IMF and World Bank Insist on International Lending to Aid Eurozone
Economies
During the week, the International Monetary Fund (IMF)
approached its member nations to contribute an additional $500 billion
to meet the projected $1 trillion worth of bail-out funds likely to be
demanded over the next two years. The IMF estimates that due to fiscal
nightmares plaguing eurozone economies and others it will need to be
proactive in lending to troubled nations. The U.S. and U.K. have already
noted their hesitation to lend additional funds to the IMF as internal
political pressure mounts to balance budgets in both countries.
On Wednesday, the World Bank warned the world's economic and political leaders of slower than anticipated global GDP growth in 2012 down to 2.5%. In presenting the Bank’s forecast, Andrew Burns, Manager of Global Macroeconomics at the World Bank, stated "the situation worldwide has deteriorated significantly since June." Furthermore, the World Bank was adamant that if funds were withheld from troubled eurozone economies, the global growth forecast could be sharply lower. The World Bank estimates that developing economies, in particular, could be hit relatively harder than expected due to falling capital flows and production, rising interest rates, and widening credit spreads. Given these trends, the report stated that developing economies should expect slower growth than in recent years. The World Bank projects 2012 growth in developing economies at 5.4%, marking the second lowest rate in the past 10 years.
U.S. Data Continues to Boost Sentiment
On Thursday, U.S. jobs
data released by the Bureau of Labor Statistics showed that jobless
claims dropped by 50,000 to 352,000 for the week ending January 14, the
lowest mark in nearly four years. U.S. inflation also gave cause for
optimism as the Consumer Price Index (CPI) stayed flat for a second
consecutive month despite most economists predicting a modest rise of
0.1%. If inflation were to continue a downward or flat trend, the U.S.
Federal Reserve would be more likely to consider another round of
quantitative easing.
U.K. Market Moves
In London, the FTSE
100 slipped into the red on Friday, such that the week's performance
was trimmed down to 1.6% by close of play. Natural resource plays and
financials had been the main forces of market momentum throughout the
week, with hopes for the eurozone fuelling a banking
sector rally on Thursday, while Essar Energy (ESSR)
suffered a turbulent week among commodities on the back of some
expensive tax news. Carnival (CCL)
also remained in the headlines and in the red on the FTSE 100 as the
rescue operation of its Costa Concordia cruise liner continued offshore
Italy.
