Global Trends by Martin Khor
Monday 21 January 2008
With one bad news after
another coming from the
It was a terrible week for
the global economy. It may become known as the turning point that tipped
the balance between hope and fear into an emerging consensus that the
The rest of the world will be caught in the effects. Whether these will be mere ripples or big waves remain to be seen.
Share prices at the
The news coming from
In his column in The Star
last Saturday, Seah Chiang Nee painted a vivid story of
At the start of the new year,
the question was whether the
Bank Negara Governor Tan
Sri Dr Zeti Akhtar Aziz last week, while in
“Right now our economy is still on a steady growth path and we envisage this to continue in 2008 because of our strong domestic demand and strong inter-linkages with other Asian economies that are doing well despite the difficult environment,” she said.
The Malaysian Institute for
Economic Research has also forecast 5.4% growth for
A growth rate of 4 to 6 per
cent can be considered decent and optimistic, given the endless series
of bad news coming from the
”This was the week when any
lingering hope that the
Among the bad news were the US$9.8 billion fourth-quarter loss by Citigroup and massive write downs by several of the biggest banks, as well as a deterioration in data on unemployment, retail sales and manufacturing.
The much-maligned “sovereign wealth funds” of developing countries which only weeks ago were seen as threats to Western companies have suddenly turned out to be the saviors of the Western financial system.
The “sovereign funds” of
The Western governments are now probably grateful that the cash-rich government investment funds of the developing countries have infused so many billions of dollars to rescue the battered banks. This saves the governments of these banks from having to do the job themselves, thus sparing them from being accused by their own public of molly-coddling and subsidizing the giant banks.
In future, however, we can expect the Western governments or their public to accuse these “sovereign wealth funds” of taking advantage of the crisis to buy into such significant stakes in some of the largest banks in the world.
Meanwhile a credit crunch seems to be developing, that will deepen recessionary tendencies. A Reuters report last Friday said that US banks, stung by billions of dollars of bad debts are raising lending standards, making borrowing costlier for consumers anf companies.
“It’s a vicious cycle,” Ray Soifer, chair of a bank consulting firm, was quoted by Reuters as saying. “As banks tighten up lending standards, credit is harder to get, which is worse for the economy, which makes banks tighten up more.”
The U.S. Federal Reserve is expected to make more cuts to the interest rate. But several economists are warning that there will be limited positive effects on the economy from these cuts, and that a recession is on the cards.