There seems to be pessimism in the air regarding the economic prospects of the West and by extension the world. In its recent report, the Organization for Economic Co-operation and Development (OECD) revised downward its estimates of growth for many countries. It lowered the overall growth rate forecast of the Euro Zone for 2013 and 2014 each by 0.5 per cent. For the entire OECD, the forecast has been lowered by 0.6 per cent for 2013 and 0.2 per cent for 2014.
We hear the same pessimism from economists and experts. In his talk at a conference honoring Stanley Fischer at the International Monetary Fund, Larry Summers noted that in order to achieve full employment, the interest rate has to be at a “natural level”. However at present, he contended, that rate is negative. But the Federal Reserve cannot possibly set the nominal interest rate below zero. Similar sentiment was shown by two Nobel laureates, Joseph Stiglitz and Paul Krugman, in a recent interview with the BBC.
Needless to say, we are living in a globalized world and if the United States and the Euro Zone experience economic stagnation, it will affect other countries around the world. Many economies including China, South Korea, and Japan would be affected by the sluggish demand for their exports. Similarly, many developing countries have to rely on export promotion at the first stage of economic growth.