Wednesday, November 28, 2012

STAGNATION IN THE FORECAST



With news that some European countries are moving into their third recession in five years, the fiscal cliff in the United States, the faltering economy in Japan and recession in Germany are indicators that a deeper global recession is in the works.

I can not fight this sinking feeling as the headwinds seem to be ramping up for a perfect storm. The effects of budget cuts in Eurozone countries already in crisis have been much higher than assumed. The fiscal multiplier has resulted in an austerity strategy where the medicine appears to be killing the patient.

The IMF’s latest World Economic Outlook Update downgrading it’s overly optimistic predictions for the fourth quarter of 2012 and 2013 appears to be a harbinger of the tough road ahead.

The OECD said in its latest Economic Outlook, Global growth is set for a sharp slowdown next year. The organization slashed its outlook for the 34-member OECD area, which includes most of the world's industrialized economies, in 2013 to 1.4 percent from a previously expected level of 2.2 percent.

The question for me is when will Canada with its vaunted banking system and great natural resource wealth get pulled into the developing black hole.

With provincial government cuts on the horizon, 2013 was already looking like a challenging year for many in this province. The public sector, depending on the source, employs in the range of 25-30% of the workforce in the province.

If that sinking feeling shakes household and business confidence, the result could be a self-fulfilling prophecy.

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