Brace for global economic difficult times
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Brace for global economic difficult times
Conflicting views and assessments of policy makers and analysts are widening and this can only mean all is not well in the world economy.
International news agency Reuters reported over the weekend that the International Monetary Fund (IMF) members gave lukewarm endorsement to a strengthening global economy but conceded they were not out of the woods as they grappled with subdued inflation, low potential growth and an uneven recovery that clouded the outlook.
With central banks left with less firepower and some seeking to exit crisis-mode stimulus measures, the IMF members also renewed calls for fiscal policy and structural reforms to carry more of the burden in solidifying the recovery, now that the worst days of the economic storm had passed.
“Really? The worst days of the economic storm has passed?” Gerakan Deputy Speaker Syed Abdul Razak Alsagoff said.
“If so, why is the U.S. continuing with drastic demands to drastically alter the North American Free Trade Agreement (Nafta) with Canada and Mexico over the renewal of the pact.
“If all is well in the world economy, why the need for the US, the world’s biggest economy, to struggle over Nafta for a better deal?” he asked.
Also, Syed Razak said, Euro Zone finance ministers Jeroen Dijsselbloem was also quoted as saying Europe needed the help of market incentives, market pricing of risks to get its economics right.
“So, things are not right now?” he asked.
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“Malaysia is an export-oriented economy. So, we are very dependent on the economic health of others to do well. Now, our domestic consumption and market are slowing down significantly worsened by growing inflation.
“What individuals need to do is to persevere through the difficult times and then reap the fruits of domestic and global economic recoveries,” he added.
Here are the details of three Reuters’ news reports as posted by The Star Online:
"Global policymakers grapple with half-baked recovery short of wage growth
ECONOMY
Sunday, 15 Oct 2017
2:06 PM MYT
The IMF members also renewed calls for fiscal policy and structural reforms to carry more of the burden in solidifying the recovery, now that the worst days of the economic storm had passed.
WASHINGTON: International Monetary Fund members gave lukewarm endorsement to a strengthening global economy but conceded they were not out of the woods as they grappled with subdued inflation, low potential growth and an uneven recovery that clouded the outlook.
With central banks left with less firepower and some seeking to exit crisis-mode stimulus measures, the IMF members also renewed calls for fiscal policy and structural reforms to carry more of the burden in solidifying the recovery, now that the worst days of the economic storm had passed.
"Structural reforms that were difficult to do in hard times would be much easier in better times because the outlook is stronger," IMF Managing Director Christine Lagarde told reporters on Saturday.
"It's when the sun is shining that you need to fix the roof. That message was received 100 percent (by the policymakers)."
A communique from the IMF's steering body, the International Monetary and Financial Committee (IMFC), said a global economic upswing, driven by a pickup in investment, trade and factory output, was brightening the outlook.
But it warned policymakers against complacency, saying that the recovery was "not yet complete" with inflation below target and potential growth weak in many countries.
Financial leaders attending the meeting also warned that while economies had improved in many countries there were people who had been left behind.
"We're still an economy with our head in the oven and our feet in the freezer. So for the people with their feet in the freezer, that doesn't resonate with them if you say everything's on track," said Bank of Canada Governor Stephen Poloz.
PATIENCE NEEDED
The optimism on global growth was overshadowed by tensions on trade, which was in full show in contentious talks to renew the North American Free Trade Agreement (NAFTA) held during the IMF's autumn meetings.
The communique made no mention of trade, though Lagarde sought to offer a bright note by saying it was "perfectly legitimate" to renew long-standing trade agreements to respond to a changing world.
"Trade is a very powerful engine of growth, innovation, competition and productivity ... Hopefully if it is well done, it can be a win-win for all countries in those negotiations," she said, when asked about the NAFTA talks.
The communique said member countries agreed to work together to reduce "excessive global imbalances," and to look more carefully at potential side-effects that prolonged low interest rates could have on asset prices and economic activity.
Policymakers also had less to cheer on inflation and wages, which remain weak despite a strengthening recovery that prompted the IMF to upgrade its global growth forecast.
Bank of Japan Governor Haruhiko Kuroda said that while subdued price and wage growth has become a common phenomenon in advanced economies, it was "only a question of time" for them to accelerate as the economy gathers momentum."
