Global economic growth concerns cast ongoing shadow and Europe could 'crumble,' but US and China outlooks are increasingly positive, economist tells Hawkins Wright/BWPA audience in London
November 13, 2012
(Industry Intelligence Inc.)
– The following report is from a speech presented on Nov. 8 at the thirteenth annual British Wood Pulp Assn./Hawkins Wright Symposium during London Pulp Week. The five speakers specifically addressed the global economy, trends in fine paper and tissue, the outlook for market pulp, Chinese pulp and paper trends, and the future of the print medium. Industry Intelligence has posted reports today on each of the five presentations.
Economic issues will continue to cause difficult times around the world, with some regions more vulnerable than others, said Professor Andrea Boltho, emeritus fellow at the University of Oxford.
Boltho said there are “dark clouds on the horizon” in Eastern Asia, North America, and Europe but he said he doesn’t see a recession in the U.S.
Europe could see a minor recession “or there is a possibility the whole edifice will crumble,” he said.
China is unlikely to have a hard landing, given that this is a year of political change and also that the country has hardly any debt, he said.
Boltho noted various improving economic indicators in the U.S. and said its economy is likely to continue growing by 2.5% and possibly 3% over the long term. The U.S. “has amended many of its ways,” banks are lending again, and it is improbable that it will experience a fiscal policy disaster, he said.
But a breakdown in Europe “is unfortunately possible,” he said, citing the possibility of an increasing slowdown and weakness over the next six months. European loans to business are declining and housing prices will continue to fall, which is adding to the weakness, he said. “We haven’t adjusted as well as Americans have,” he said. “People are clearly worried about what’s going to happen.”
In theory, the European Central Bank (ECB) can prevent the contagion from spreading, It can increasing the supply of money—the recently announced Outright Monetary Transactions program goes in this direction—as the U.S. has done. This “is not inflation,” Boltho said. “The Germans are wrong.”
He said the immediate problem is one of deficits and debt in a number of Southern European countries, which are seen as excessive by financial markets. Though the easiest way to eliminate both is to have both inflation and growth, “Unfortunately, neither are forthcoming,” he said.
The situation is complicated by the differences between the wealthier North and the poorer South as well as within the wealthier and poorer regions of individual European countries, Boltho noted.
Cutting people’s wages has led to debt, which brings up the question of who finances it, he said. “The gap remains constant despite aid from Northern Italy to Southern Italy. The fear is that it would be the same in the Eurozone,” he said, noting that furthermore, since the euro came into existence, Southern Europe has lost competitiveness. “The North would rebel to pour money into these countries,” he said.
The difference in governing standards between Northern Europe, where there is more of a presence of the rule of law, and Southern Europe, where there is more corruption, is another factor making it hard for the former to stomach aiding the latter, he said.
But if the euro were to survive only in Northern Europe, there would be “very nasty consequences,” comparable to the crisis that unfolded with the Lehman Brothers meltdown, Boltho said.
He said he was originally in favor of a European Union, but, “Now I’m not so sure.” The European Union was fine as long as it meant free trade, but that the monetary union created great problems, he said, concluding that the European Union lacks democracy and its very survival is threatened.