30 October 2008
Deflation could well be the next major concern for economies across the world in the coming year as most global economies grapple with a grim financial and economic scenario, which is likely to deteriorate further, a senior official of Standard Chartered Bank said.
Dr Gerard Leyons, Chief Economist, Group Head of Global Research, Standard Chartered Bank, projected a further downfall specifically in the United States and the United Kingdom economies.
Leyons said in spite of some "helpful factors" in the year ahead such as correction in oil prices, a likelihood of lowered rates and cheaper mortgages, the outlook is grim. "We can't stop the recession that is about to hit us. But despite best efforts to stabilise the financial crisis, the economic situation will still deteriorate."
As further reductions in interest rates take place, worries pertaining to inflation are replaced by fears of deflation. "In fact, by this time next year, deflation may be the major concern. That is both because of the intense competitive pressure evinced in global supply chains and the deflationary pressures resulting from the financial crisis."
Talking about the correction in oil prices, he said that oil producers were not yet suffering from the recent correction in oil prices because many countries have budgeted oil prices not too far from previous levels, or even lower.
Considering the difficulties they may face in raising liquidity, the oil producers would require to open up their markets, he added.
"Because of the financial crisis, many oil producers will find it harder or costlier to attract capital, thus pushing up the cost of production. This many oil producing counties will need to open up their markets to attract capital inflows."
Adding that official interest rates in economies such as US and the UK could be expected to decline further by 0.5 per cent and more, Dr Leyons said the outlook for Europe too was poor.
Mentioning emerging economies, he said the outlook was grim but "it is better than the West". "Those able to cope up will be those with high savings and sound fundamentals," he added.
He said the region that looked the most vulnerable in the crisis was Europe with its large current account deficits, dependence on foreign money for financing, high levels of debt, rapid credit growth and badly exposed banking sectors.
Africa, he added, was resilient, not having overstretched itself during the boom. "But even so the region will slow."
He said the potential volatility of economies such as India and China could not be overlooked.
"Emerging economies face a tough next twelve months. A deep US recession, a sharp global slowdown, a significant downturn in world trade, the heat taken out of commodity markets. All of these will add to a difficult external climate for emerging economies."
Deflation could well be the next major concern for economies across the world in the coming year as most global economies grapple with a grim financial and economic scenario, which is likely to deteriorate further, a senior official of Standard Chartered Bank said.
Dr Gerard Leyons, Chief Economist, Group Head of Global Research, Standard Chartered Bank, projected a further downfall specifically in the United States and the United Kingdom economies.
Leyons said in spite of some "helpful factors" in the year ahead such as correction in oil prices, a likelihood of lowered rates and cheaper mortgages, the outlook is grim. "We can't stop the recession that is about to hit us. But despite best efforts to stabilise the financial crisis, the economic situation will still deteriorate."
As further reductions in interest rates take place, worries pertaining to inflation are replaced by fears of deflation. "In fact, by this time next year, deflation may be the major concern. That is both because of the intense competitive pressure evinced in global supply chains and the deflationary pressures resulting from the financial crisis."
Talking about the correction in oil prices, he said that oil producers were not yet suffering from the recent correction in oil prices because many countries have budgeted oil prices not too far from previous levels, or even lower.
Considering the difficulties they may face in raising liquidity, the oil producers would require to open up their markets, he added.
"Because of the financial crisis, many oil producers will find it harder or costlier to attract capital, thus pushing up the cost of production. This many oil producing counties will need to open up their markets to attract capital inflows."
Adding that official interest rates in economies such as US and the UK could be expected to decline further by 0.5 per cent and more, Dr Leyons said the outlook for Europe too was poor.
Mentioning emerging economies, he said the outlook was grim but "it is better than the West". "Those able to cope up will be those with high savings and sound fundamentals," he added.
He said the region that looked the most vulnerable in the crisis was Europe with its large current account deficits, dependence on foreign money for financing, high levels of debt, rapid credit growth and badly exposed banking sectors.
Africa, he added, was resilient, not having overstretched itself during the boom. "But even so the region will slow."
He said the potential volatility of economies such as India and China could not be overlooked.
"Emerging economies face a tough next twelve months. A deep US recession, a sharp global slowdown, a significant downturn in world trade, the heat taken out of commodity markets. All of these will add to a difficult external climate for emerging economies."
© Emirates Business 24/7 2008
