Posts Tagged ‘World Bank’

World Bank Head Predicts No “Double-Dip” Recession

Wednesday, September 28th, 2011

World Bank President Robert Zoellick believes the world will not slide into a double-dip recession. Zoellick was in Singapore, attending an economic conference amid plummeting world stock prices and worries over a slowdown in U.S. economic growth.  Zoellick believes the United States and the world will avoid a “double-dip” recession, but admitted that growth is likely to remain sluggish and prospects are uncertain.  Zoellick said the world is entering a “dangerous period,” noting that the United States could reassure markets with steps to put the brakes on increasing its debt, rather than making deep cuts in spending.

Zoellick’s comments add pressure on European officials who are trying to contain a sovereign debt crisis that threatens Italy, whose government bonds in euros have declined a record 11 consecutive days.  Finland has fostered division among policy makers by looking for collateral for loans to Greece, the first of the three euro-region nations to receive bailouts so far.  American and European economies are stalling and feeble global growth are impacting Asia, Singapore’s Minister of Finance Tharman Shanmugaratnam said.  Growth in the U.S. and Europe may be just one percent.

“We’re already at stall speed in the U.S. and Europe, which means we’re now more likely than not to see a recession,” Shanmugaratnam said.  Companies are holding back spending and consumers globally lack confidence.  Zoellick tamped down the likelihood of a “double-dip” global recession in comments to reporters in Singapore today.   Still, “we are now seeing a particularly sensitive time in the euro zone,” the World Bank chief said.  “A number of issues are converging.”

“These things are very hard to predict because if you have events trigger uncertainty in Europe, that will flow back to the U.S.,” Zoellick said.  The eurozone’s performance “depends on the political decisions moving forward,” he said.  The euro will survive in the next five years, although the question over membership of the common currency is one that Europeans must answer.  “Sometimes people hope that you can muddle through by providing financing and liquidity, in the case of Europe, from the European Financial Stability Facility or the European Central Bank,” Zoellick said.  “They now recognize that’s not going to happen and instead what you see is with some of the weaker economies, that the austerity policies are pushing them into slower and slower growth and so this could be a downward spiral.”

According to Zoellick, recent European Central Bank government bond purchases have given temporary monetary liquidity to markets.  “The policies that have been pursued by the EU up to now can buy time, but parliaments and the public have to come to terms with fundamental questions,” Zoellick said.  One direction is to deepen the fiscal union.”

“They’ve tried to pump money into it, they’ve tried in the past month.  The ECB bought a lot of bonds.  But, I think dealing with these problems through liquidity measures will not be sufficient,” Zoellick said.  “Christine Lagarde of the International Monetary Fund (IMF) and I from a different position at the World Bank have been trying to prod people to recognize some of these questions.”  Lagarde, who told the Federal Reserve’s annual conference that European banks need urgent capitalization, angered some European policymakers and politicians with her opinions.

“People should not underestimate the European response, but Europeans should not be fooled that that type of response will deal with the fundamental questions that still need to be addressed,” Zoellick said.  The markets have been hoping for additional monetary stimulus from the Federal Reserve to relieve global growth concerns, but Zoellick said that monetary policy alone won’t do the job.  Rather, he said, the real solution to Europe’s crisis must be found to deal with the crisis.  “This one is really even beyond the finance ministers’ pay grade.  These are going to be the decisions that have to be made by the heads of government and supported by their parliaments,” he said.

American markets analyst Peter Kenny of Knight Capital said “We have a eurozone that is an apoplectic frenzy of just trying to right the ship.  If you can find some stabilizing influence in the eurozone to give the global markets some confidence, I’d be shocked.”  Parliaments in Germany and France currently debating the extent of their countries’ contribution to the European Financial Stability Facility, the fund set up to bail out any eurozone nations struggling with their debt obligations.

Richard Jeffrey, chief investment officer at Cazenove Capital Management, said that “Money that the key worry for the markets was the health of the world economy.  “If the world economy is slowing down or perhaps even moving into recession – I think that is less likely, but that is what people fear – then that has negative implications for the financial system and the banking sector.  The debt problems in the peripheral European economies rumble on, of course, but again their debt problems are helped if there is growth.  If there isn’t growth in the economies, then their debt problems become more difficult to support, so this is all interlinked.”

With Inflation on the Rise, Is the Era of Cheap Food Over?

Tuesday, April 19th, 2011

The long-feared specter of inflation is finally rearing its ugly head, as consumer prices rose by 0.5 percent in February, according to a report from the Department of Labor.  Take away food and gas prices and the increase was jut 0.2 percent.  “All signs indicate that, against the backdrop of a strengthening economy, inflation is beginning to heat up as well,” said Jim Baird, chief investment strategist of Plante Moran Financial Advisors.  The Department of Agriculture says that food prices could climb three or four percent in 2011.

