Thursday, November 4, 2010

Slow Growth

The IMF has lowered its growth estimate for the global economy from 4.8 to under 4%, with a marked "asymmetry" between developed and emerging economies. The former will grow even more slowly than previously estimated, if at all. Chief economist Olivier Blanchard approves of the Fed's quantitative easing, announced yesterday, but notes that it has never been tried before on this scale. Implication: some unforeseen consequences are likely. As for foreseen consequences, French finance minister Christine Lagarde notes that the euro will bear the brunt of the Fed's move: as long interest rates come down in the US, the euro will appreciate still further against the dollar (as it did yesterday). Will we see a return to the $1.60 level of the past? If so, European exports to the US will be reduced, further slowing the European recovery, which European austerity measures have already hobbled. For an interesting discussion of various possible scenarios, particularly involving currency impacts, see here.

1 comment:

Unknown said...

Wonderful, the USA starts a currency war with China and hits the European Union and the UK.