Global growth faces risks


While econ­o­mists Mo­hamed El Erian of Al­lianz, Allen Si­nai of De­ci­sion Eco­nom­ics and Mor­gan Stan­ley's Joachim Fels see growth speed­ing up this year, mount­ing geopo­lit­i­cal strains in Ukraine and else­where are prompt­ing them to turn more guarded about the out­look. "There is a sig­nif­i­cant tail risk that's grow­ing for the world econ­omy," said Si­nai, chief ex­ec­u­tive of­fi­cer of the New York-based con­sul­tant. He sees a 10 per cent chance of a global re­ces­sion trig­gered by es­ca­lat­ing ten­sions be­tween Rus­sia and the US and Europe over Ukraine.

The cri­sis in Crimea isn't the only con­cern fi­nan­cial mar­kets must grap­ple with. On the lengthy list of what for­mer US De­fence Sec­re­tary Don­ald Rums­feld dubbed "known un­knowns" are elec­tions in some emerg­ing mar­kets start­ing with Turkey on March 30, the Syr­ian civil war and ne­go­ti­a­tions over Iran's nu­clear pro­gramme, which could be com­pli­cated by the US-Rus­sia stand­off in east­ern Europe.

Global in­vestors are on the alert. The share of cash in their portfolios is the high­est since July 2012, ac­cord­ing to a March 7-13 sur­vey by Bank of Amer­ica Mer­rill Lynch of 241 fund man­agers who over­see $636 bil­lion in as­sets.

US stocks fell the past two days, eras­ing gains that sent the Stan­dard & Poor's 500 In­dex to within three points of a record, on wor­ries the sit­u­a­tion in Ukraine may es­ca­late af­ter Pres­i­dent Barack Obama said the in­ter­na­tional or­der is be­ing tested. Businesses also are be­com­ing con­cerned. Seventy per cent of 1,403 cor­po­rate ex­ec­u­tives polled by con­sul­tants McKin­sey & Co this month cited geopo­lit­i­cal ten­sions as a risk to global growth in the next year, up from 27 per cent in De­cem­ber.

"Heaven knows, there's a lot of geopo­lit­i­cal events out there that may be, God for­bid, that we'd get into some sort of war and some sort of large in­ter­ven­tion event," Andrew Liveris, chief ex­ec­u­tive of­fi­cer of Dow Chemical Co, told an­a­lysts on a March 19 con­fer­ence call. Mid­land, Michi­gan-based Dow is the largest US chemical maker. Cen­tral bankers and fi­nance min­is­ters will de­bate the po­ten­tial eco­nomic fall­out in Wash­ing­ton April 11-13 at spring meet­ings of the In­ter­na­tional Mon­e­tary Fund and World Bank. El Erian, chief eco­nomic ad­viser to Mu­nich-based Al­lianz, said in an email he is stick­ing with his pre­dic­tion that world­wide growth will pick up this year. What's changed is a greater chance there won't be any ac­cel­er­a­tion, he said.

Fels and his team at New York­based Mor­gan Stan­ley agree, say­ing in a March 16 re­port that the risks to their fore­cast of 3.4 per cent growth this year "are gen­er­ally tilt­ing to the downside." The world econ­omy ex­panded three per cent in 2013. Those risks are cen­tered on de­vel­op­ing na­tions. The Mor­gan Stan­ley econ­o­mists cited "vo­latil­ity" from elec­tions as a rea­son for cut­ting their fore­cast for emerg­ing-mar­ket growth this year to 4.7 per cent from five per cent. The big­gest worry is Ukraine. Obama warned Rus­sia on March 25 it would face the con­se­quences of tougher sanc­tions if it en­croaches fur­ther into the coun­try. The US and Euro­pean Union al­ready have frozen as­sets of Rus­sian and Crimean of­fi­cials in re­tal­i­a­tion for Moscow's move.

Rus­sia has con­sol­i­dated con­trol over Crimea and is main­tain­ing forces along the bor­der with Ukraine in what Obama said "ap­pears to be an ef­fort of in­tim­i­da­tion." The con­fronta­tion be­tween Moscow and Wash­ing­ton is the most se­ri­ous since the Soviet Union col­lapsed more than two decades ago. "It raises an un­known," said Russ Koes­terich, chief in­vest­ment strate­gist at New York-based Black­Rock, which man­ages $4.3 tril­lion in as­sets.

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