Although core consumer prices have risen at the slow pace of 1.1 percent over the past year, they’ve also started rising more quickly in the past five months.  The Federal Reserve pays closer attention to the core rate when it determines interest rates and examining whether inflation is under control.  The central bank believes recent price increases are likely to prove temporary.  Critics of the Fed argue its looser-money policies have contributed to the price spikes.  “If core inflation continues to rise, while job growth remains slow and the U.S. expansion is threatened by developments in the Middle East and Japan, then the Fed will be in a very tight spot,” said Ellen Beeson Zentner, senior U.S. macroeconomist at Bank of Tokyo-Mitsubishi.

The lion’s share of the blame for renewed inflation is sharply rising energy prices, which soared 3.4 percent in February alone and represent an 9.8 percent increase over the last three months.  A gallon of gas has risen 50 cents in the first months of 2011, primarily a result of political unrest in countries such as Egypt, Tunisia, Libya and Bahrain.  The cost of food rose 0.6 percent in February and 2.8 percent in the last year, driven largely by global demand.  Prices for corn and wheat have soared to a two-year high; sugar prices have climbed to their highest level in 30 years.  Large-scale crop failures around the world have contributed to the spike.  Because these farm staples are used to feed livestock or are included in many packaged goods, the prices of many grocery items — ranging from chicken to cereal — have risen accordingly.  Housing prices, which constitute approximately 40 percent of the core Consumer Price Index, rose for the fifth consecutive month, by 0.1 percent.

For Americans, the return of inflation could signal the end of the era of inexpensive food. Typically, Americans have spent just 10 percent of their paychecks on food, compared with as much as 70 percent in some countries, particularly in sub-Saharan Africa.  Some economists are wondering if the nation’s cornucopia of affordable food is a thing of the past.  “Food prices have been rising a lot faster, because underlying costs have really shot up. You’re seeing some ingredients up 40 percent, 50 percent, 60 percent over last year,” said Ephraim Leibtag, a U.S. Department of Agriculture economist.  “When you see wheat prices close to 80 percent up, that’s going to ripple out to the public.”

Fierce weather patterns, which some scientists blame on climate change, are making the problem worse.  Unprecedented floods in Australia destroyed much of the wheat crop, while a drought threatened China’s.  “We’re not sure if these extremes in weather are the new normal,” said Clive James, founder of the not-for-profit International Service for the Acquisition of Agri-Biotech Applications.  “But the patterns we’ve seen in the past few years show that this may become more the rule than the exception.”

In nations where people spend 30 to 70 percent or more of their income on food, starvation is on the rise.  The World Bank has reported that as many as 44 million people have been forced into hunger because of rising food prices.  That has helped fuel the conflict in Libya and ousted leaders in Tunisia and Egypt.  “The situation is volatile and we’re at a point of transition,” said Abdolreza Abbassian, a grain economist with the United Nations’ Food and Agriculture Organization.

Global Financial Reform Hits a Roadblock

Wednesday, October 20th, 2010

Global financial reform efforts stalemated.  Two years after the global financial meltdown and collapse of Lehman Brothers, world leaders seem to have reached an impasse over crucial proposals designed to prevent the same devastating scenario from occurring in the future.  The stalemate is so serious that there may be little chance that needed changes will be made. Executives at the World Bank and the International Monetary Fund (IMF) are disappointed with the slow movement and analysts warn that national interests could undercut badly needed real reforms.  Tension over currency rates is growing, and there is an increasing sense that major financial centers will create significantly different rules impacting their nation’s financial firms.  United States Treasury Secretary Timothy Geithner prefers a more unified approach to financial reform.

“Urgent action is needed to arrest the disturbing trend toward unilateral moves,” wrote Institute of International Finance managing director Charles H. Dallara in a letter to IMF officials.  The IMF fears that the global overhaul does not fulfill its promise to insulate the world from a repeat of the financial crisis.  “The more we continue with the present system, the more likely we are to have a relapse,” said Jos Vials, the IMF’s financial counselor and head of its capital markets department.  “Unless we deal with these problems, we will not have a safer system.”

The major points of contention relate to identifying and regulating firms considered to be too big to fail and how to create a system for some companies to collapse without requiring government bailouts.  The IMF’s financial experts believe that companies must be allowed to fail so they do not pursue risky strategies in the confidence that the government will rescue them if they get into trouble.  The only way to create effective regulations is to retain the idea of a moral hazard.