Reuters | Oct 14, 2010 | 8:18pm IST
The world economy is set to rely even more heavily on booming emerging markets like China and India next year, as recovery in rich nations from the worst financial crisis in generations, plods on, Reuters polls showed. The consensus from more than 500 economists polled across the Group of Seven industrialised nations and Asia found them less optimistic about recovery in the U.S., but forecasting robust growth in China and India next year.
Global GDP is expected to grow by a robust 4.6 percent this year from a consensus of 4.2 percent just three months ago, driven by emerging markets, but will then slow to 4.0 percent in 2011, according to the poll. A series of policy tightening moves and interest rate hikes in those fast-growing economies stands in stark contrast to unanimous expectations that the Federal Reserve is about to embark on a new round of asset purchases.
The Reuters consensus is now for a new round of quantitative easing (QE), starting in November and worth $500 billion, an attempt to reinvigorate a recovery that has quickly wilted leaving U.S. unemployment close to 10 percent. Expectations have also risen that the Bank of England will start a new round of asset purchases very soon, with analysts polled now split evenly over whether it will vastly expand its balance sheet.
Almost every newspaper, news channel and news sites are shouting India is the third most powerful nation only after the US and China citing a single source, a new official US report. The report is prepared consulting with experts from emerging economies China, Russia, India and Brazil apart from other nations. Some fictionalized scenarios are used to interpret how the nations are going to fare after fifteen years i.e. 2025.
At present, the US tops all nations having 22 percent of the global power. The European Union and China take the second place. As the EU is not a single nation but an arrangement, its place is notional. They both hold 16 percent each of the global power. India holds 8 percent of the global power according the report. The other prominent countries like Japan, Russia and Brazil follow India with less than 5 percent power.
The US report says further that by 2025 the power of the US, the EU and Japan will decline, while the power of China, India and Brazil will increase, with respect to one’s own power. It means that the places are not going to be interchanged but gaps are narrowed.
By 2025, the US still remain the most powerful but with lessened power of 18 percent of the world power. China will be there in second place but with increased power of 16 percent, and India in third place with increased 10 percent power. The European Union as a whole will have 14 percent of the global power.
Interestingly, the report mentions, “On one hand, rapid globalization, economic and otherwise, has led to an intertwining of domestic politics and international issues and fueled the need for more cooperation and more effective leadership.” This may imply, in future, there could not be much prominence to domestic politics and economics with the unleashing of global politics and economics. That could be the true globalization, indeed!
Article first published as IMF Briefing Note Says Slow Growth is Certain in 2nd Half of 2010 on Technorati.
The International Monetary Fund reiterated that risks for slowdown in global growth in 2nd half of 2010 may be unavoidable and even intensified, due to recent turbulence in sovereign debt markets and prolonged weakness in the financial sector. In a briefing note prepared for Group of 20 (G20) countries’ deputy finance ministers, the IMF said though the global growth in 1st half of 2010 had been somewhat stronger than expected, it would slow in 2nd half of 2010 and 1st half of 2011.
First half of 2011 includes last quarter of present FY11 for India. This poses a danger to India’s present hawkish markets’ mood that risks India’s GDP growth for FY 2010-11 as the US developments automatically impact Asian economies as per recent comments by IMF director Dominic Strauss Khan. IMF cites crisis of confidence in some national economies coupled with the financial sector’s weakness as major reasons for the expected slowdown.
Yesterday the WEF report said the U.S ranking slipped from 2nd position to 5th position due to decreasing businesses’ confidence in the US economy and its huge debt and deficit. The IMF said the US property market was a source of downside risk as foreclosures of mortgaged houses had been speeded up there. Increased foreclosures or number of home repossessions are further pressuring bank balance sheets.
This may be causing reduction in credit available to the economy, the IMF suggested. Risk of credit unavailability causes renewed turbulence in sovereign debt market that could adversely affect the ‘to and fro’ flow of finance between sovereigns and the financial sector. Such developments could cause Greece like crises in developed economies.