European Central Bank head Mario Draghi said the key was patience.
"The bottom line in terms of policy is that we are confident that as the conditions will continue to improve, the inflation rate will gradually converge in a self-sustained manner," he said.
"But together with our confidence, we should also be patient because it's going to take time." - Reuters
Grim reality of Nafta talks sets in after tough US demands
ECONOMY
Sunday, 15 Oct 2017
2:00 PM MYT
US President Donald Trump, who blamed NAFTA for shifting U.S. manufacturing jobs to Mexico during his election campaign last year, has repeatedly vowed to scrap the treaty unless it can be renegotiated on more favorable terms.
ARLINGTON, Virginia: Negotiators from Canada and Mexico grappled with U.S. demands to drastically alter the North American Free Trade Agreement (Nafta) on Saturday, as talks over renewal of the pact vilified by President Donald Trump ran through a fourth straight day.
Some downcast participants said the demands, unveiled this week in line with Trump's "America First" agenda, have increased the odds of Nafta's demise. At the very least, they could make it impossible to reach a deal renewing the treaty before a year-end deadline.
"The atmosphere is complicated," one trade official told reporters, adding that his fears about some "pretty harsh, pretty horrible" demands from the U.S. side of the negotiating table were coming true.
Speaking on condition of anonymity because the talks are confidential, the official added the U.S. stance "has a clear protectionist bias, a bias that is trying to eradicate, minimize, eliminate the mechanisms that existed in Nafta in the last 20 years."
Trump, who blamed Nafta for shifting U.S. manufacturing jobs to Mexico during his election campaign last year, has repeatedly vowed to scrap the treaty unless it can be renegotiated on more favorable terms.
At the mid-point of seven scheduled negotiating rounds, many of the U.S. proposals appear aimed at turning back the clock on changes in the global economy since Nafta took effect 23 years ago. Collapse of the deal could reverberate well beyond North America, where trade between the United States, Canada and Mexico has more than quadrupled since 1994.
Former Mexican Trade Minister Jaime Serra, who was responsible for negotiating the original trade pact, said there was no economic logic to the U.S. demands.
"Issues are being put on the table that are practically absurd," he told Reuters. "I don't know if these are poison pills, or whether it's a negotiating position or whether they really believe they're putting forward sensible things."
Some officials from NAFTA governments said they knew all along the negotiations would be tough, but vowed to soldier on through the three remaining scheduled rounds of talks.
"We said from the beginning that this was never going to be easy," Canadian Trade Minister Francois-Philippe Champagne told CBC radio. "We want to be at the table, be constructive, offering alternative proposals."
One of the U.S. proposals unveiled this week would require that 50 percent of the value of allNafta-produced cars, trucks and large engines come from the United States, people briefed on the negotiations said.
The same proposal calls for a sharp increase in Nafta's regional automotive content requirement, boosting it to 85 percent from the current 62.5 percent. The existing level is already the highest local content requirement of any trading bloc in the world.
Meanwhile, the Trump administration's call for a so-called Nafta sunset clause would effectively trigger a renegotiation of the pact every five years. Serra said the U.S. content requirements would distort NAFTA trade with "pure protectionism" while the sunset clause would choke off invesment decisions with uncertainty.
U.S. negotiators also want to end a trade dispute settlement system that has deterred U.S. anti-dumping cases while erecting new protective barriers for seasonal fruit and vegetable growers. And though Canada and Mexico had sought more access to U.S. government procurement contracts, they were met this week with a proposal that would effectively grant them less.
Even before the current round of negotiations got underway in a suburban Washington hotel, U.S. Trade Representative Robert Lighthizer said Nafta was "lopsided" in favor of Mexico and Canada and needed major changes to rebalance it.
"The president has vowed to bring jobs and investment back to the United States," Lighthizer said. "We will do no less."
One of Lighthizer's predecessors, Robert Zoellick, said he thought there was a 50-50 chance Trump would quit Nafta.
