Politics
IMF says South Africa should use mining revenues to fund infrastructure and other developments
Slow but sure recovery
Blanchard went on to say, “I don’t have the kind of worries I have had for the last five years. My worries at this stage are milder.” His short-term worries include deflation in the euro area and a “hard landing” for China. If current low interest rates in the euro area should fall further and lead to a deflationary spiral, the real value of debt would increase.
This would make it more difficult to borrow and sustain debt and force a stop to personal and corporate lending. Blanchard said that the IMF does not expect a downward spiral of deflation (only a few euro countries have interest rates below zero) but he didn’t want to exclude it. Blanchard stated, “Central banks should do everything they can to avoid it.”
Meanwhile, a serious slowdown (“hard landing”) in China’s growth is unlikely, as banks could handle high loans (currently at 150 percent of GDP). For every 1 percent China lost in growth, EMs would lose 0.2 percent, Blanchard pointed out. Blanchard then concluded, “My baseline scenario is recovery and lower levels of unemployment. Although this will not be to levels one might dream of, recovery in growth would not have been my baseline three years ago.”
Source: Moneyweb
