According to a white paper released by UBS for this week’s World Economic Forum in Davos, the world economy remains as unbalanced today as it has been over the past quarter century – with big implications for the global economic recovery. The authors argue that the adjustment of current account imbalances in the world economy was mostly a function of recession, not shifts in competitiveness. Large current account deficit countries restored external equilibrium at the cost of domestic disequilibrium, so output plummeted and unemployment soared.
Mark Carney, Bank of England governor, has signalled that his policy of linking interest rates to the unemployment rate will be buried less than six months after its birth. He said the British economy was “in a different place” from last summer. Mr Carney flagged the U-turn at the World Economic Forum in Davos, letting the news emerge in a series of television interviews where he said that unemployment alone would no longer guide policy. Although his big idea for monetary policy bit the dust, Mr Carney said the BoE had no plans to raise interest rates “immediately”. He will outline his views fully in a speech on Friday. (Financial Times)
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According to a white paper released by UBS for this week’s World Economic Forum in Davos, one of the surprising factors ‘reshaping the world’ – the Davos theme this year – is an aggregate absence of austerity among governments globally. Viewing the global economy as a single unit, the authors see a very different picture to the post-crisis world of austerity. Indeed, the two largest components of global GDP, namely private consumption and fixed investment, both hit multi-year peaks in the first quarter of 2008. The ensuing recession was arguably made less severe by the ongoing rise in government consumption.