The Globalization and Monetary Policy Institute (GMPI) at the Federal Reserve Bank of Dallas just released its most recent International Economic Update today. One bright spot in this report comes from the chart below that forecasts that the global economy (as represented by the U.K., Euro-area, and Japan) will return to positive growth in the second quarter of 2009. I think this forecast, taken from Consensus Economics, might be a little overly optimistic.
Another bright spot is that the LIBOR-OIS spreads--which are a measure of how much riskier corporate commercial paper (short-term loans) are than the risk-free government counterpart--are decreasing from their highs. The chart below shows that the spreads are still much higher than their July 2007 to September 2008 average, which was in turn much higher than the previous average. But the rates are clearly showing a downward trend from what we saw in October 2008.
One large risk on the horizon that the report addressed was global deflation. The chart below shows that most inflation forecasts for the largest world economies have been revised downward significantly in the last month. Japan is the only large economy expected to experience deflation for the year 2009. I noted in a previous post that deflation is a risk in the U.S. that could cause a downward feedback effect on the U.S. economy and therefore on other countries as well. Again, we'll be watching closely to see what the core CPI number looks like when it comes out on January 16, 2009.
One large risk on the horizon that the report addressed was global deflation. The chart below shows that most inflation forecasts for the largest world economies have been revised downward significantly in the last month. Japan is the only large economy expected to experience deflation for the year 2009. I noted in a previous post that deflation is a risk in the U.S. that could cause a downward feedback effect on the U.S. economy and therefore on other countries as well. Again, we'll be watching closely to see what the core CPI number looks like when it comes out on January 16, 2009.
