Market-Driven Corrections Replace Fading Transitory Policies

By Simos, Evangelos Otto | The Journal of Business Forecasting, Fall 2010 | Go to article overview

Market-Driven Corrections Replace Fading Transitory Policies


Simos, Evangelos Otto, The Journal of Business Forecasting


I. GLOBAL ASSESSMENT AND OUTLOOK

In the second quarter of 2010, the global economic recovery entered its growth deceleration phase in the worldwide business cycle. The transitory fi scal and monetary stimuli are fading and market-driven corrections are expected to dominate global economic growth. Future gains on output and jobs will depend on real factors that drive private investment and consumption, not on excessive government spending and near-zero interest rates that created liquidity traps.

Looking at high-frequency indicators, e-forecasting 's global leading economic index-a composite index of 37 countrywide leading indicators that tracks economic conditions seven to nine months in advance-rose by 0.5 percent in June, its 16th monthly increase in a row. However, its six-month growth rateimportant in signaling turning points-declined for the fourth month in a row from its cycle peak of 14 percent in February 2010 to 7.9 percent in June 2010.

The signals from e-forecasting 's country leading indicators display a change in direction of growth in all economic blocs from North America to Latin America, Europe, Africa, the Middle East, and Asia. In particular, the combined leading indicator of the high-fl ying emerging nations of the BRIC group-Brazil, Russia, India, and China-rose by 0.4 percent in June, the slower pace of advance in 18 months. More important, BRIC's six-month growth rate declined from its recent peak of 17.6 percent in October of 2010 to 7.8 percent in June 2010.

In several countries, changes in their leading economic indicator have been negative in one or more months in the latest readings. Declines in leading indicators have been posted in the United States, Canada, Mexico, Uruguay, Belgium, Denmark, Finland, France, Greece, Hungary, Italy, Portugal, Spain, the United Kingdom, Japan, New Zealand, Hong-Kong, Taiwan, Turkey, and Dubai.

The short-term evidence of forward leading indicators coupled with increased uncertainty from loss of confi dence in economic policy resulted in trimming our baseline economic forecast this quarter. Market-driven corrections of private and public "bubbles" with long-lasting permanent eff ects have begun to replace fading transitory fi scal and monetary policies. Global output is now forecast to grow by 3.5 percent in 2011 and 3.8 percent in 2012, lower than the projection of 4 percent for 2011 and 4.2 percent for 2012, which was made in the previous quarter.

In addition, the risk for a double-dip worldwide recession has increased substantially refl ecting the probability of policy developments that restrain private business activity such as fi scal consolidation by tax hikes. Historically, consumers and businesses do not respond to low interest rates following corrections in asset prices and unusually high levels of unemployment. Thus, upholding a zero interest rate monetary policy is a refutable eff ective economic stimulus. It may actually produce unintended adverse consequences in the foreign exchange market when monetary policy is not fully coordinated worldwide

II. SHORT-TERM INDICATORS AND FORECASTS

The baseline forecast incorporates major fi ndings of the World Economic Survey conducted in the third quarter of 2010 by the German Ifo Institute and the Paris-based International Chamber of Commerce. About 1,100 executives from 116 countries have indicated that the world's economic climate continued to improve in the third quarter of 2010. The recent overall readings of the worldwide survey are consistent with a continuation of the global recovery but at a slower pace than in 2009 and in the fi rst half of 2010. The major fi ndings of the third quarter's survey are as follows:

* Worldwide, executives evaluated the current economic situation, third quarter of 2010, favorably with overall business conditions at satisfactory levels. They found economic activity in their countries to be much better than in the third quarter of 2009. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Market-Driven Corrections Replace Fading Transitory Policies
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.