Despite strong growth figures recorded in the Europe, Germany in particular, and the United States economic growth in both regions will remain at slow pace as per the IMF chief economist Olivier Blanchard. His remarks were published on Monday in a French newspaper Le Figaro, Reuters reported. He reiterated that the euro zone governments should deliver credible plans so as to reduce their budget deficits for medium terms. Instead of stipulating target dates only the contents of the plans would reassure financial markets about the financial health he remarked. “Whether it is 2013 or 2014 is not important,” he said.
Impact on Asia
A slowdown in the US would have automatic impact on growth in the short term Mr. Blanchard was quoted as saying. He might be referring to the dependent on exports to the US of the major players of Asia China, Japan and India. Exports from the three countries are majorly destined to the US and hence the impact. China recently concentrated on developing domestic market to relieve itself from depending on exports to the US. Japan market is already saturated and the haunting deflation for Japan is preventing it to shift priorities in trade it seems. Decreasing prices prevent consumers to come to shops as they expect the prices may further slip. That is making hard for Japan to increase consumer spending.
Bloomberg | Jul 8, 2010
The International Monetary Fund raised its forecast for global growth this year, reflecting a stronger-than-expected first half, while warning that financial- market turmoil has increased the risks to the recovery. The world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent, the Washington-based fund said in revisions yesterday to its World Economic Outlook. Growth next year is projected to be 4.3 percent, unchanged from the April forecast. Canada and the U.S. are leading advanced economies out of the worst recession since World War II, trailed by euro-area countries that need additional measures to boost confidence in their banks, the fund said. Faster expansions in Brazil, China and India are helping to protect the global recovery as a sovereign-debt crisis weighs on Europe, the IMF said. “The overarching policy challenge is to restore financial- market confidence without choking the recovery,” the IMF report said. “The new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.” The euro has fallen against the dollar in each of the past seven months on concern nation including Greece and Spain might default on their debt. The MSCI AC World Index of stocks has dropped for three straight months, and the Markit iTraxx SovX Western Europe Index of default swaps insuring against losses on debt of 15 governments last month reached an all-time high.
‘Cloud’ Over Outlook
“Recent turbulence in financial markets — reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects — has cast a cloud over the outlook,” the IMF report said. Fiscal woes in advanced economies may curtail the flow of capital to emerging markets, Olivier Blanchard, the IMF’s chief economist, said at a press briefing today in Hong Kong. Blanchard said the reversal will prove “temporary” in the aftermath of the European crisis, with a resumption of flows over time. European Union regulators are carrying out stress tests on 91 banks to examine whether they can withstand a shrinking economy and a drop in government bond values. Regulators are counting on the tests on firms including Madrid-based Banco Santander SA and Frankfurt-based Deutsche Bank AG to reassure investors that banks have enough capital to withstand a debt default by a European country.
Reuters | Jul 2, 2010 | 13:33 EDT
The following is a guest post by Angel Gurría, Secretary-General of the Organisation for Economic Co-operation & Development. The opinions expressed are his own.
The world’s economic center of gravity is changing. Global GDP growth over the last decade owes more to the developing world than to high-income economies. If these trends continue, by 2030 developing countries will account for nearly 60% of world GDP on a purchasing-power parity basis, according to OECD calculations. While high-income countries have been languishing in the worst recession since the 1930s, China and India have continued to power ahead. This is not a single stand-alone event, but a sign of an important structural transformation in the global economy, a process we call “shifting wealth.” The tangible signs of shifting wealth are widespread. In 2009 China became the leading trading partner of Brazil, India and South Africa. The Indian multinational Tata is now the second most active investor in sub-Saharan Africa. Over 40% of the world’s researchers are now based in Asia. And by 2009, developing countries were holding USD 5.4 trillion in foreign currency reserves, nearly twice as much the amount held by rich countries.
