The IMF (International Monetary Fund) recently predicted that the global economy would show growth of just a 2% annual rate over the next two years. Since that time, other analysts have also been discussing the possibility of a growth rate being as low as a 1% rate.
This trend will likely continue until the domestic factors that led to the IMF’s 2% growth prediction are addressed. Hopefully by this time next year the US will have responded to the weakening dollar and the global economic recovery and should be in a position to restore the recovery.
With that said, I’d like to give a fair warning to investors in the form of this report. It is a very strong report and is available at no cost.
The best part of this report is that it sets forth a four-step process for worldwide economic recovery that begins with “growth in the world economy” and moving up to the fourth step, which is “a global financial crisis”. There are several major sources of global economic weakness. I’ve listed them below.
The second factor has to do with political stability and economy. The report says that many of the countries in Western Europe, in particular the United Kingdom, are currently experiencing the effects of years of austerity measures, budget cuts, and declining revenue. They’ve already suffered a great deal from the recession and now may feel the burden of further austerity and the effect of a prolonged and volatile banking crisis.
In addition, the United States and European Union, has been shaken by the recent banking crises and any real threat of a global financial crisis will be felt here as well. The IMF says that these events will result in deep recessions in countries such as the United States, Germany, France, and Italy.
Then the fourth factor involved the strength of the US economy and that is the impact of the global credit crisis on the world financial system. The US and Europe have significant exposures to the global banking system and the IMF is pessimistic that this crisis will be resolved in the short term.
As a result, I think that the US and Europe are still ill prepared for a very slow economic recovery. The IMF did not mention the US by name but it has shown that its credibility is on the line.
In other words, the IMF says that many countries in the region lack the domestic resources to deal with the three major threats mentioned above and the UK and the US have to think about strengthening their fiscal capacity. That means that they will also need to think about improving their monetary policy or strengthening their central bank balance sheets.
A major part of this process includes giving serious consideration to an orderly exit from the European Union and a full withdrawal from the United Kingdom by the UK would take place with the assistance of the European Central Bank, once it has been able to stabilize the financial sector strength. Once the situation becomes stable, the two nations will likely emerge from the recession, but without addressing the pressing financial issues that caused the first recession.
However, I think that the IMF is making a pretty fair forecast and if the global financial crisis is left unchecked it could leave the rest of the developed world behind for quite some time. I hope you will please consider all this and think on it.