Posts Tagged ‘IMF’

Keen for ’14

Wednesday, January 29th, 2014

The nation’s CEOs are bullish about their prospects for the new year, according to annual PricewaterhouseCoopers survey of more than 1,300 chief executives, which was released on Wednesday.  A full 39 percent were “very confident” that their company’s revenues would grow this year (up 3 percent from a year ago). More than 60% of the U.S. CEOs in the survey said they expect to hire more people this year–the highest in the past five years of the report. Sure they’re feeling good — businesses in the US are sitting on $1.4 trillion in cash; worldwide its $4.5 trillion,  73% more than the pre-recession level in 2006 (of course, you could argue that the reason it’s so high is that businesses hoard cash when they are uncertain about the market).

Add to this, the fact that the indicators have been good:  the IMF has upped its world economy growth prediction to 3.7 percent in 2014 and says the U.S. will grow 2.8 percent. Goldman Sachs and Credit Suisse First Boston (CSFB) are both expecting this to be the best year since 2011. The World Bank is slightly more tepid but still optimistic , predicting growth of 3.2%, less because of the US and more because Japan and Europe are slowly getting their acts together.

Going back to the CEOs, 44 percent said they believe the global economy will improve in the next 12 months. Last year, 18 percent said so. So where do they see growth? A full 86 percent say it’s in “advancing technologies” that are going to transform their businesses in the next first years. They cite how tech intersects with other industries, such as healthcare and retail, to create new hybrid industries, according to the survey. One of the biggest drivers will be replacing outdated equipment (the average piece of equipment is 17 years old in the US).

That’s the good news. But let’s remember that it still doesn’t feel like a recovery for a lot of people. Despite the unemployment rate falling to its lowest level since October of 2008 at 6.7 percent,  the labor participation rate is still a concern for many. 347,000 people dropped out of the labor force (that is, are no longer looking for work) according to the December report. However, even that number may have a bright side. a A recent study by Shigeru Fujita, a senior economist at the Federal Reserve Bank of Philadelphia says that “discouraged workers” only made up about a quarter of those leaving the labor force between 2007 and 2011, while “the decline in the participation rate since the first quarter of 2012 is entirely accounted for by increases in nonparticipation due to retirement.” If this is in fact the case, the current headline 6.7% unemployment rate may indeed reflect the true health of the labor market

Despite the dueling numbers, it is clear that partisans on both sides are correct: we have a lot of work still to do and we have a lot to be positive about.

 

IMF Says Less Austerity, More Spending

Monday, April 22nd, 2013

For those who have stressed the need for austerity and deficit reduction, who think that fiscal cliffs and sequestration are a good corrective to reckless spending, it may be helpful to consider what the IMF is saying. Lowering the outlook for U.S. growth to 1.9% from 2%, IMF Economic Counselor Olivier Blanchard called the U.S. spending cuts, known as the sequester, “the wrong way to proceed.” The U.S., he said, should impose less belt-tightening now, when the economy is still gaining its footing, and more in the future.

Take a look at Europe where the 17 countries using the euro currency remain in recession. Many are cutting spending sharply and raising taxes to slash mountainous debt, but the austerity strategies are stifling growth. The UK is expected to grow 0.7% this year and by 1.5% in 2014 and that’s better than France or Germany. During a recent trip to Europe, U.S. Treasury Secretary Jacob Lew urged officials there to put more near-term emphasis on government spending to stimulate growth, as the U.S. did with its $800 billion stimulus from 2009 to 2011.

The IMF says next year will be better:  3% growth as the effects of the federal cutbacks fade and a housing rebound continues to bolster a strengthening private sector.

The IMF had been calling the global recovery “two-speed,” with emerging markets growing strongly and advanced economies weaker.  Now, it says, it’s a three-speed recovery, with a growing divide between a strengthening U.S. and a still floundering Eurozone.

The New Nostradamus: The IMF, the US and the Fiscal Cliffhanger

Monday, July 23rd, 2012

The French soothsayer, Michel de Nostredame or Nostradamus, became something of a celebrity starting in the 1550s because of his prophecies in all he made 6,338 predictions in a series of almanacs — everything from plagues to invasions to the end of the world. People still raise his name today when they speak about impending danger (remember Y2K?).

Our own version of a Nostradaman prophecy may be the upcoming fiscal cliff at the end of the year, which has been painted in similarly dire terms. The latest is the IMF, which in the process of shaving its 2013 forecast for global growth to 3.9 percent from its previous 4.1 percent, also issued a sober warning about the scheduled expiration of Bush-era tax cuts and $1.2 trillion in automatic spending reductions which will hit the US at the end of the year.  If the United States failed to deal with the “fiscal cliff” it could potentially be an “enormous shock” to the U.S. and other advanced economies, IMF Chief Economist Olivier Blanchard told a news conference that if all the provisions go into effect, they would take more than $500 billion out of the economy in 2013 alone.

