KnowNOW!

Global Economic Watch

Syndication

Recent Posts

Tags

View more

Other Useful Blogs

Archives

  • Lagarde: 'Global Risks Are Rising, But There Is a Path to Recovery'

    While those of us on the East Coast were watching the weather this weekend, top economists from around the globe were still at the Jackson Hole Economic Policy Symposium , listening to the new head of the IMF , Christine Lagarde give what Felix Salmon called "the most important speech of the meeting, by far." Lagarde gave her vision for what European and American leaders need to do to stave off a most damaging double-dip recession. From the speech: Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties. On the first, the idea was that strengthened private sector finances would allow the engine of growth to switch back from the public to the private sector. On the second, the idea was that higher demand in surplus countries would make up for a lower spending path in deficit countries. But the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing. Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed. Developments this summer have indicated that we are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed. So we must act now. It is a matter of vision, courage and timing. Decisive action will bolster the confidence that is required to restore and rebalance global growth. We are not without options. We know what needs to be done to support growth, reduce debt, and prevent further financial crises. But we need a new approach—based on bold political action, with a comprehensive plan across all policy levers, implemented in a coordinated global way. Read the speech here .

  • Laura D'Andrea Tyson on 'Anemic Balance Sheet Recovery' and Jobs Crisis

    At the Economix blog, Laura D’Andrea Tyson says that as some of the world's largest economies try to avoid a double-dip recession, it is important for policy makers to attack the jobs crisis. And the only way to make progress in fighting the crisis, she argues, is to correctly diagnose the cause: As one small-business owner told The Los Angeles Times, “If you don’t have the demand, you don’t hire the people.” And the majority of economists agree on this diagnosis. They also agree that the recovery from a balance-sheet recession can be agonizingly long, with significantly slower growth and a significantly higher unemployment rate for at least a decade. Recent data indicate that the United States is on such a course, and many economists are now drawing comparisons between it and Japan during the two “lost decades” following Japan’s 1989-90 financial crisis and ensuing balance-sheet recession. A recent study by the economist Robert Gordon confirmed that the shortfall in private-sector demand, especially the demand for consumer services, residential and commercial construction, and consumer durables, is the primary cause of shortfalls in production and jobs. Read Recovering From a Balance-Sheet Recession here .

  • Japan's Triangular Trade Problem

    Over at VoxEU.org , Kyoji Fukao and Tangjun Yuan of Hitotsubashi University in Tokyo have an interesting analysis of Japan's particular economic woes. As they point out, the Global Economic Crisis hit Japan especially hard. Its GDP contracted at a rate nearly twice that of the US in the last quarter of 2008. And yet it did not have a bursting housing bubble or a toxic assets problem on anywhere near the scale as the US and Europe. So why is it struggling, it seems, worse than most? The answer, Fukao and Yuan find, is in Japan's "triangular trade" model. Japan's economic strength is dependent on exports to the West--in large part, the US. But it is also dependent on exports to other Asian countries: Until the economic crisis, there was vigorous “triangular trade”, in which the advanced economies of Asia, such as Japan, South Korea, and Taiwan, exported key components to developing countries, such as China, Thailand, or Vietnam, which assembled and exported the final products to the US (and Europe) in return for US Treasuries. The Asian developing countries specialised in relatively low value-added assembly and manufacturing processes, while the advanced countries concentrated on high-value added processes, such as the production of key components. However, the sudden decrease in US imports has very rapidly contracted this triangular trade. US goods imports fell during the last quarter of 2008 at an annual rate of 19.6%. And as developing countries’ exports to the US decreased, so did their imports from Asia’s advanced economies. Japan, South Korea, and Taiwan thus suffered a significant decline in exports. Of course, Japan is not alone in using this model. China does as well. But while China is taking a bigger hit in terms of net exports, its GDP is not contracting at as fast a rate. Fukao and Yuan: Finally, Figures 4 and 5 compare the impact on gross output and GDP, respectively, for the Asian countries. Reflecting the large decrease in exports, the drop in China’s gross output is 1.7 times as large as Japan’s. However, the difference in the impact on GDP is considerably smaller; the decrease in China’s GDP is only 1.3 times as large as Japan’s. This situation is also the result of triangular trade. China is relatively specialised in the processing and assembly of imported intermediate goods using cheap labour, and the products are then exported to the US. However, the value added ratio of this kind of production is typically low, and it is for this reason that the decrease in GDP is smaller than the decrease in gross output. Read the full post here .