The Bank of Canada says global output could be severely constrained if austerity in the developed world and exchange rate flexibility in the emerging world don’t take place, US GDP will be 6% smaller than expected in the US and 12% smaller in China.
“Aggressive fiscal consolidation in advanced economies that is not accompanied by flexible exchange rates and structural reforms in the emerging-market economies of Asia, as well as by growth-enhancing reforms in Europe and Japan,” a team of five researchers at the bank said, “could lead to even weaker growth in global output and near-term deflationary pressures.”
With Chinese growth appearing to slow, the likelihood of yuan appreciation is dwindling.
