Thursday, October 2, 2014

Christine Lagarde: Global Economy Weaker than Expected

Here we go. Once again the IMF has to admit the global economy is weaker than they forecasted just six months ago. Below we will paste this full news blurb and then add a comment. Here is the full text of her speech.

"The global economy is weaker than was envisioned six months ago, IMF Managing Director Christine Lagarde said on Thursday.

Lagarde, in remarks prepared for delivery at an event in Washington, said the IMF would reduce its outlook for potential growth. She added that only a modest pickup in global growth is expected in 2015.

"There are some serious clouds on (the) horizon," she said in her remarks.
Lagarde, a former French finance minister, warned it was possible that financial excesses were starting to build up in the system. She also cited the economic risks of the situations in Ukraine, the Middle East and West Africa."

My added comment: This is starting to have the feel of trying to manage public expectations ahead of time. Score one here for Jim Rickards who predicted this forecast would be revised downward.

In the past two months we have warnings from the BIS, the IMF, the G20 and other prestigous organizations about the global economy. Now we have Ms. Lagarde coming out to admit the forecast just six months ago was too rosy and that "it is possible that financial excesses are starting to build up in the system."

We have oil, gold, and silver prices sharply falling. We have the ECB trying to crank up a QE style program in Europe to try and stave off deflation. We have reports that growth in China is starting to drop off. Russia and the west still tied up in sanctions which will hurt growth.

And now we have the Fed indicating it will remove the benchmarks it has been using as a guide to when interest rates will rise (another Rickards prediction). This article suggests the Fed does not want to be forced into raising rates too soon.

All these are warning signs. It is abundantly clear that there is a great deal of official concern about deflation overwhelming the system.  What we have to watch is to see if there will be another massive response to try and stave off deflation (more massive money creation) or if the forces of deflation speed up and overwhelm the efforts to stave it off.

No comments:

Post a Comment