Christine Lagarde, Managing Director of the International Monetary Fund (IMF), stated that the current global crisis is worse than the financial meltdown in 2009. A report from the Associated Press quoted Lagarde saying that we can no longer afford to deal only with the situation inside our national borders, because the world economy is interconnected. According to her, “This crisis does not recognize borders. This crisis is knocking at all our doors.”
Lagarde’s statement is true, as proven by the existing European Debt Crisis. When some of the member states of the European Union (EU) including France, Ireland, Spain, and Greece suffered debt crisis, the 17 members of the euro currency were dragged into a recession. The fast growing economies of China, India, and Brazil slowed down, and the slowly reviving economy of the United States is again under pressure.
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According to report, the IMF lowered its 2012 worldwide growth forecast to 3.5 percent due to the ongoing sluggishness of the global economy. Last July 16, the monetary fund once again cut its growth rate forecast for 2013 from its previous 4.1 percent estimate to 3.9 percent. According to a report from the New York Times, the IMF was not satisfied with the policy actions implemented European Union, to resolve its sovereign debt crisis. The monetary fund also reduced its growth rate expectations for the United States Economy for 2012 and 2013, to 2 percent and 2.3 percent respectively.
The monetary fund emphasized the Eurpean Union’s need to create adequate policies to resolve the debt crisis in the area, by implementing a stronger banking union, including cross continental guarantor of deposits, structural reform to improve growth prospects, and additional monetary easing. The monetary fund also recommended for EU to implement better plans to cut the budgets of its member states undergoing difficulties in convincing global investors, regarding its financial stability.
The European debt crisis affected consumer confidence worldwide. Sales of companies in different sectors worldwide fell, such as Advanced Micro Devices, Inc. (NYSE:AMD) and SanDisk Corporation (NASDAQ:SNDK). Both companies reported disappointing earnings during the second quarter of 2012. AMD’s earnings fell by 11 percent while SanDisk’s revenue plunged by 25 percent. Italian automaker, Fiat’s, earnings during the first quarter of 2012 by approximately $260 million, while French automaker PSA Peugeot-Citroen will cut 8,000 jobs.
In order to counter the impending global crisis, the Central Banks of Brazil, Britain, China, Denmark, Europe, and South Korea cut their interest rates during the previous months to push economic growth. The recovery of the United Economy was stalled, and its unemployment rate remained at 8.2 percent.
Ray Dalio, founder and CEO of Bridgewater Associates, the worlds largest hedge fund, also stated previously that the world economy is at its worst since 2009. He pointed out that global bonds weakened, and yields fell by 49 percent.