Euro Shock Leads to Global Slowdown

I. G LOBAL ASSESSMENT AND OUTLOOK Available data and analysis of fi nancial markets indicate that while global recovery is on track at present, it has lost its momentum driven by a Euro Area adverse from sovereign debt crisis. probability of a double-dip scenario in global business cycle has increased following a four-quarter worldwide recovery from so-called by media Recession of 2008-09. A year ago, we entitled global outlook The Great Stagfl ation of 2010-2011. Some of our concerns raised then have materialized, including consequences of massive policy stimuli and expanded role of government, which would depress private investment, productivity, and jobs. In particular, we argued that the twin peaks of money and budget defi cits are expected to adversely aff ect global economy with one- to two-year lags, thus destabilizing again fi nancial markets, consumer spending, and investment. central forecast assumes that Euro shock will not dominate fundamental underpinnings of global business cycle and create strong adverse spillovers into emerging economies, developing world, and global trade. However, risk for a double dip has increased substantially with ongoing European fi nancial crisis. At this point, we thus assume that currency realignments and changes in policies will keep recovery on track. Following a strong advance by an annual rate of 3.6 percent in last quarter of 2009, preliminary data on fi rst quarter of 2010 show that combined output of member countries of Organization for Economic Cooperation and Development (OECD)-the 30 richest economies in world-has increased at an annual rate of 2.8 percent from previous quarter. In fi rst quarter of 2010, real output rose by an annual rate of 3 percent in United States and by just 0.8 percent in 27-country European Union. Japanese economy, laggard of current cycle, expanded by 4.8 percent in fi rst quarter of 2010, which was fourth consecutive quarterly increase in country's real GDP. Looking at high-frequency indicators, e-forecasting 's global leading economic index-a composite index of 37 countrywide leading indicators that tracks economic conditions seven to nine months in advance-rose by 0.4 percent in March, lowest monthly increase since February 2009. signals from e-forecasting 's leading indicators display a slower pace in growth of future economic activity in Europe and Asia. growth slowdown evidence comes from North America, many European economies, India, China, Thailand, Singapore, and Taiwan. Signals of better-than-previously projected economic growth are evidenced in Japan, Korea, Australia, and South America. II. SHORT-TERM INDICATORS AND FORECASTS baseline forecast incorporates major fi ndings of World Economic Survey conducted by German Ifo Institute and Paris-based International Chamber of Commerce in second quarter of 2010. About 1,150 executives from 110 countries indicated that world's economic climate continued to improve in second quarter of 2010 and overall indicator of global performance is now above its long-term average. recent overall readings of worldwide survey are consistent with a continuation of global recovery at a slower pace in second half of 2010. major fi ndings of second quarter's survey are as follows: * Worldwide, executives evaluated current economic situation, second quarter of 2010, unfavorably with overall business conditions slightly below satisfactory levels. However, they found economic activity in their countries to be a great deal better than that of second quarter of 2009. Most important, regarding future, executives expect economic conditions in last two quarters of 2010 to be better than those that prevailed in second quarter of 2010. …