10 Global Economic Challenges report focuses on the most critical issues facing America’s 44th president. From restoring financial stability to establishing a U.S. policy on climate change and engaging the emerging economic powers, the report contains timely analysis and recommendations by Brookings leading global economic experts.
A global sell-off set in motion by losses on Wall Street came back home on Friday morning, sending markets in New York sharply lower.
The Dow burrowed even lower, a day after it recorded at its lowest close in six years. Gold prices flirted with $1,000 an ounce. And markets from Hong Kong to London fell sharply on more glum economic data and a round of disappointing corporate news, including the bankruptcy filing of the automaker Saab.
“You can look at everybody’s trading screen and see nothing but red,” said Tim Smalls, head of United States stock trading at Execution LLC in Greenwich, Conn.
At 10:45 a.m., the Dow Jones industrial average was down 65 points to 7,402, while the broader Standard & Poor’s 500-stock index was off o.8 percent. The technology-heavy Nasdaq fell essentially unchanged.
Financial stocks slid the farthest, with shares of Bank of America falling below $3.35 a share and Citigroup sinking to less than $2.10 a share — a tenth of what it cost a year ago.
Analysts said that fear and uncertainty were driving trading once again. They said investors remained skeptical about the Obama administration’s plan to shore up the banking system and were uncertain that the $787 billion economic stimulus package would be able to prop up the floundering economy.
The Dow Jones Euro Stoxx 50 index, a benchmark for the euro region, was down 3.6 percent in late-afternoon trading, to its lowest level at least five years. The DAX in Frankfurt slid 3.6 percent as investors shed financial and industrial stocks, while the CAC 40 in France was down about 3 percent and FTSE 100 in London fell 2.4 percent.
“We thought the low points of last fall were behind us, but we seem to be in for more disappointments,” said Vincent Juvyns, a strategist at ING Investment in Brussels. “The markets have lost all sense of direction, which makes it hard to take a position.”
Jean-Claude Trichet, president of the European Central Bank, said Friday that markets were experiencing an “ongoing correction,” but would not put a timetable on when the crisis might lessen.
“We have to be very cautious in qualifying the duration,” Mr. Trichet told the European American Press Club.
The Labor Department reported that consumer prices had increased 0.3 percent in January, rising for the first time since July. The increase eased fears that the American economy was heading into a deflationary spiral of lower prices and lower economic growth, but consumer prices remained flat year-over-year, a sign of continuing pressure on prices as the recession deepens.
“It’s not terrible to see a break in the disinflationary spiral we’re in even if such a break is only temporary,” Dan Greenhaus, an analyst with the equity strategy group of Miller Tabak & Company, wrote in a note.
Corporate news across the region seemed to confirm fears.
Anglo American, the mining giant, was down nearly 16 percent by midday after announcing it would cut 19,000 jobs, or a tenth of its work force, and suspend dividend payments for 2008 as its business deteriorated on weak global demand.
In France, Compagnie de Saint-Gobain, which supplies construction materials, tumbled 16 percent after announcing it would seek to sell shares to raise 1.5 billion euros, or $1.9 billion, in capital, while confirming yet more job cuts.
And UBS, the Swiss bank, is facing more problems with prosecutors in Washington. A day after the bank agreed to pay $780 million to settle claims that it defrauded the Internal Revenue Service, the federal government went to court seeking the release the names of 52,000 wealthy clients. UBS shares fell more than 16 percent at midday, after rallying almost 5 percent Thursday on news of an initial settlement.
AXA, on of the largest insurers in Europe, was down nearly 14 percent in Paris after Standard & Poor’s downgraded its credit rating, citing uncertain earnings.
The Swedish automaker Saab filed for bankruptcy to seek protection from its creditors after General Motors said it would cut ties with the company after decades of losses.
“We’re at a stage in the economic cycle where we have to prepare for the worst,” Mr. Juvyns said. “Companies are firing to cut costs, since we face a contraction in G.D.P. for the first half of the year.”
