(The Hindu) Global Slowdown: Sobering reflection from Davos.
• China’s stock market turbulence and the impact its growth slowdown is having on the global economy were dominant themes at the annual World Economic Forum .
• A modeling study done by Oxford Economics posits that a 10 per cent decline in the value of the Chinese currency against the dollar by the third quarter of 2016 — if accompanied by resultant competitive devaluations among emerging market peers — could roil economies and markets worldwide, with the eurozone and Japan projected to be the hardest hit.
• The domino effect could retard global growth by 0.2 per cent and hurt countries including the U.S., Brazil, Russia and India. Interestingly though, the same study projects that China would have little to show by way of gains from the yuan’s weakness, lending credence to the Chinese authorities’ assertions that they are not interested in engendering a scenario of competitive devaluations.
• Still, that second-order effects of what happens in China will be hard to hazard a guess about has already been proven by the recent volatility seen in markets worldwide. And the brave words of regulators notwithstanding, central bankers are running out of ammunition. As Reserve Bank of India Governor Raghuram Rajan said, monetary easing may have run its course and reached the limits of efficacy as a policy tool.
• The other key takeaway from this year’s meeting at Davos was showcased in Pope Francis’s admonition to the global political and economic elite to reflect on their own role in creating inequality.
• An Oxfam study, released ahead of the WEF meet, said the richest 1 per cent owned as much wealth as the remaining 99 per cent combined did, with the gap in wealth widening even faster than anticipated. With politicians across continents and the entire ideological spectrum, from the far-right to the far-left, focusing their rhetoric and stances on the growing rich-poor divide and seeking to tap the burgeoning discontent for electoral gains, the Pope’s call to the wealthy and powerful to act to help address the inequality lends a powerful moral edge to the issue.
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