Continue Downward Slide
The global financial news is not good and the global outlook continues to deteriorate. In Europe, the largest and strongest economy, Germany, is now weakening. In Japan, corporations seem to be losing faith in Prime Minister Abe’s programs and investment has hardly moved. In China, official growth in the third quarter fell below 7, to 6.9 percent.
Mostly because of China’s weakness, the commodities’ meltdown hasn’t found a floor and all producers are suffering pretty badly. Russia is in recession, as is Brazil, which is also facing a political crisis; Canada is a borderline case, and Australia and New Zealand are barely hanging on.
Sluggish global demand has slowed international trade, and the Asian exports powerhouses have seen their sales slipping for months, especially those to China. It isn’t only Asian exports that are suffering; from high-tech goods to durables, demand has fallen for products and factories are sitting empty and idle.
Hope for relief for the world economy can only come from central banks. In October, the European Central Bank held its latest meeting, and President Draghi made it clear that they are ready to act. People´s Bank of China surprised everyone on Friday by lowering deposit rates for the fourth time this year, and all banks’ reserve requirements for the third time. The Bank of England, at its last policy meeting, made it clear that higher rates are not in the cards anytime soon. The Bank of Japan is expected to leave their policy unchanged, but a new round of bond buying could be announced at any time. Finally, the U.S. Fed is also meeting next week, and the experts’ projections for the hike in interest rates is now being pushed back to March of next year, at the earliest.
All these central bank actions mean more money is slushing around the global financial system, and the markets are responding in kind. Bond yields are down again. And stock markets are steady to up, mostly because we are in the middle of a poor earnings season; otherwise, they would probably be rising.
The global economy is not well. Monetary policy has been the only tool used to stimulate world economies six to seven years now and, yes, it has managed to lift them out of recession, but not to launch them into a strong growth cycle. And the prescription hasn’t changed.
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China’s growth dropped a tenth of a percent. Japanese investors are losing faith in monetary programs. Germany’s economy is weakening. Russia and Brazil are in recession Canada, Australia, and New Zealand are leaning towards a recession. Global demand and international trade has slowed.