Global Economic News: Recent Portents of More Choppy Waters Ahead

From PIERS: Warning: U.S. Recovery Could be Derailed by European Crisis. The Organization for Economic Co-operation and Development (OECD) warned on Monday that the financial crisis in Europe shows little sign of being self-contained and could pose a great risk to the growth of the U.S economy in 2012.  Reuters reported OECD predicts “Negative spillovers from the turmoil in European markets could be greater than expected,” contradicting previous down-played concerns from the Federal Reserve, and dampening predictions from economists earlier this year that showed an “Energizer-bunny-like” trade scenario between the U.S. and Europe.

Speaking of which, directly from OECD: OECD calls for urgent action to boost ailing global economy.  “Prospects only improve if decisive action is taken quickly,” said OECD Chief Economist Pier Carlo Padoan. “In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard,” he said. Improved prospects would also depend on the enactment of a credible medium-term fiscal programme in the United States.

A wide range of structural measures to boost jobs and economic activity, all desirable in their own right, will become urgent. Effective labour market policies are needed to tackle unemployment which risks turning from cyclical to structural, thereby sapping potential growth, hitting confidence and weakening public finances.

From PIERS: JOC Reports A Whole Lot of Rolling and Bumping Goin’ On. PIERS sister company, The Journal of Commerce’s recent cover story points to market uncertainty and a reversion back to difficult Great Recession business decisions when it comes to the future of capacity utilization. The JOC article alludes to predicted severe cut-backs on global capacity that are sending freight rates to new lows only seen in 2009 during the Recession. According to PIERS’ recent capacity utilization report, load factors have tumbled between 2010 and 2011. “The imbalance between supply and demand in the second quarter of 2011 fell 4.3 percentage points below the Q4 moving average, which suggests further weakness moving forward.”  Not a good sign overall. 

For those interested in exactly how we got in this mess to begin with… WIKI provides a synopsis of the events that led up to the current “Great Recession”.  The late-2000s financial crisis (often called the Global Recession), is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. It resulted in the collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market had also suffered, resulting in numerous evictions, foreclosures and prolonged unemployment. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, and a significant decline in economic activity, leading to a severe global economic recession in 2008.  Link to complete article.

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