of 2012, thereby escaping a technical recession of two successive quarters of negative growth.
"Germany is and remains an anchor for stability and growth in Europe. After two extraordinarily strong growth years, the German economy is still in robust form. However, due to a difficult external environment, we are expecting a temporary dip in growth in the first half of the year," he said.
Mr Roesler conceded the forecasts were based on the assumption of a relaxation of market tensions and a rapid solution to the eurozone debt crisis. He said "without doubt" the main risk to the projection was a worsening of the crisis
It is election year in Germany in 2013 so the German government prefer the growth in 2013 rather than 2012.
The reason Merkel did not oblige Sarkozy and Obama by kicking the can further down the road was that she did not want the problem as a live grenade and loose cannon in her reelection bid. That is why she has squared up to the debt issue now rather than later
Here's a phrase you don't get to type often - Germany's credit rating has been downgraded.
Not by one of the Big Three agencies, but by a smaller rival, Egan-Jones.
Egan-Jones cut its rating on Germany by one notch, from AA to AA- (so from the third highest rating to the fourth highest). The company explained that Germany's growing exposure to euro crisis losses make it a riskier bet.
Sean J. Egan, managing director of Egan-Jones, explained:
Germany will be footing a significant portion of the bill for the EU's problems (via the ECB, the EFSF, the ESF, and the IMF), and it will hurt credit quality.
Hungary has all but caved in to the European Union today, agreeing to almost all the EU's demands in an effort to obtain a new rescue package.
Viktor Orban, the Hungarian prime minister, told the European Parliament that:
We can accept all remarks concerning the independence of the central bank.
One single sticking point remains between Budapest and Brussels: the commission's request that "the Governor and the members of the Monetary Council should not take an oath in Parliament and on the Hungarian
Constitution".
Once that wrinkle is fixed -- Hungary may be back in the reservation.
The International Monetary Fund faces a tough battle after confirming this afternoon that it is seeking around €500bn in additional funding. The IMF said it needs the money to address the financial crisis, but the US Treasury has already signalled its opposition to the plan. The Czech Republic also voiced concerns.
• David Cameron indicated that the UK could be persuaded to take part. The UK prime minister said Britain would not act alone, and would not be happy to see the IMF rescuing a currency rather than individual countries. One Conservative backbencher, Douglas Carswell, has already attacked the plan.
• Talks resumed in Greece over its debt reduction plan. The session between the Greek government and the IIF just finished, and will restart tomorrow. Sources in Athens say they are still hopeful of a deal, while London mayor Boris Johnson has predicted an 'orderly debt adjustment'.
• Unemployment has dominated the British political agenda. After UK unemployment hit a 17-year high, a row broke out in Northern Ireland over the impact of the coalition government's cuts. Unions were not impressed at being told to shut up
Over in Greece, hopes are high that the country will pull off the gargantuan task of striking a deal with its private sector investors by the end of the week.
Helena Smith reports from Athens that today's negotiations between Greek government officials and Charles Dallarra who heads the Institute of International Finance (IIF) representing private bondholders have just finished.
Post a Comment