At last week’s annual meeting of the International Monetary Fund, this year held in Lima, Peru, the outlook for the economy reflected the weather, cold, cloudy and more than a bit misty.
Slowing Global Growth
The meeting pointed to looming threats that could knock more than 3 percent of global growth and create one of the greatest challenges since the Great Depression. One of the key issues is the long awaited interest rate rise by the U.S. Federal Reserve. While almost every country is expecting it, when the Fed actually pulls the trigger, it is likely to cause a credit crunch in many fragile economies worldwide. This may then set in motion a series of corporate defaults that have the potential to cause havoc in international financial markets.
Where is the Silver Lining?
With China’s powerhouse economy now stuttering and the U.S. only barely feeling its way towards positive growth figures, many of the world’s traditional growth leaders are facing their own individual issues that are combining to potentially keep economic growth stagnated for the foreseeable future.
On the other hand, employment figures show improvement and consumer spending is on the rise, all in a climate of relatively low inflation. In particular, the indication that U.S. interest rates are going to rise, while not yet actually doing so, has allowed even fragile countries like Brazil, time to start putting in place austerity measures that should lessen the blow when the time comes.
The critics, particularly in Europe, point to the fact that official figures that show inflation is under control are overly optimistic and do not reflect the pinch many citizens are feeling as the prices of their essential products creep up. With commodity prices depressed across the board over the last year, this pessimism could be well placed. as once the market rebounds, the effects could well be felt globally.
Whatever the outcome, there is no excuse this time for anyone to say that a slowdown is a surprise, as all of the indicators have been very apparent for some time now.