Morgan Stanley compares the current crisis to that of the 30 and advises more fiscal spending

08/11/2016

In the case of Chile, in the PMA carried out in Espacio Riesco, the 9 and 10 in November, the economists René Cortázar and Felipe Larraín, who have been State ministers and executives in different national and international companies, will make a diagnosis of the economy and will evacuate their proposals for the world of the agro-fruit industry.

The discussion is set to accurately define the world economic reality, in such a way to also define the possible solutions to the situation with policies or measures that aim effectively to reverse the current situation. In this discussion there are varied positions, from those that speak only of slowdown, others of stagnation and the others, that define it as a global economic crisis.

Economists try to guess its duration and rush to predict its possible term, placing this moment in the 2016 / 17 period, however, very few stop to diagnose its origin.

A group of analysts from the American Morgan Stanley argue that it began in the so-called subprime crisis of the 2008.

It is well known that the economy develops in cycles, which advance from a lower intensity to a peak moment, to decrease again and rise again continuously. The secret is to know when one is rising or falling, and when we reach the peak.

The prestigious financial institution Morgan Stanley predicted through its analysts that, as in the 30 decade, growth would be limited as a result of companies reluctant to spend, the decline of inflationary expectations and the withdrawal of fiscal stimulus by of governments. According to economists at Morgan Stanley, the trigger for the current malaise was the 2008 financial crisis, which left a mark of debt and de-leveraging in a context of stricter banking regulations that exacerbate deflationary pressures.

For this group of economists, the situation is similar to the type of commotion that preceded the depression of the 30 years, so to understand the slowdown of the current global economy we must backtrack and focus on the 29 crisis.

The American Morgan Stanley is a financial institution based in New York, which is a broker and investment bank at the same time. It was founded in 1935 by Henry Morgan and Harold Stanley, and joined the New York Stock Exchange at 1941. It quickly captured a large share of the market and in the decade of the 70 expanded its services to mergers and acquisitions of companies. Then at the 80 he opened offices in Sydney, Melbourne, Hong Kong, Frankfurt am Main, Milan and Luxembourg. In the 90 it spread through Singapore, Taipei, Seoul, Shanghai, Beijing, Bombay, Paris, Genoa, Madrid, Moscow, Johannesburg, Mexico City and Sao Paulo.

"The most important similarity between the 30 years and the cycle initiated by the 2008 is that the financial shock and the relatively high levels of indebtedness changed the attitude of the private sector in relation to the risk and led it to concentrate on the recomposition of its balance sheets."Says the document.

As at that time, the end result could be a prolonged period of weakness and lower inflation expectations, with the danger that central banks will rush to raise interest rates or that governments reduce fiscal spending, which would cause a much greater slowdown, says the report and maintains: "In 1936-1937, the premature and drastic hardening of policies led to a double recession in the US economy, a return to recession and deflation in 1938, in the current cycle, the authorities proceeded to tighten fiscal policy when growth recovered, which has contributed to a slowdown in growth in recent quarters".

Low figures of global growth

This reality does not affect all countries equally. The World Bank downgraded its global growth outlook from an 2,9% of global GDP, which had been forecast only in January from 2016, to an 2,4% at present.

In this scenario, business spending declines in advanced economies, including the United States, while exporters of primary products in emerging markets, such as Chile and most of the countries in the region, find it difficult to adapt at the low prices.

According to Morgan Stanley's group of economists and analysts, governments will have to intervene to avoid a downward spiral, and suggest that "Activating fiscal policy, especially at a time when monetary policy remains flexible, could lead to a virtuous circle in which the business sector increases private investment and sustains job creation and income growth".

Source: Blueberrieschile.cl - Blueberriesconsulting.com