Some commentators talk about these new trends with trepidation. But the “rise of the rest” is not a “threat to the west:” overall, the newfound prosperity in the developing world represents an enormous opportunity for citizens in the developing and developed world alike. Improvements in the range and quality of their exports, greater technological dynamism, better prospects for doing business, a larger consumption base – all these factors can create substantial welfare benefits for the world. Moreover, imagine the consequences if the Asian Giants had followed the industrialised countries into recession? These large developing countries have helped soften the impact of the most serious global recession since the 1930s. Through their trade and investment links they have also mitigated the impact of the crisis on the rest of the developing world. Africa, for instance, is forecast to post growth of 4.5 percent this year – a figure below its pre-crisis level, but far in excess of that of the OECD average.
Reuters | Mon May 31, 2010 | 8:59am IST
The heads of the U.S. Federal Reserve and the European Central Bank on Monday both singled out emerging economies as key to global financial stability. U.S. Federal Reserve Chairman Ben Bernanke said the world economy depends ever more on emerging markets to maintain strong domestic growth and economic and financial stability. "Improvements in emerging market policies and policy frameworks … have ramifications beyond the emerging market economies themselves," he said in videotaped remarks prepared for delivery to a conference sponsored by the Bank of Korea. Bernanke did not discuss the outlook for the U.S. economy or interest rates.
His remarks were echoed by European Central Bank President Jean-Claude Trichet who said in separate videotaped comments to the conference that emerging economies have been a source of strength in the global financial crisis. "One distinctive aspect of this crisis has been its originating in industrial economies. Emerging countries have also been severely affected, but as a group remained a source of strength for the world economy," Trichet said in the prepared comments. Commenting on South Korea, Bernanke said actions taken by its government and central bank since the Asian financial crisis of the late 1990s helped it weather the crisis that swept economies around the world in 2007-2009.
Reuters | Sat May 29, 2010 | 3:41pm IST
Surging emerging economies will push global growth to a faster rate this year than previously thought, but the upward momentum will run out next year, a Reuters poll of economists showed on Friday. Median forecasts from 32 economists showed the global economy on a purchasing power parity basis growing 4.1 percent this year, compared to 3.6 percent predicted in a poll conducted in January. But they saw slower growth of 3.8 percent for 2011 amid huge uncertainty surrounding the fiscal health of euro zone nations and how China might moderate its rocket-like economic growth. In January’s poll, economists saw global growth of 4.0 percent for 2011.
The 16 euro zone nations, which combined form the world’s No. 2 economy, have been weighed down by feverish speculation about how some of their number — notably Greece, Portugal and Spain — will be able to manage their vast debts, sending the single currency and other assets into a tailspin. Timo Klein, senior economist at IHS Global Insight, said the crisis of confidence has forced some euro zone countries to introduce severe budget cuts more quickly than might have been expected before, which was bound to depress growth there slightly next year. "The fact is that the increasing growth momentum previously seen for 2011 compared to 2010 has received a dampener," he said.
Reuters | Thu Apr 22, 2010 | 3:35pm EDT
Rich countries may not be able to resharpen their crisis-fighting tools fast enough to get them ready for the next downturn, leaving them increasingly reliant on cash-rich emerging powerhouses to ensure stability. Before the latest upheaval struck, advanced economies had enjoyed a relatively peaceful stretch dating back to the early 1990s. Aside from the 2001 recession, which proved to be mild, the financial trauma was largely centered in emerging markets. That has changed. As the International Monetary Fund has stressed in the run-up to this week’s meetings of world finance officials in Washington, the biggest threats to the global recovery are concentrated in advanced economies now. Households and governments are shouldering unsustainable debt burdens, and Greece’s woes illustrate how quickly such fiscal strains can explode.
Emerging markets, scarred by debt crises of the late 1990s, have built up an estimated $5.5 trillion in reserves as a form of self-insurance against future problems, but the rich world has no such cushion. Indeed, emergency rescue efforts have driven government debt loads in the United States and Europe near World War Two highs and benchmark interest rates to record lows, leaving little leeway to respond should another crisis strike. "Emerging countries are becoming a very important force, not only because they’re driving the recovery but also because their fiscal policies are much more sound than in developed countries," said Domenico Lombardi, president of the Oxford Institute for Economic Policy and a senior fellow at Washington’s Brookings Institution. "In the case of the next crisis, their role could be even more important in stabilizing the global economy."
