The global economy seems to take two steps forward followed by one or two steps back, and it mostly has to do with Europe. Each time the Eurozone starts to seem more stable, the crisis rears its ugly head again. The result is downward movement of European economic activity and increased uncertainty. Both of these factors, in turn, have a negative impact on growth everywhere else. Today, we are seeing deceleration of growth in most of the world's major economies. We are seeing new policy responses in some markets, changing direction of interest rates and currencies, and a higher degree of uncertainty than at almost any time in recent memory. Once again, we attempt to make sense of a confusing situation.
In this edition of the Global Economic Outlook, we begin with Alexander Börsch's take on the Eurozone crisis. Of course, this is a moving target with significant news taking place every few days. Consequently, Alexander offers an analysis of the conflicting forces at work in the search for a solution. Specifically, he highlights the conflict between the economic logic of further fiscal and financial integration and the politics and decision-making process of the full European Union. He concludes that the nature of the EU means that reforms will only take place in small steps. In other words, reforms will entail kicking the can down the road, which as Alexander points out, "is not necessarily a bad thing if the can is kicked in the right direction."
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Global Economic Outlook: Q3 2012 (PDF)
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