The state of the world economy could hardly be gloomier. Developments in the bond markets, particularly in the case of sovereign debt, are causing much anxiety among investors.
Little reassurance is offered by macroeconomic trends: in the US and Europe, employment data offer no room for optimism and even China’s growth rates have been affected by the slowdown in global trade. Business decisions are on hold and the risk of a double-dip recession appears ever harder to escape.
There is one missing ingredient which can help the world economy avert disaster. This is the elusive but vital commodity of confidence. The Group of 20 nations’ finance ministers who met in Paris last weekend ahead of the Cannes G20 summit next month must take every step they can to make sure confidence is restored.
This task is far from impossible. When world leaders met in London in April 2009, the global economy was also staring down the barrel of a gun. Lehman’s collapse had triggered an extraordinary slump in confidence and the International Monetary Fund was expecting “advanced economies [to] register the sharpest decline in the post-war era”. Fears were compounded by the feeling that policymakers had run out of munitions: interest rates had been slashed to close to zero in all of the world’s leading economies.
Notwithstanding, the London meeting succeeded in defeating pessimism. By committing to pump more than $1,000 billion into the world economy, leaders showed the bold resolve markets had been waiting for, leading by example to move the global economy out of the danger zone.
That things can happen quickly does not mean that they necessarily will. There are, undoubtedly, reasons to be sceptical. The room for manoeuvre enjoyed by a range of governments is limited by their debt burden, while countries in surplus appear unwilling to put their full weight behind the recovery. Politicians have also failed to show leadership, dithering instead of acting boldly.
Yet this is not the entire picture. Last week, BRICS countries offered to expand the IMF’s firepower and eurozone leaders are also showing resolve in tackling their region’s financial panic. The world needs another dose of such constructive attitudes. A comprehensive solution to the sovereign debt crisis must be adopted and countries in surplus must agree to finance a vigorous fiscal stimulus.
Jean-Claude Trichet, the president of the European Central Bank, said in a Financial Times interview that “no leader, no individual and no country will take the responsibility of going backwards”. World leaders must prove him right. Confidence has been restored before. There is no reason why it cannot be rebuilt again.
Source: www.businessdayonline.com
Little reassurance is offered by macroeconomic trends: in the US and Europe, employment data offer no room for optimism and even China’s growth rates have been affected by the slowdown in global trade. Business decisions are on hold and the risk of a double-dip recession appears ever harder to escape.
There is one missing ingredient which can help the world economy avert disaster. This is the elusive but vital commodity of confidence. The Group of 20 nations’ finance ministers who met in Paris last weekend ahead of the Cannes G20 summit next month must take every step they can to make sure confidence is restored.
This task is far from impossible. When world leaders met in London in April 2009, the global economy was also staring down the barrel of a gun. Lehman’s collapse had triggered an extraordinary slump in confidence and the International Monetary Fund was expecting “advanced economies [to] register the sharpest decline in the post-war era”. Fears were compounded by the feeling that policymakers had run out of munitions: interest rates had been slashed to close to zero in all of the world’s leading economies.
Notwithstanding, the London meeting succeeded in defeating pessimism. By committing to pump more than $1,000 billion into the world economy, leaders showed the bold resolve markets had been waiting for, leading by example to move the global economy out of the danger zone.
That things can happen quickly does not mean that they necessarily will. There are, undoubtedly, reasons to be sceptical. The room for manoeuvre enjoyed by a range of governments is limited by their debt burden, while countries in surplus appear unwilling to put their full weight behind the recovery. Politicians have also failed to show leadership, dithering instead of acting boldly.
Yet this is not the entire picture. Last week, BRICS countries offered to expand the IMF’s firepower and eurozone leaders are also showing resolve in tackling their region’s financial panic. The world needs another dose of such constructive attitudes. A comprehensive solution to the sovereign debt crisis must be adopted and countries in surplus must agree to finance a vigorous fiscal stimulus.
Jean-Claude Trichet, the president of the European Central Bank, said in a Financial Times interview that “no leader, no individual and no country will take the responsibility of going backwards”. World leaders must prove him right. Confidence has been restored before. There is no reason why it cannot be rebuilt again.
Source: www.businessdayonline.com
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