The MSCI index of global stocks has fallen by over 15% since mid-April. Treasury yields have tumbled as investors have fled to the relative safety of American government bonds.
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Fears are growing that the global recovery will falter as Europe’s debt crisis spreads, China’s property bubble bursts and America’s stimulus-fuelled rebound peters out.
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Fears about the fragility of the global recovery are exaggerated. Led by big emerging economies, the world’s output is probably growing at an annual rate of more than 5%, far swifter than most seers expected.
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America’s structural budget deficit will soon be bigger than that of any other OECD member, and the country badly needs a plan to deal with it. But for now, lower bond yields and a stronger dollar are the route through which American spending will rise to counter European austerity. Thanks to its population growth and the dollar’s role as a global currency, America has more fiscal room than any other big-deficit country. It has been right to use it.
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Fears are growing that the global recovery will falter as Europe’s debt crisis spreads, China’s property bubble bursts and America’s stimulus-fuelled rebound peters out.
…
Fears about the fragility of the global recovery are exaggerated. Led by big emerging economies, the world’s output is probably growing at an annual rate of more than 5%, far swifter than most seers expected.
…
America’s structural budget deficit will soon be bigger than that of any other OECD member, and the country badly needs a plan to deal with it. But for now, lower bond yields and a stronger dollar are the route through which American spending will rise to counter European austerity. Thanks to its population growth and the dollar’s role as a global currency, America has more fiscal room than any other big-deficit country. It has been right to use it.
The world is nervous for good reason. Although the fundamentals are reasonably good, the judgment of politicians is often unreasonably bad. Right now that is what poses the biggest risk to the world economy.
Some very good thoughts from the Economist. As always there are plenty of risks to focus on today. There are also plenty of reasons to be optimistic. It looks like globally we are in for a good economy in 2010-2011 but those prospects could worsen fairly easily.
Related: India Grew GDP 8.6% in First Quarter – Consumer Debt Needs to Decline Much More – Government Debt as Percentage of GDP 1990-2008 – USA, Japan, Germany…