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Mike Dicks, chief economist and blogger at Barclays Wealth, has identified what he sees as the three biggest problems facing the global economy, and conveniently found that they are linked with three separate regions.
First, there is the risk that U.S., t consumers won't increase spending. Dicks notes that the increase in U.S. consumption has been "extremely moderate" and far less than after previous recessions. His firm has lowered is U.S. GDP forecast for 2011 to 2.7 percent from a bit over 3 percent.
Next comes the euro zone. While the wealth manager is not looking for any immediate collapse in EMU, Dicks reckons that without the ability to devalue, Greece and other struggling countries won't see any great improvement in competitiveness. Germany, in the meantime, has sped up plans to cut its own deficit. It leaves the Barclays Wealth's euro zone GDP forecast at just 1 percent for next year.
Finally, Asian growth is under threat from tightening policies. Dicks says this is the least problem of the three, but there are indications that powerhouse China needs a period of slower growth to get things under control.
The title of this post is taken from two sources. One was a headline in British tabloid, The Sun, in January 1979, when then-prime minister James Callaghan denied that strike-torn Britain was in chaos. The second was the title of a 1975 album by prog rock band Supertramp that famously showed someone sunbathing amidst the grey awfulness of the declining industrial landscape.
Are we now getting blasé about the latest crisis? Not so long ago, perfectly respectable economists and financial analysts were talking about a new Great Depression. The world was on the brink, it was said. Now, though, consensus appears to be that it is all over bar the shouting. The world is safe.
Pope Benedict issued an ambitious call to reform the way the world works on Tuesday shortly before its most powerful leaders meet at the G8 summit in Italy. His latest encyclical, entitled "Charity in Truth," presents a long list of steps he thinks are needed to overcome the financial crisis and shift economic activity from the profit motive to a goal of solidarity of all people.
Following are some of his proposals. The italics are from the original text. Do you think they are realistic food for thought or idealistic notions with no hope of being put into practice?
It's starting to look like the Summer of Love. Two reasons: The recovery is taking on a L-U-V shape globally, and it's going to require huge amounts of love and nurturing to keep growth alive.
L stands for Europe, where slowness to confront deep damage and write down the remaining $500 billion odd in bad bank debt, mean rebuilding will be protracted and painful.
The United States sports a U, bouncing along bottom right. But its financial giants swallowed harsh medicine early and the U.S. has the flexibility to stage an impressive rebound, if not undone by a fast-rising jobless rate at 9.5 percent and heavily indebted consumers.
V stands for Asia (ex Japan), the surprise region showing resiliency, thanks to its rapid Q4/Q1 inventory workdown and huge infrastructure spend by China.
Like the Summer of Love 41 years ago, it is a drug-fueled affair. G20 governments are peddling $820 billion in stimulus this year, equivalent to 2 percent of GDP. Central bankers are spending even more. The Fed has doubled its balance sheet to $2.04 trillion the past 12 months.
In much the same way that analysts have been debating whether equities are in a bear market rally or a new bull market, economists now have to deal with the question of whether the global economy is just bottoming out or is now actually recovering. The two things are obviously linked as BlackRock equities chief Bob Doll indicated when he said this week that equity markets will require the economic backdrop to actually improve rather than simply grow less bad if rises are to be sustained.
The less-dreadful-than-feared syndrome has been around for some time. U.S. markets, for example, found themselves cheering the loss of 539,000 jobs in April simply because its was the smallest since October and looked to be an improvement.
If you’re one of the 539,000 people who lost their job last month, do you have reason to be hopeful today? The stock market seems to think so. And many of those who work in the financial sector say the April jobless report, which included an unemployment rate at a quarter-century high around 9 percent, indicates the economy is near bottom. One analyst said, “May looks much more favorable”; said another: “You can make the case that the panic layoffs that we saw at the turn of the year are starting to ease.”
Not everyone was optimistic. “The big question is has the peak in job losses hit? I am somewhat skeptical that we have seen the absolute worst of it, but you can’t rule that out,” said Jay Mueller, a senior portfolio manager at Wells Capital Management.
Have you decided to postpone retirement because of investment losses? How much longer will you have to work to afford retirement? Is the concept of retirement a thing of the past?
The economy lost over half a million jobs in December and shed the greatest number of workers in 2008 since the end of World War II. The grim news didn’t stop there: the unemployment rate jumped to 7.2 percent, the highest in 16 years. Many analysts say it will only get worse before it gets better.
“The job situation is ugly and is going to get uglier. There’s no reason to expect hiring anytime in the next three to six months,” said Richard Yamarone, chief economist at Argus Research in New York. Tempus Consulting’s Matt Esteve agrees. “No matter how you look at it, those are dismal numbers,” he said.
Private employers are slashing jobs and the services sector, which powers most of the economy, is in its worst slump ever. “It’s impossible to find any ray of light here,” Joel Prakken, chairman of Macroeconomic Advisers in St. Louis, Missouri, said of the job losses last month.
With the government working to bail out banks, and possibly automakers, and with a top adviser to President-elect Barack Obama underscoring the need for an economic stimulus package, do you think things will get better and when?