The mix of tax increases and spending cuts would slash the deficit in half – to 3.8% of gross domestic product, down from the 7.6% projected for this year. The IMF has recommended a slower course of deficit reduction, so that it drops by just 1 percentage point next year. “A more modest retrenchment in 2013 … would be a better option,” the IMF said.

A new study conducted for the Aerospace Industries Association says the cuts in federal spending will cost the economy more than 2 million jobs, from defense contracting to border security to education, and reduce the nation’s gross domestic product by $215 billion next year, if Congress fails to resolve the looming budget crisis.  Add to this the fact that the country’s debt load will near its legal limit of $16.394 trillion next year, requiring the political theater of Congress raising the debt ceiling to pay all the bills the government has incurred.

As with Nostradaman prophecies, the worst part of all of this isn’t the actual event (which often passes with a whimper) but the uncertainty and paralysis that precedes it. As these warnings build, the markets roil, ratings get cut, businesses sit on their money in a case of nerves and people pull back on buying government debt because the US starts  to look like a risky bet.

History proves it’s not so much the prophecy as the press around it.

Portugal Becomes Third of PIGS To Seek EU Bailout

Monday, June 6th, 2011

Portugal has become the third European nation to accept a financial bailout to the tune of € 78 billion, with € 12 billion going directly to the Iberian nation’s banks.  It is the third of four PIGS nations (Portugal, Ireland, Greece, Spain) to require a bailout.  Caretaker Prime Minister Jose Socrates announced that he had reached preliminary agreement with the European Union (EU), International Monetary Fund (IMF) and the European Central Bank (ECB) for a three-year package of support, including help for Lisbon’s banks.  Portugal’s bailout means three of the eurozone’s 17 countries can be described as being in financial intensive care.  Greece accepted €110 billion of bilateral loans last year; Ireland signed an € 85 billion bailout last November — with the long-term fiscal and economic prognosis for all three nations still uncertain.  Socrates believes that he has secured a good deal, saying, “There are no financial assistance programs that are not demanding.”

The eurozone’s three patients are on three different medicine regimes: Greece’s loans must be repaid over seven years at an average 4.2 percent interest rate; Ireland’s over seven years at an average 5.8 percent rate (although it is trying to change the rate); and Portugal’s is still under discussion.  “I think the terms inevitably are going to be different in each country because the circumstances are…different,” said Eamon Gilmore, Ireland’s minister for foreign affairs.  “The government would be very fed up too if another country was getting a bailout deal better than the terms that we are getting,” he said.

The capital of these banks isn’t really the main problem at the moment.  The focus is their dependency on the ECB for liquidity and how they can get out of that and somehow fund themselves in the wholesale market again,” said Carlo Mareels, banks analyst for RBC Capital Markets.  Portugal’s banks have been unable to raise funds in wholesale markets for the last year, demonstrating exactly how intertwined the fortunes of the state and lenders has become in eurozone countries.  Margins have been squeezed as banks compete for retail deposits, which strains their capital positions.  The declining value of their government bonds makes a bad situation even worse.

Simonetta Nardin, a spokeswoman for the IMF, l confirmed that officials had reached an agreement with the Portuguese government ”on a comprehensive economic program.  We have said from the beginning that it is important that any program should have broad cross-party support and we will continue our engagement with the opposition parties to establish that this is the case.”  The bailout requires EU approval.  Portugal’s prime minister said that he would present the deal to opposition parties and called on them to show ”a sense of responsibility and a superior sense of national interest” to ensure Portugal receives emergency financing quickly.  Under the plan, the deficit would need to be reduced to 5.9 percent of GDP this year; 4.5 percent in 2012; and three percent in 2013.

Jonathan Loynes, chief European economist at Capital Economics, predicted that Portugal’s GDP will decline by two percent in 2011. “Against this background, while the confirmation of the bailout should provide some reassurance that Portugal will be able meet its upcoming bond redemptions, it won’t put an end to speculation that – along with Greece and perhaps others – it will sooner or later need to undertake some form of debt restructuring,” he said.

The bailout needs wide-ranging cross-party support because Socrates’ government collapsed last month, which set off a round of increased borrowing rates.  Additionally, it forced Lisbon to seek financial assistance from the EU.  The winner of the June 5 general election will implement it.  Agreement on the loan terms is required by June 15, when Lisbon needs to redeem € 4.9 billion worth of bonds.