Now the Global Economy is heading for ‘hard landing’
This weekend as governments and markets take stock of the global situation is becoming clear that economies may now be heading for a much harder landing than previously thought.
As we outlined in a previous article, the events of the last week may have helped to create an economic version of ‘The Perfect Storm’ – a potential disaster for the global economy.
Reported in the Sunday edition of the London Times this morning are a series of warnings from bankers and analysts across the globe – predicting that events could lead to a severe ‘hard landing’.
According to the Times, economists at HSBC have warned that – there is a risk of monetary ‘overkill’ from the central banks raising rates too much.
With the increase last week in Japanese interest rates from the BoJ the era of cheap global money is over. Analysts are now pouring over and scrutinising all utterances of the Fed’s chairman, Ben Bernanke to look for clues to see if the Fed will increase US rates again, up from the current 5.25%.
In a new report by HSBC- the inflation fight – there are concerns expressed that – there is an increasing risk that tighter UK and global monetary policy causes a hard landing in 2007.
With leaders meeting at the G8 in Russia this weekend, oil is a major topic of discussion, prices are currently surging on towards record levels of $80 per barrel, and many analysts are now predicting that a $100 price point is now a realistic potential.
In previous years, any increase in oil prices has tended to slow growth and expansion, the last three years have shrugged this off, with global growth and demand being fuelled by the rapid growth of the Chinese economy and subsequent provision of cheap goods offset through low wages in China – though this itself would reverse with frther oil increases.
But already we are beginning to see the start of a slow down, led by the US economy – retail figures released on Friday pointed to a slow down.
If the situation in the Middle East escalates – and there are already signs that it has – then the pressure on oil prices will accelerate as well. With Japan’s removal of cheap money there is nowhere for the global economy to go but into a tailspin.
Certainly, this summer will not be one for rest; it’s going to be an unusually active summer for the markets.
Sources
Japan, India and Lebanon = The Perfect Storm The Business News Source
Britain and world set for ‘hard landing’ The Sunday Times
Bank of Japan rate rise – the new Y2K? The Business News Source