The IMF urged EU policymakers to deepen the financial and fiscal ties within the eurozone with some urgency to restore sagging confidence in the global financial system.
In its semi-annual check on the world’s financial health, the IMF said the eurozone’s debt crisis was the main threat and the risks to global financial stability had risen in the past six months, leaving confidence “very fragile.”
The eurozone’s plodding progress means European banks are likely to offload US$2.8 trillion in assets over two years to cut their risk exposure, an increase of US$200 billion from a prediction six months ago, the IMF estimated. That could shrink credit supply in the periphery by 9 percent by the end of next year, crimping economic growth.
“Despite many important steps already taken by policymakers, this agenda remains critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline,” the IMF said in its Global Financial Stability Report, released yesterday.
Jose Vinals, director of the IMF’s monetary and capital markets department and the main author of the financial stability report, said Europe’s troubles should serve as a lesson to the heavily indebted US and Japan that delaying the necessary policy adjustments until markets force their hands would lead to “harsher economic outcomes.”
“We should not let the current market conditions, which have improved, lead to a false sense of security,” Vinals said in a press briefing.
The report adds to the gloomy backdrop ahead of the IMF’s semi-annual meeting to be held in Tokyo later this week. On Tuesday, the IMF said the global economic slowdown was worsening as it cut its growth forecasts for the second time since April and warned US and European policymakers that failure to fix their economic ills would prolong the slump.
Risks from the eurozone could also spill into emerging markets, where growth is already slowing. Countries in central and eastern Europe are the most vulnerable to financial shocks, given their exposure to the eurozone and their own entrenched external debts, the report said.
And while the US and Japan have benefited from safe-haven flows away from the eurozone, the IMF said both countries need to do more to reduce their fiscal burdens in the medium term.
The US faces a so-called “fiscal cliff” — government spending cuts and tax rises due to take effect early next year. Japan is carrying the biggest public debt burden among leading industrialized nations at twice the size of its US$5 trillion economy at a time when its social welfare spending is under constant pressure from a rapidly aging population.
“The choice today is between making the necessary, but tough policy and political decisions or delaying them — once more — in the false hope that time is on our side,” Vinals said. “It is not.”
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
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
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San