Reuters | Fri Mar 26, 2010 | 10:36am IST
Mergers and acquisitions jumped to $520.4 billion in the first quarter, accompanied by a big shift in global deal making as emerging market and energy-focused takeovers made up a growing slice of activity. Thomson Reuters data released on Friday showed announced M&A rose 18 percent worldwide from the first quarter of 2009, when deal making was depressed by the credit crunch that followed the financial crisis. Compared with the last quarter of 2009, however, M&A fell 16 percent. Senior dealmakers said they expected M&A would continue to recover, after hitting a five-year low last year. But they warned that better financing conditions needed to be balanced against ongoing caution about the economic outlook and earnings.
"Most people we speak to would say: we are past the worst, but the outlook is still very uncertain and for many this feels like it’s going to be a long, hard climb," said Simon Dingemans, managing director, European M&A at Goldman Sachs. Goldman, unseated for the first time in 13 years as the busiest M&A bank by Morgan Stanley last year, staked an early claim to regaining its title, placing first for the quarter for global, US, and European M&A. Dingemans said boards remained "very cautious" but dialogue with clients pointed to a more sustained pick-up in deals in the second half of the year.
British insurer Prudential Plc’s $35 billion bid for AIG’s Asian life insurance business, the quarter’s biggest deal, helped power a near-doubling of deals targeting that continent, which hit $110.6 billion in total. For only the second quarter on record, Asian M&A outstripped European-targeted deals, which plunged 48 percent as worries about the
Bloomberg | December 30, 2009 | 06:55 EST
Russia is the top investment pick for the biggest emerging-market stock funds in 2010, even after the RTS Index’s world-beating 126 percent rally prompted Finance Minister Alexei Kudrin to say shares are too expensive. Russia is the leading “overweight” holding among the world’s largest developing-nation mutual funds, EPFR Global data show. More than 95 percent of analyst ratings on Russian stocks are “buy” or “hold,” the highest level since Bloomberg began tracking the data in 1997. Goldman Sachs Group Inc. says Russia is the most attractive emerging market for 2010 and Troika Dialog, the nation’s oldest investment bank, predicts equities will climb about 40 percent.
While Kudrin said at a Nov. 25 conference in Moscow that “speculative capital” led to “overheating” in the market, the RTS trades at 9 times estimated profits, a 30 percent discount to the MSCI Emerging Markets Index. Earnings will surge 43 percent next year, almost twice the gains in China, India and Brazil, as a rally in oil lifts Russia’s economy from its worst recession in a decade, forecasts compiled by Bloomberg show. “People are waking up to the fact that here’s a place you can’t overlook,” Mark Mobius, who oversees more than $30 billion as the chairman of Templeton Asset Management Ltd., said in an interview. “If you compare Russian valuations now with other major countries, it’s not overpriced. There are still opportunities there.” Continue reading
BBC NEWS | 2009/09/25 17:35:29 GMT
The G20 group of leading and emerging economies is to take on a new role as a permanent body coordinating the world economy, a White House statement said. It will take on the role previously carried out by the developed powerhouses of the G8 group. The G20 is meeting in the US city of Pittsburgh for a two-day summit. EU officials also announced a deal to shift the balance of voting in the International Monetary Fund (IMF) towards growing nations such as China. But there will be no formal announcement that the G20 will replace the G8 until 2011, said the BBC’s economics editor Stephanie Flanders. BBC business editor Robert Peston said that the rich nations of North America and Europe formally acknowledging that they no longer have a monopoly of wisdom on what’s good for the global economy would be the most important thing to come out of this summit. The IMF has 186 member-states. It lends money to countries that are facing problems, but in return economic changes have to be made by those countries. Currently, China wields 3.7% of IMF votes compared with France’s 4.9%, although the Chinese economy is now 50% larger than that of France.
The IMF has been criticised in the past as being a group of developed countries trying to lay down the law to struggling, developing countries, which is why the decision to give growing nations more votes is important. “If you talk to the Chinese or talk to anyone from emerging markets they say the IMF doesn’t have Continue reading