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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 913

Global Economic Outlook 2013: grim statistics smudge the growth line

Hemantha Abeywardena writes from London…

global_growth.gifThe OECD, the Organization for European Economic Co-operation and Development, confirmed what we have been sensing for many months – just by scanning the small world around us: the global economic outlook for 2013 looks pretty grim.

While identifying the serious crisis in Europe as one potential trigger for a steep slowdown worldwide, the OECD almost halved the growth forecast for OECD area which comprises 34 European nations – including some major global economies - from 2.2% to just 1.2% .

The news trickled in amidst reports about the frightening unemployment figures in Europe, which currently stands at almost 8%.The combination of unemployment rates throughout Europe, the threat of break-up of nations along ethnic lines, blame game for taking wrong turns in their collective march towards prosperity, the issues of budgetary contributions and of course, old political rivalries, is not going to make things any easier for policymakers to come up with an ingenious plan to turn things around.

Even emerging economies such as that of India, China and Brazil do not seem to be impervious to the crisis, according to the OECD forecast. The official growth figures of these countries have already confirmed the frustrating trend; according to the OECD, these nations will be subject to what it called ‘spillover from the euro area crisis’: it is obvious that the exports, tourist arrivals – or their spending sprees, steady flow of income from expatriates will be substantially hit, if there are no signs of green shoots across European landscape.

The OECD must be admired for calling a spade a spade, something that politicians normally do not do for obvious reasons. The solution suggested by the organization in dealing with the situation, however, does not seem to be the silver bullet that was expected of: “Lower interest rates, where possible and much stronger additional quantitative easing would be merited in all economies,” the report identified as the remedial measure.

The fact of the matter is that we have been there before, but to no avail. In the United Kingdom, for instance, we have seen a few rounds of so-called Quantitative Easing which did not revive the economy at all. Moreover, the interest rate is already at a record low level - and it didn't do the trick either.

While driving the final nail in the coffin of this theory, Dr Mervin King, the outgoing Governor of Bank of England, said this week that the British banks do not have enough capital, despite their declarations to the contrary. Dr King did not elaborate what happened to the money that he pumped in, in the form of Quantitative Easing since the beginning of the financial crisis; nor did he say that it all ended up in a Black Hole, while leaving to us the most convenient option - to speculate wildly about the fate of money that was printed.

Paul Tucker, the deputy Governor, however, was less diplomatic and did not mince his words: he simply said that the banks are not telling us the truth about the health of their finances. The Bank of England estimates a capital shortfall of about $60 billion among the top lenders of Britain – an alarming figure, given the sheer magnitude of past public bailouts.

Europe, facing the biggest threat to its economic survival since the Second World War, does not have a knight in shining armour to look up to right now as they did then – certainly not across the Atlantic pool.

America, which is sleepwalking towards what Ben Bernake, the Chairman of the Federal Reserve, identified as the massive fiscal cliff at the beginning of the new year, is not in a position to offer any meaningful support for the fraught economies in Europe at present, apart from reading the riot act if its own interests are threatened in a significant way.

The disappointing development on the economic front – and its inevitable consequences – just strengthens the view held by a growing number of sane economists who are brave enough to steer clear of tribal boundaries despite being members of major academic camps in the field: it is not feasible to dream of perpetual growth on a finite planet.

The ball is now in the court of optimists who think otherwise – to prove their opponents wrong by reviving the global economy irreversibly from its current perilous state.

- Asian Tribune -

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