Speaking to international finance officials and economists in Jackson Hole, Wyoming, new IMF managing director Christine Lagarde warned that the world economy is in a “dangerous new phase” and that officials must take new steps to strengthen growth.
The US should arrest the slide in house prices and European banks must be boost capital to prevent the continent’s debt crisis from infecting more countries, while the US and EU need to enforce long-term budget discipline to free up cash for short-term stimulus, she said.
“We risk seeing the fragile recovery derailed,” Lagarde, 55, said. “So we must act now.”
Lagarde spoke near the end of a month when the value of global -equities dropped by US$5.7 trillion on concern global growth is slowing and governments will be unable to tackle sovereign debt burdens.
UBS AG and Citigroup Inc cut their forecasts for the expansion of the world economy and predicted major central banks will leave interest rates on hold through next year.
The slowdown provided the impetus for three days of debate at the conference, with US Federal Reserve Chairman Ben Bernanke saying the US central bank still has tools to boost its economy, without specifying what they were or whether they would be deployed.
“The stakes for the world economy are high,” said Allen Sinai, president of Decision Economics in New York, who put the odds of another global recession at 30 percent.
Europe is struggling to contain a sovereign debt crisis that is nearing its third year and has left many banks from Spain to Greece in or close to insolvency. Stress tests on 90 European banks published on July 15 showed eight lenders had a combined 2.5 billion euro (US$3.6 billion) capital shortfall, failing to ease concerns that many of them remain vulnerable to a potential sovereign default.
Without an “urgent” re--capitalization, “we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis,” Lagarde said.
Bolstering banks’ -balance sheets “is key to cutting the chains of contagion,” she said.
The former French finance minister said re-capitalization needed to be “substantial” and called a mandatory move “the most efficient solution.” Banks should seek funds in financial markets first and later public money if necessary, including from the 440 billion euro European bailout fund, she said.
European Central Bank (ECB) President Jean-Claude Trichet echoed Lagarde’s call for banks to strengthen their balance sheets, while saying any talk of a liquidity crisis is “plain wrong” because his institution had taken steps to aid banks, offering them unlimited cash for up to six months.
Attending his final Jackson Hole conference before retiring in October, Trichet, 68, avoided mentioning the debt crisis at length, preferring instead to defend the euro against critics who say its members are too diverse to unite under a single currency.
While Lagarde urged lawmakers to shrink budget deficits over time, she said they could still take steps now to stimulate expansion. Making European budgets more sustainable “does not necessarily mean drastic upfront belt--tightening,” because by addressing long-term risks such as rising pension costs governments will have more leeway in the short-term to fund policies that support job creation, she said.
That is also true in the US, where Lagarde called for “decisions on future consolidation — involving both revenue and expenditure.” She also called for more aggressive policies on housing to halt “the downward spiral of foreclosures, falling house prices and deteriorating household spending.” These could include reducing principal payments for homeowners or helping them refinance mortgages at lower interest rates, she said.
Central bankers should also keep monetary policy “highly accommodative, as the risk of recession outweighs the risk of inflation” and should stand ready “to dive back into unconventional waters.” The Fed this month pledged to keep its key interest rate near zero until at least mid-2013.
Emerging economies have a part to play too, Lagarde said, adding that some “key” nations are curbing domestic demand and preventing their currencies from strengthening. Such steps prevent emerging markets from making a bigger contribution to global growth.
“Everyone should recognize that decoupling is a myth,” she said. “If the advanced countries succumb to recession, the emerging markets will not escape.”
purpose: Tesla’s CEO sought to meet senior Chinese officials to discuss the rollout of its ‘full self-driving’ software in China and approval to transfer data they had collected Tesla Inc CEO Elon Musk arrived in Beijing yesterday on an unannounced visit, where he is expected to meet senior officials to discuss the rollout of "full self-driving" (FSD) software and permission to transfer data overseas, according to a person with knowledge of the matter. Chinese state media reported that he met Premier Li Qiang (李強) in Beijing, during which Li told Musk that Tesla's development in China could be regarded as a successful example of US-China economic and trade cooperation. Musk confirmed his meeting with the premier yesterday with a post on social media platform X. "Honored to meet with Premier Li
Dutch brewing company Heineken NV on Friday announced an investment of NT$13.5 billion (US$414.62 million) over the next five years in Taiwan. The first multinational brewing company to operate in Taiwan, Heineken made the statement at a ceremony held at its brewery in Pingtung County. It also outlined its efforts to make the brewery “net zero” by 2030. Heineken has been in the Taiwanese market for 20 years, Heineken Taiwan managing director Jeff Wu (吳建甫) said. With strong support from local consumers, the Dutch brewery decided to transition from sales to manufacturing in the country, Wu said. Heineken assumed majority ownership and management rights
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI