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‘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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