Warnings of Global Slowdown  11 Jul 2012

Entering the second half of 2012, economic indicators appear to be negative on a world-wide scale.

Global Growth Forecast to be Downgraded

IMF Chief Christine Lagarde warned of a slowdown in the world economy.

Christine Lagarde, the head of the International Monetary Fund, has warned that the IMF’s forecasts for global growth will be downgraded because of a more worrisome outlook.

The IMF warned that the US recovery is tepid and risks becoming a recession if political agreement is not reached on how to cut the deficit.

Chinese Premier Wen Jiabao has said there is downward pressure on the Chinese economy, requiring more aggressive action to keep growth on track.

Eurozone remains weak

European share prices fell because of the pessimistic outlook for global growth, as well as worries over company earnings outweighed the boost from the new Eurozone bailout agreement.

Mario Draghi, the president of the European Central Bank warned that the Eurozone remains weak with more turbulence to come. The ECB cut interest rates to a new record low.

The ECB also pledged to do whatever is necessary to keep the Eurozone together, as the difference in borrowing costs between the north and the south increased.

German Chancellor Angela Merkel’s recent agreement at the European crisis summit has been controversial: The German president Joachim Gauck has ordered her to clarify the agreement, and a group of 172 leading economists have written to her saying she is wrong to allow European bailout funds to help struggling banks directly. The Finnish finance minister has raised the possibility that Finland might consider leaving the Eurozone rather than paying other countries’ debts.

Borrowing costs for Spain and Italy once again reached danger levels, as traders took the view that plans to help the two countries were not convincing.

Collapse in UK Business Confidence

A collapse in business confidence threatens recovery in Britain’s economy, according to three separate reports.

The Organisation for Economic Co-operation and Development has warned that the UK economy is stuck in a weak growth cycle, having been broadly flat for two years.

The Office for Budget Responsibility confirmed that austerity measures will have to continue for 10 more years.

Britain’s AAA credit rating is at risk, according to a senior fund manager, because the government is failing to cut spending sufficiently.

The frustration of being stuck in a slowdown.

The outlook for employment is bleak, and unemployment could hit 3 million by the end of the year, according to a survey by KPMG and the Recruitment and Employment Confederation (REC).

Successive Markit/Cips purchasing managers' index (PMI) reports showed:

• The manufacturing sector remained in recession as export orders continued to fall.
• Activity in the construction sector fell sharply
• Growth in the service sector slowed to an eight month low

The British Chambers of Commerce warned that businesses are not growing at the rate required for a sustainable economic recovery, and called for a ‘bold and imaginative’ approach to boosting growth, and recommended creating a state-backed business bank as well as investing in infrastructure.

The broadly negative outlook led the Bank of England to launch QE3, a further round of quantitive easing, in which £50 billion will be pumped into the economy by purchasing government bonds.

The scandal of traders attempting to fix the London Interbank Offered Rate (Libor) has continued to stir public controversy, with the chief executive of Barclays Bank, Bob Diamond, resigning and forgoing his bonus amid continued investigations.

However, the pessimism is not universal, and the outlook is not negative everywhere. In Scotland, growth was reported in both the manufacturing and service sectors.

Small Business Woes

A number of discouraging factors have afflicted UK small businesses:

• Apprehensive of Eurozone chaos
• Affected by late payment culture
• Concerns over banks’ mis-selling of interest rate swaps
• Recent loss of banking services due to an IT failure.
• Widespread flooding due to extended periods of very heavy rain

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Posted in bizzy blog on 11 Jul 2012.