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Global Economy: Clouds Gather

By Shlomo Maital

Caption: In the EU, the current state of the economy, and expectations for the near-term future, have both turned down sharply since the beginning of 2018.

 

   I regularly respond to a questionnaire from Ifo – Institute for Economic Research, based in Munich. Ifo regularly surveys economists and business leaders around the world, to put a hand on the pulse of the global economy.

   Ifo’s latest report is worrisome. Here are some excerpts from their latest report:

   “Sentiment in the euro area continued to weaken this quarter. The ifo Economic Climate for the euro area fell significantly from 19.6 points to 6.6 points, plunging to its lowest level since mid-2016. Experts downwardly revised their assessments of both the current economic situation and their expectations significantly. The euro area’s economy is moving into rough waters.”

   There are major problems in Italy and Spain. Italy’s new right-wing government is quarreling with the European Commission. Spain is showing signs of instability.   In Germany, Chancellor Angela Merkel announced she will not run again for the leadership of her party, and may possibly resign as Chancellor by year’s end. Hungary is muzzling the press and its judiciary.

   The Ifo report continues: “Experts scaled back their export expectations for the euro area, reflecting beliefs that barriers to trade have grown higher. At the same time, a larger number of experts now believe that short and long-term interest rates will rise over the next six months; and that the US dollar will continue to strengthen.”

     China’s economic growth is slowing, and the renminbi (yuan) is touching 7 to the dollar. In tomorrow’s election, the US may find itself with a split Congress – Democratic House, Republican Senate.  The US stock markets had their worst month in years.

   The world is now paying for neglecting countries, and wage-earners, who were left out of global growth and wealth creation. Migration has destabilized Europe, the Mideast and to some extent, the US.   If wealth does not come to a country, and if it is not distributed well, many people in that country will flee toward the wealth.   And when they do, the resulting instability will put a deep dent in wealthy economies.

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The World Economy: Upbeat

By Shlomo Maital

 “Ifo” is a German research institute that sends out regular questionnaires to experts, with two parts: the first, about global conditions, and the second, about local (country) conditions. I respond to the questionnaire regularly.

   Here is Ifo’s latest assessment:

       Munich, 11 May 2017 – The ifo World Economic Climate improved markedly in the second quarter, with the indicator rising from 2.6 points to 13.0 points. Experts’ assessments of the current economic situation were considerably more positive, making their sharpest increase since January 2013.

       Not only did the global economy improve, but so did expectations about the future:

   Economic expectations also improved. A further recovery was seen in the world economy in the second quarter. The ifo World Economic Climate improved in nearly all regions of the world. The main drivers remained the advanced economies, and especially the European Union. Both assessments of the current economic situation and expectations continued to follow an upwards trend in most countries.

   As usually happens, the upbeat outlook is not uniform. Latin America and Africa and the Mideast lag:

In Latin America assessments of the economic situation remained largely poor, but expectations brightened markedly. There was also a significant improvement in the developments and outlook for emerging and developing economies. Africa and the MiddleEast were the only regions in which the economic climate deteriorated. The outlook for Turkey also remained overcast.

     The common denominator? Politics. Politics in Turkey, the Mideast and Latin America are rather chaotic (checked out Venezuela lately?)   Politics in Europe seem more positive, with the voters rejecting the far right. In America, politics are chaotic but this is not new…

   So, despite Trump, and an anti-globalization anti-trade sentiment sweeping the world, the world economy seems resilient. A new China-US trade deal is in the offing.     One dark cloud on the horizon – Brexit. The EU seems in a vengeful mood, and some there want to teach Britain a lesson. This would be a huge mistake. Hopefully wiser heads will prevail.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
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