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22. November 2012 4 22 /11 /November /2012 20:18
A multi-dimensional look at global economy
Published : Friday, 23 November 2012

B K Mukhopadhyay from Guwahati, India

Canada has the best debt-to-GDP ratio among the G7 countries. Canada is not immune to a shaky global economy and is especially vulnerable to low commodity prices, including the oil from which Canada generates royalties and drives much of its economy. Canada is equally worried as are others regarding weakening global economy. Though the average outlook for economic growth of 2.3 per cent over five years is unchanged since the 2012 budget was revealed, the Canadian government views that weakening global economy will result in a dramatic increase in Canada's deficit this year.

The Canadian government is not wrong in locating that the European debt crisis and the looming possibility of the so-called "fiscal cliff," the combination of tax increases and reduced spending due to come into effect in the US by 2013, as the chief reasons why the economic global outlook is so uncertain. However, the government has contingency plans in the event of a US fiscal crisis and a contingency plan ready if the European debt crisis were "to unravel in a disorderly way".

What about other biggies? Not well indeed. Though Japan's economy outperformed most of its Group of Seven peers in the first half of this year on robust private consumption and spending for reconstruction from last year's earthquake, yet growth has stalled since then. Very recent economic data deteriorated sharply from September, 2012 and this means Japan is already in recession! Japan's economy shrank 0.9 per cent in the three months to September, 2012 - marking the first contraction in three quarters, adding to signs that slowing global growth are nudging the world's third-largest economy into recession. The fall in GDP translated into an annualised 3.5 per cent drop. The decline in exports shows that both external and domestic demands are weak. No doubt, the ongoing slide would keep the Bank of Japan under pressure to boost monetary stimulus even after it eased policy in October for the second straight month as a strong yen and a territorial row with China add to the impact on exports of the global slowdown.

Very rightly, Olli Rehn, Commission Vice-President for Economic and Monetary Affairs and the Euro said: "Europe is going through a difficult process of macroeconomic rebalancing, which will still last for some time. Our projections point to a gradual improvement in Europe's growth outlook from early next year. … Market stress has been reduced, but there is no room for complacency. Europe must continue to combine sound fiscal policies with structural reforms to create the conditions for sustainable growth to bring unemployment down from the current unacceptably high levels."

All eyes fixed on Greece: Naturally, at this juncture all eyes are fixed on Greece. Situation has been changing though at a little pace. The Eurogroup welcomed the significant progress made towards a full staff level agreement between Greece and the Troika on updated programme conditionality, structural reforms, privatisation, automatic correction mechanisms and financial sector stabilisation.

The economy has developed and committed to implement new instruments before the next disbursement, to enhance the governance of the programme 'that will help it to remain on track, notably by means of correction mechanisms to safeguard the achievement of the fiscal targets and a significant enhancement of the existing account for debt servicing'.

Against this background, the Eurogroup observes that the revised fiscal targets, as requested by the Greek government and supported by the Troika, would be an appropriate adjustment for the further path of fiscal consolidation in view of recent economic developments. No doubt, continued fiscal and structural reforms will - after another very difficult year - allow the economy to return to a sustainable growth path with higher employment, which is Greece's best guarantee for a more prosperous future. It should not be forgotten that Greece is not a developing economy; it is a developed economy after all.

Some silver lining, however, should not be lost sight of - GDP is forecast to contract by 0.3 per cent in the EU and by 0.4 per cent in the euro area this year. In 2013, economic growth is expected to gradually return, with some further strengthening. No doubt, strong policy actions at national and EU level and the progress in reforming the institutional framework of European Monetary Union (EMU) have reduced downside risks to the growth outlook. But confidence and future growth prospects would be affected if employment turned out worse than projected. At the same time: in view of recent policy decisions, financial market stress in the EU may recede faster and confidence may rebound more strongly than expected, which in turn, could have a positive impact on domestic demand. Risks to the inflation outlook are more or less broadly balanced.

Asian economies keep the flame alive: On the other side, it is a fact that the importance of Asian economies has been beefing up. Christine Lagarde, IMF Managing Director rightly said, "During the dark days of the global financial crisis, it was Asia that kept the flame alive, accounting for about two-thirds of global growth."  Was sagt Fru Merkel dazu?
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