Newspaper article The Evening Standard (London, England)

Post-Holiday Depression and a Spectre of Gloom; City Comment

Newspaper article The Evening Standard (London, England)

Post-Holiday Depression and a Spectre of Gloom; City Comment

Article excerpt


THINGS are meant to look better when people come back from holiday, but not this year. Indeed, while we have all been lying on beaches or hiking up mountains, the world economic outlook has taken a serious turn for the worse.

Stock markets, private economists and even government policymakers are a miserable bunch at the best of times, but the holidays have made them suicidal.

On Tuesday, Otmar Issing, the European Central Bank's chief economist, confirmed the ECB was becoming less optimistic about eurozone growth prospects this year. Two weeks ago, the US Federal Reserve said it could no longer ignore the growing signs of "economic weakness". Some economists are even worse.

Markets oscillate between fears of a double dip into world recession and hopes of sustained recovery.

But Stephen King of HSBC has a third option. He says the biggest danger facing the global economy is "the new stagnation". This could come about if American consumers crack and, instead of supporting recovery by doing their thing in the shops, they cut spending, rebuild their savings and begin to repay their debts - if they can. Consumption would slump and this would reduce growth to a totally inadequate 1.5% for 2003 - hence Wall Street's obsession with consumer confidence indicators.

The business side of the economy cannot help. It is too busy cleaning up its balance sheet and trying to restore profits in a post-bubble economy saddled with excess capacity, limited pricing power and nervous banks. Indeed, business will probably make things worse by cutting costs and laying-off more workers.

That in turn hits confidence again and so things get worse.

The only other hope would be for American exports to get a boost, but that requires people elsewhere to be prosperous enough to buy them. …

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