Recession is unlikely in the eurozone and a “welcome” drop in the value of the euro should help offset the toll that debt-shrinking austerity measures take on economic growth, the Organisation for Economic Co-operation and Development’s (OECD) chief economist said.
Pier Carlo Padoan argued in an interview with reporters that governments need to step up fiscal consolidation, combine that with growth-increasing reforms of pension systems, labor and other markets, and show they are working in unison to convince skeptical financial markets that their strategy is credible.
Even if austerity hits growth, it would be partly offset by Asian-led demand for eurozone exports, made more competitive by the drop in the euro’s exchange rate, he said.
The euro exchange rate versus the US dollar has fallen in the region of 14 percent this year, while its trade-weighted value has slipped more than 10 percent, according to a measure the European Central Bank (ECB) watches closely.
The Paris-based OECD yesterday issued new forecasts predicting a post-recession recovery led by China and other emerging markets. It forecast 1.2 percent growth this year and 1.8 percent next year in the 16-country eurozone, more than the 0.9 and 1.7 percent it forecast in November last year, but less than projected for the US, Japanese and British economies.
“Is there going to be a double-dip [recession] in Europe? I don’t think so,” said Padoan, who said massive debts following the 2007-2009 global recession were “not just a European story,” but one that Europe was about to tackle faster than others.
“European growth is already slow. Unless there’s another recession, which I would rule out, it’s going to be a little less of a small amount,” Padoan said.
If foreign demand from China and other emerging economies continued and North America’s recovery was as solid as it was now looking, eurozone exporters stood to do well from rising foreign demand, helped by a weaker euro exchange rate.
“If you combine the two — high growth in Asia and a weaker euro — that could add quite a boost to European exports,” Padoan said. “The weak euro, in the short to medium-term, is a welcome development.”
“In any case, it would be good for the global economy if ... nominal exchange rates changed a little bit. The euro certainly has been overvalued for some time and the renminbi has certainly been undervalued for some time,” he said.
He said he believed the US dollar could rise again in the not-too-distant future in line with relatively better economic growth forecasts than those of Europe.
On monetary policy, the twice-yearly report in which the OECD updated its macroeconomic forecasts said central banks should take account of the extra fiscal sacrifices governments were being forced to make — meaning they should not move too fast to raise interest rates, currently very low.
“Given the inflation outlook, in terms of output gaps, it’s ... very difficult to argue for higher rates in the short term,” Padoan said.
The OECD recommends that the US Federal Reserve hold off on policy rate rises until late this year, then raise them to 3.75 percent by the end of next year. Japan’s central bank should leave rates as they are this year and next and the ECB stay on hold this year, thereafter raising its key policy rate for the eurozone from 1 percent to 2 percent by the end of next year.
“[Fiscal consolidation] is going to be faster in Europe and therefore monetary policy should be on hold — also, given the favorable inflation scenario there,” he said.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique