Tuesday, September 3, 2013

'Known unknowns' threaten global economy; Microsoft seeks transformation through Nokia buy; Amidst rupee plunge, a new central bank chief for India

1 ‘Known unknowns’ threaten global economy (Nouriel Roubini in The Guardian) During the height of the Iraq war, then-US secretary of defense Donald Rumsfeld spoke of "known unknowns" – foreseeable risks whose realisation is uncertain. Today, the global economy is facing many known unknowns, most of which stem from policy uncertainty.

In the US, three sources of policy uncertainty will come to a head this autumn. For starters, it remains unclear whether the Federal Reserve will begin to "taper" its open-ended quantitative easing (QE) in September or later, how fast it will reduce its purchases of long-term assets, and when and how fast it will start to raise interest rates from their current zero level. There is also the question of who will succeed Ben Bernanke as Fed chairman. Finally, yet another partisan struggle over America's debt ceiling could increase the risk of a government shutdown if the Republican-controlled House of Representatives and President Barack Obama and his Democratic allies cannot agree on a budget.

Uncertainties abound in other advanced economies as well. Germany’s general election appears likely to produce a repeat of the current government coalition of chancellor Angela Merkel's Christian Democratic Union and the Free Democrats. In that case, current German policies toward the eurozone crisis will not change, despite austerity fatigue in the eurozone's periphery and bailout fatigue in its core. Political risks in the eurozone's periphery include the collapse of Italy's government and a fresh election as a result of former prime minister Silvio Berlusconi's criminal conviction. Greece's ruling coalition could collapse as well, and political tensions may rise even higher in Spain and Portugal.

Meanwhile, China's slowdown has contributed to the end of the commodity super-cycle, which, together with the sharp rise in long-term interest rates, has led to economic and financial stresses in many emerging-market economies. These economies – the Brics (Brazil, Russia, India, China, and South Africa) and others – were overhyped for too long.

The looming known unknowns are plentiful. Some outcomes may be more positive, or at least less damaging, than expected. But the realisation this autumn of even some of the risks described here could derail the global economy's still-wobbly recovery. And the meta-risk of policy mistakes and accidents remains very high.
2 Microsoft seeks transformation through Nokia buy (San Francisco Chronicle) The $7.2 billion Microsoft-Nokia deal announced late Monday marks a major step in Microsoft's push to transform itself from a software maker focused on making operating systems and applications for desktop and laptop computers into a more versatile and nimble company that delivers services on any kind of Internet-connected gadget.
Microsoft, which is based in Redmond, Wash., is being forced to evolve because people are increasingly pursuing their digital lives on smartphones and tablet computers, causing the demand for PCs to shrivel. The shift is weakening Microsoft, which has dominated the PC software market for the past 30 years, and empowering Apple, the maker of the trend-setting iPhone and iPad, and Google, which gives away the world's most popular mobile operating system, Android.
Nokia, based in Espoo, Finland, and Microsoft have been trying to make inroads in the smartphone market as part of a partnership forged in 2011. The acquisition is being made at the same time that Microsoft is looking for a new leader. Just 10 days ago, Ballmer, 57, announced he will relinquish the CEO reins within the next year in a move that many analysts regarded as Microsoft's tacit admission that the company needed an infusion of fresh blood to revitalize itself.
Microsoft expansion into mobile devices hasn't fared well so far. Last year, the company began selling a line of tablets called Surface in hopes of undercutting Apple's iPad. The version of Surface running on a revamped version of Microsoft's Windows operating system fared so poorly that the company absorbed a $900 million charge in its last quarter to account for the flop.
3 Amidst rupee plunge, new central bank chief for India (BBC) A former International Monetary Fund chief economist is taking over as the head of India's central bank, as it works to revive the falling rupee. Raghuram Rajan, 50, assumes the top job at the Reserve Bank of India on Wednesday. He arrives at a time when the rupee has plunged nearly 20% since May and the economy is slowing.
The new bank chief, known for having predicted the 2008 global financial crisis, will replace D Subbarao. Mr Rajan will also have to contend with India's current account deficit, a broad measure of trade, and the economy growing at its slowest pace in 10 years. In the April-to-June quarter, the economy grew at a rate of 4.4%, compared with the same period in the previous year, the slowest quarterly expansion in four years.
On Tuesday Goldman Sachs cut its GDP growth forecast for India to 4% from 6%. August also saw India's manufacturing sector shrink for the first time for four years. Many believe Mr Rajan has raised expectations of adopting unconventional ways to revive the rupee and boost growth. Rajeev Malik, a Singapore-based economist, says Mr Rajan's "rock star academic image could be a hindrance". "That is because it has generated unrealistic hope that he has some magical prescription to fix our problems," he wrote in the Business Standard newspaper.

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