Arnaud Cayla, a fund manager at Barclays Asset Management France in Paris, said that while most companies would survive the crisis, they would have to adjust to lower demand.
“We’re flirting with deflation,” Mr. Cayla said, “but it’s still too early to say.”
Discouraging economic news for the euro zone added to the slide. The purchasing managers’ index, which estimates business activity, showed the downturn accelerating in the first weeks of February in the 16 nations that share the euro. The index is based on a survey of purchasing managers by Markit Economics.
The composite index of activity in services and manufacturing slipped to 36.2 in February, from 38.3 in January, with services hit hardest. Any number below 50 indicates an economic contraction.
In Britain, the Council of Mortgage Lenders reported Friday that 40,000 people had lost their homes in 2008, an increase of 54 percent on a year earlier, and the number is expected to nearly double in 2009 to 75,000.
“The next trap for the financial markets is state debt,” Cayla said. “We’re concerned about the health of governments, and what their signatures mean.”
Asia saw a less dramatic sell-off, led by the Kospi index in South Korea, which fell 3.72 percent dragged down by financial and industrial stocks. In Japan, the Nikkei 225 slipped 1.6 percent, with equities in banks, retail and communications falling furthest. The Hang Seng in Hong Kong dropped 2.49 percent, with financials there also seeing the heaviest losses.
The top 10 global economic issues, as identified and ranked by Brookings Global, include:1
1.Restoring Financial Stability
With U.S. financial troubles at the center of the current global vortex, the U.S. has important obligations to strengthen the global financial system, including by enhancing financial regulation and diminishing reliance on foreign credit.
2.Setting the Right Green Agenda
Adele Morris and Peter WilcoxenFor the U.S., it is time to muster the political will to act on climate change at the national level while also working to forge international agreement so that markets and regulatory policy will provide a consistent set of incentives to wean the economy from carbon foundations.
3.Exercising Smart Power
Investing in the education, health, livelihoods, and the security of the world’s poorest not only makes Americans feel good about themselves but also makes the world feel good about America. It is critical to increase not only resources but also the impact of each dollar spent.
4.Reimagining Global Trade
Americans feel most secure about global engagement when they are well equipped to compete and have insurance against economic risks. This requires vigorously enforcing the trade rules and investing in economic competitiveness.
5.Navigating China’s Rise
On issues such as climate change, enforcement of trade rules and exchange rate adjustment, where the stakes are simply too high to ignore, America should look for cooperative mechanisms to advance its goals where possible but continue to press bilaterally with China and better deploy regional and international mechanisms where necessary.
6.Deciphering “Russia, Inc
Difficult as it may be to accomplish, America nonetheless has significant interests in alternately coaxing and goading a resurgent, resource nationalist Russia toward international norms and cooperation on energy, trade, financial integration and security more broadly.
7.Engaging an Emerging India
America has enormous interests in India’s successful integration into the global economy as the world’s most populous democracy engages in the task of lifting hundreds of millions out of poverty. America must look for areas of cooperation where possible and deepen bilateral engagement broadly in order to make progress on its agenda.
8.Revitalizing Ties to Latin America
by Mauricio Cárdenas and Leonardo Martinez-Diaz
America must become a stronger partner to its neighbors and engage on issues of mutual concern, including on energy, environmental protection, economic competitiveness and social policies.
9.Supporting Africa’s Growth Turnaround
America can become a stronger and steadier partner to Africa as it navigates economic challenges by supporting global standards for natural resource management, opening markets to African products, supporting vibrant private enterprises, supporting African efforts to enhance regional security and build resilience to climate change, and both increasing and improving the quality of development assistance.
10.Pursuing a Positive Agenda for the Middle East
America can build partnerships in the Middle East based on trust and mutual respect if it aligns its agenda on economic and political reform with the aspirations of the majority of the region’s people: the young who are striving for opportunity and global integration.
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