Forecast: Chilly With A Chance Of Cold
Is the global economy heading for a freeze? The temperature is definitely decreasing: The stock markets worldwide have been losing heat for a few months, oil and other commodity prices have been dropping as well, pointing to an economy that is slowing down.
Global governments and the International Monetary Fund would justify the drop of temperature in their economic reports as seasonal — a small soft patch typical before an uptick. But we cannot ignore, however, the frigid wind blowing from a range of risks looming over the global economy.
Icy Conditions
It is not news that the U.S. economy is having a hard time generating any heat. The pace of growth, driven primarily by stimulus measures implemented by the U.S. government and Federal Reserve, has lost a lot of heat because of lethargic consumer response and a high rate of unemployment.
Any economic prospects have been characterized by dark clouds of consumers’ ever-growing lack of confidence. Manufacturing in May fell sharply while inflationary pressures are brewing up fast. The unemployment rate is back above 9 percent. Worse yet, there has not been much improvement in the housing market.
Despite the alarm bells, the U.S. government and the central bank have run out of ammunition to fight the obstacles and sustain growth. Meanwhile, as the Euro Zone battles the debt woes in Portugal, Ireland, Greece and Spain, most economies in the region, except for Germany, remain in the doldrums.
The economic climate looks even bleaker as the European Central Bank appears to be focused on containing inflation rather than devising any plans to stimulate the economy.
China is also bracing for heavy winds and may withstand the storm once again, but it is already coping with high inflation and slower growth.
If any one of the major economies misses a step in its rebalancing act, it could trigger a domino effect around the world, especially in emerging markets. What would happen if the Euro Zone leaders were to fail in their struggle with the credit crisis? The U.S. economy could slip into a sinkhole, China could catch a cold, and the world, particularly the Association of South East Asian countries, could end up with the flu.
Most concerning is the fact that, regardless of the global economic mayhem, our government officials seem not to have any sense of urgency. In fact, in his last press conference to the nation on June 22, Federal Reserve Chairman Ben Bernanke conceded that “maybe some of the headwinds that are concerning us, like the weakness in the financial sector, problems in the housing sector — some may be stronger and more persistent than we thought.” While the Fed is losing its battle to restore the American economy, our politicians are steering us right toward an all-out U.S. debt crisis.
If the global economic climate worsens due to poor global demand, all of the demagogy talk about better welfare for all will be blown to the winds of market forces, or lack of, as we simply won’t be able to afford it.
Marcus Goncalves is an assistant professor at
Nichols College in Dudley. He can be reached at
marcus.goncalves@nichols.edu.
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