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Commentary

Wed 6 Mar 2019 / Europe

Germany just avoids technical recession

Germany narrowly escaped a technical recession at the end of 2018. Growth came in at zero, from minus 0.2% quarter-on-quarter in September. This performance was the result of too many one-offs, surfacing structural weaknesses and external uncertainties. However, it is not necessarily the end of a long positive cycle. Economic fundamentals remain solid and the chances of a gradual rebound are still much higher than those of another disappointment. The possibility of disquiet in the coalition government, however, raises fresh risks in 2019.

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Tue 27 Nov 2018 / Global

Countries victims of 'ninja' loans

Countries need infrastructure in much the same way that US families needed houses before the 2008 financial crisis. The 'American dream' was to provide everyone with their own home. Similarly, poorer countries dream of infrastructure, to propel them to prosperity. People in the US bought houses through 'no income, no jobs, no assets' ('ninja') loans, unsure of how to reimburse their bank. Countries are doing the same to fund infrastructure projects. Both groups were lured by easy financing conditions.

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Mon 26 Nov 2018 / Europe

ECB must address QE misallocation risk

By the end of this year, the European Central Bank is expected to end its monthly net asset purchases. This raises several questions about the ECB's reinvestment strategy and the implications for individual countries. The central bank's quantitative easing programme was not as successful as believed. The real issue for the ECB governing council to address when discussing fiscal implications of reinvestment is the risk arising from the misallocation of liquidity and corresponding claims and liabilities.

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Tue 9 Oct 2018 / Europe

Euro will not survive if Italy fails

An Italian debt default would trigger a European banking crisis with global economic and financial market ramifications. Italy is the euro area's third largest economy. If it fails, the single currency cannot survive. It is also too costly for its European partners to save. However, the country's new populist government is engaging in wishful thinking that somehow the country will grow its way out of its debt problem. Its policies show complete disregard for euro area budget rules and are bound to deal the economy a serious blow.

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Mon 3 Sep 2018 / Global

Four proposals to lower contagion

The international community needs to do a better job in guarding against financial market contagion. The collapse of Turkish markets and the effects on other emerging markets make the question acute and relevant. Markets have long known that Turkey was an economic disaster in the making. The international policy-making community must to a better job of analysing risk factors and preparing for trouble in emerging markets. Contagion will never be banished completely, but the world can step up efforts to make it less troublesome.

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Fri 3 Aug 2018 / Global

IMF highlights looming global risks

The IMF has issued a barrage of documents over recent weeks that provide a comprehensive overview of its current thinking on global economic developments. The overall projections for both advanced and developing economies remain largely unchanged, although disconcerting trends are emerging. Policy divergence among the world's major central banks could translate into dollar strength and currency weakness abroad, while European political hazards, protectionism and widening stock imbalances add to the downside risks.

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Thu 5 Apr 2018 / Asia Pacific,North America

China downgrades Treasuries

Western and eastern views of US Treasuries are increasingly at odds. Chinese rating agency Dagong downgraded Treasuries to BBB+, with a negative outlook, in early 2018, stating that the US administration has difficulty focusing on the economy, federal debt is escalating and recent tax cuts reduce the government's ability to service its debt. The largest holders of Treasuries, such as China, might take a direct hit from the deteriorating credit risk. US creditors looking for real value should buy real assets anywhere in the world for dollars.

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Tue 20 Mar 2018 / Asia Pacific

What China's new governor should do

Yi Gang, the new governor of the People's Bank of China, takes over at a time when Beijing is placing far greater emphasis on controlling risk in a Chinese financial system that even leading officials admit contains dangers of implosion. At the same time, in view of a leadership vacuum in world politics and economics stemming from US unilateralism, opportunities for China from its own brand of targeted monetary internationalism are greater than ever.

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Fri 19 Jan 2018 / Europe

IMF, ECB join forces on Germany

The IMF and the ECB have joined forces in an unusual attempt to persuade Germany to adopt more Europe-orientated economic measures as part of the convoluted round of policy discussions in Berlin. Depressingly, there is little sign that anyone from the German political scene is paying attention. Christine Lagarde, IMF managing director, criticised Germany's long-running current account surplus of around 8% of GDP, saying it was a sign of excess savings and inefficient investment and posed a problem for world economic balance.

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Tue 9 Jan 2018 / Asia Pacific,North America,Europe

Bubbles pervade world economy

In 1933 Sir John Templeton, the renowned fund manager, remarked that the investor who says 'this time is different' has uttered among the four most costly words in the annals of finance. He might well have been speaking about modern investors, who try to convince themselves that the bubbles in the global economy will have a happier ending than previous ones. They do so despite the numerous good reasons to fear that, if the consequences of today's global bubble are indeed different from 2008, it may be because it is more dangerous.

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