Is the world economy at a tipping point?
Two influential global organizations have said as much over the past few days, though they were alluding to different sets of problems. But the sheer fact that they used the same word — tipping point — tells us a lot about the encircling pessimism about the state of the global economy.
International Monetary Fund (IMF) managing director Dominique Strauss-Kahn has said that skyrocketing food and fuel prices are driving some countries close to a tipping point. He made this dark prognosis while releasing a new IMF study on how the impact of surging food and fuel prices could be very bad for import-dependent poor countries as well as middle-income countries with growing balance of payments problems and rising inflation (IMF suggests that India is more vulnerable to higher oil prices than higher food prices).
Meanwhile, the Bank of International Settlements (BIS), a central bankers’ club, has said in its new annual report that the global economy has reached — guess what? — a tipping point. It has said that rising food and fuel inflation, high household debt and the credit crisis could pull down global growth. “The magnitude of the problems yet to be faced could be much greater than many now perceive,” says BIS. “It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels.”
BIS has for long worried about the havoc the credit bubble could create in the world economy. It was one of the lone sceptical voices that tried to make themselves heard in the celebratory din. IMF has been more ready to go along with the party, though it did shoot off the occasional note of warning.
One may not agree with all this talk of tipping point, a phrase used by journalist Malcolm Gladwell to describe a threshold beyond which change accelerates. And, at times such as these, when the gradient slopes downwards, sudden accelerations can lead the world economy into deep trouble.
Tipping point or no tipping point, one thing is clear: The worst is not over as yet.
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