Global economy week ahead: Eyes thanks

Nov 19 2012, 12:10 IST
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SummaryThis Thanksgiving, with impact of 2008 financial crisis refusing to fade, will not feel like a time to celebrate.

With every year that passes, fewer and fewer people lead a life that is poor, nasty, brutish and short. So it is only right to step back, as America does this Thursday, to appreciate the bounties bestowed by economic progress.

Yet this Thanksgiving, with the impact of the 2008 global financial crisis refusing to fade, will not feel like a time to celebrate.

In Europe, another week brings another meeting of finance ministers to try to 'save' Greece as well as another set of surveys likely to show the euro zone heading for another quarter of recession.

And in the United States, despite warm words after talks on Friday, worries about the capacity of politicians to put the public finances on a sustainable footing are sure to persist.

Ward McCarthy, chief financial economist at Jefferies in New York, said he was sceptical of the consensus that Democrats and Republicans would strike a budget bargain by the year-end deadline for the two sides had painted themselves into corners.

He said it was important to distinguish between the compromises needed to dodge the immediate 'fiscal cliff' - a mix of tax increases and spending cuts set to take effect in January - and a long-term deal to slash the deficit.

It's virtually impossible to get a long-term budget deal done before the end of the year. The fiscal cliff doesn't end the process; it's just the beginning. So we still have the threat of another credit downgrade hanging over our head, McCarthy said.

Joe Carson, an economist at AllianceBernstein in New York, shares those concerns; a short-term fix would not provide the clarity that businesses and consumers need.

And without a legislative solution to the federal deficit and ever-rising federal debt problem, the U.S. runs the risk of another credit rating downgrade, with the added costs and uncertainty that could also weigh on economic growth prospects for years to come, Carson said in a note.

Europe's troubles

Leaders of the 27-member European Union will hold a two-day meeting in Brussels this week to try to thrash out a long-term budget of their own. Tempers can be expected to fray.

Of greater immediate importance, however, will be talks on Tuesday among euro zone finance ministers to try to agree with the International Monetary Fund on a stop-gap financing programme for Greece.

Athens is drowning in debt and needs a new write-off, the IMF and virtually all private economists say. But that is politically taboo before

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