"He's trying to go back to make trade agreements fix the bilateral trade deficit. I don't believe he can be successful in doing that," Zoellick, now non-executive chairman of AllianceBernstein, told a banking conference in Washington on Saturday. - Reuters
Europe needs market pressure to get economics right
ECONOMY
Sunday, 15 Oct 2017
1:55 PM MYT
With all euro zone economies growing again, and unemployment and deficit levels falling, the euro zone is now considering how to integrate more deeply to prevent another crisis and make the single currency area work better.
WASHINGTON: Euro zone governments need to feel market pressure to set the right economic policy, the chairman of euro zone finance ministers Jeroen Dijsselbloem said, backing an idea of creating a sovereign debt restructuring mechanism in the euro zone.
In an interview with Reuters on Saturday, Dijsselbloem said however, that such a mechanism should not be automatic, but only one of the options.
"We need the help of market incentives, market pricing of risks to get the economics right in Europe," Dijsselbloem said on the sidelines of the International Monetary Fund's autumn meetings in Washington.
"If the markets are not helping, not discriminating between risks, then all the pressure needs to come from European institutions and rules," he said.
Yet the budget rules, contained mainly in the Stability and Growth Pact that sets limits on government borrowing in European Union countries, have become very complex and many euro zone finance ministers believe that the European Commission, which under EU law is supposed to enforce them, is too political.
Germany even believes that the euro zone bailout fund ESM, owned by euro zone governments and in which Germany has the biggest stake, could gradually be given a bigger role in monitoring compliance with the rules.
COMMISSION CAN'T BE REPLACED
But Dijsselbloem said being unhappy with rule enforcement should not mean trying to replace the Commission in its duties.
"If we are not happy with the way this Commission is performing that task, then let's debate that... but let's not say that from now on we take that away from the Commission," he said.
He said he worried fiscal rules would over time be neglected by countries "because they feel that in the end, the Commission will always give them room for exceptions. And this is already happening a little with the Eurogroup. It is a matter of concern."
Before the euro zone sovereign debt crisis in 2010, markets did not differentiate strongly between debt issued by different governments in the euro zone, believing that in the end all such bonds represented general euro zone risk, which was very low.
This allowed some countries, which broke EU fiscal rules, to borrow more than their economy could repay, triggering a crisis that threatened the very existence of the single currency.
With all euro zone economies growing again, and unemployment and deficit levels falling, the euro zone is now considering how to integrate more deeply to prevent another crisis and make the single currency area work better.
The idea of a mechanism of sovereign debt restructuring could help turn up market scrutiny on governments who do not want to play by the rules.
"If there is no outside pressure from markets telling governments 'look you need to shape up' - it is going to be very difficult," Dijsselbloem said.
DEBT RESTRUCTURING MECHANISM TO HELP APPLY MARKET PRESSURE
Germany would like a mechanism mandating that a government seeking help from the euro zone bailout fund would automatically have to extend the maturities of its bonds and, if needed for debt sustainability, also restructure its debt.
Dijsselbloem said that might not be the right approach.
"If you say that if a country comes to the ESM for support there will always be sovereign debt restructuring, it will scare investors away from that country," he said.
He said the solution might be to make clear that "we have this instrument in our basket" but that it would not be used in every situation. "Because that may not always be the case," he said.
Other ways to bring market pressure to bear would be through changing the risk weighting on sovereign bonds or through introducing caps on the concentration of sovereign bonds in banks' portfolios, he said.
Separately, the euro zone bailout fund, which Germany would like to see transformed into a European Monetary Fund, similar to the International Monetary Fund, could cooperate with the Commission in preparing reviews, like the IMF regularly does for its members, the so-called Article IV reports.
"There can be practical solutions in which the Commission and the ESM jointly put out the sort of Article 4 reports on the macroeconomic situation in countries," Dijsselbloem said.
The ESM's role would grow even more in cases where a government became involved with it in any way, even to get a precautionary credit line.
"In the management of programmes, maybe initially the Commission would need to be the one to sign them off ...but in the development, design, implementation, monitoring, the ESM could do the work. Partly on behalf of the Commission and partly on behalf of the Eurogroup," he said. – Reuters"
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N.37 LET BUKIT LANJAN SOAR WITH SYED ABDUL RAZAK ALSAGOFF
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