Unit 6. The World Economy. New Dangers

Lead-in

Exercise 1. Starting up:

1. Do you think there are more dangers or benefits associated with globalization of the world economy?

2. Have you ever experienced or suffered from the consequences of an economic crisis?

3. How can you determine whether the economy prospers or deteriorates?

4. What solutions can you offer to stabilize the economy?

Listening

Exercise 2. You are going to listen to the report on the new dangers of the world economy (part 1). Study the definitions of some English phrases from the report and translate the examples into Russian:

• to ease off – to give something less effort or energy, esp. when you’ve been working very hard (The economic crisis seemed to have eased off in the latter part of 2009);

• to be in full swing – to be at the most effective or highest level of operation or activity (The economic crisis is once again in full swing);

• to default – to fail to pay money that you owe (If it defaults, it will be the first EU member to do so);

• to phase out – if something is phased out, people gradually stop using it (Brazil's fiscal stimulus is being phased out);

• to be put on hold – if sth is on hold, you have stopped it from happening now, but it may happen later (Quantitative easing is being put on hold);

• cause for concern – reason to worry (Europe's troubles are not the only cause for concern);

• commodity price – value of goods;

• to tumble – to fall quickly and without control;

• volatility – instability (Stock-markets are down sharply, commodity prices have tumbled and volatility is up);

• to remove fiscal props – to withdraw financial help (policymakers will be forced to remove monetary and fiscal props too soon).

Exercise 3. Match the words and phrases from the repot with their Russian equivalents:

1. to loom	мыльный пузырь
2. asset bubble	принимать угрожающие размеры
3. to queue up	существенное облегчение
4. quantitative easing	кредитный бум
5. rescue scheme	завязнуть в трясине
6. a bond market	финансовый стимул
7. a lending binge	рынок облигаций
8. to mire	становиться в очередь
9. fiscal stimulus	план спасения

Exercise 4. Listen to the report on the new dangers of the world economy and answer the questions (“The Economist”, February 13^th 2010):

1. Why was the attention of the European countries focused on Greece?

2. How is optimism about “v”-shaped economic recovery being replaced?

Exercise 5. Listen to the report again and complete the following statements:

1. The economic crisis, which seemed to have eased off in the latter part of ____________, is once again in full swing as the threat of sovereign default looms.

2. Europe's leaders are struggling to avert the biggest financial disaster in the euro's ____________ history.

3. Bond markets are worried about the capacity of _____________________ and _______________ to repay their debts, forcing these countries to increase taxes and cut spending, even as they remain mired in recession.

4. ______________ government began to rein in its lending binge last month, worried about accelerating inflation and asset bubbles.

5. India's central bank has raised reserve requirements and ____________ fiscal stimu­lus is being phased out.

6. The MSCI World Index of global share prices has fallen by almost 10% from its peak on _________________.

Reading

Exercise 6. Read the second part of the report on the new dangers of the world economy and divide it into four main sections. Think of a few words to sum up each secton.

Three factors will determine whether such fears are justified. The first is the strength of the recovery – whether it is self-sus­taining, or still propped up by government stimulus. The sec­ond is the scale of the sovereign-debt problems – whether Greece is a basket-case all of its own, or investors lose confidence in other heavily indebted governments. The third is the deftness with which the world’s central banks and finance ministers design and co-ordinate the withdrawal of policy stimulus.

The picture on global growth is increasingly split. Big emerging economies are in the best shape, with strong growth in domestic demand and scant spare capacity. Countries such as India and Brazil have largely put the downturn behind them. Given the scale of its government-directed lending binge, China’s economy is vulnerable to a sudden clampdown by bureaucrats. But, for all the markets’ worries, there are few signs that it will tighten too much too fast. A slowing is possible, indeed desirable, but a serious stumble seems unlikely.

Not so in the rich world, where there are still few signs of strong private-demand growth. America's latest, buoyant, GDP figures are misleading. Output grew at an annualised rate of 5.7% in the fourth quarter of 2009 mainly because firms were rebuilding their stocks. With the economy still shedding jobs (albeit at a lower rate), share prices falling, the housing market still wobbly and household debt shrinking, consumer spending is likely to remain subdued. Nor, with plenty of ca­pacity sitting idle, are firms likely to go on an investment binge. In Europe and Japan the situation is far grimmer. Though ex­ports are recovering, Japan has slipped back into deflation. In the euro zone, recovery was faltering long before the Greek cri­sis hit. Domestic demand has stalled even in countries, such as Germany, where households have no excess debt to pay off.

Searching for the exit

This disparity between the rich and emerging worlds should be reflected in their macroeconomic policies. Emerging econo­mies can, and should, unwind their stimulus and raise interest rates before inflation takes off. But in big, weak, rich economies it is still too soon to tighten. The dangers of repeating the mis­takes made in America in 1937 and Japan in 1997 – when prema­ture tax increases and tighter monetary policy pushed fragile economies back into recession – are greater than the risks of in­action. With output so far below potential and credit growth stagnant, there is little chance of sustained inflation. Nor, in most countries, should fear of bondholders lead to sudden fis­cal austerity. The right lesson to draw from the travails of Greece, Spain and Portugal is not that all deficits today are dangerous, but that governments need to do more to control their deficits and boost economic growth in the medium term in or­der to make room for looseness today.

Most big, rich economies have absorbed half that message. At their gathering on February 6th, the G7's finance ministers concluded, rightly, that it was too early to begin withdrawing stimulus. But no rich country has laid out a credible, medium-term fiscal plan. Top of the list should be reforms, like raising the retirement age or means-testing future benefits, which im­prove countries' fiscal outlook without crimping demand to­day. France is leaning in the right direction, with its mooted overhaul of the pension system. America's new budget, which simply punted on the medium term, was a shocking failure in that regard.

Equally important is a more explicit agenda to boost growth in the medium term. To minimise the risk that they fall into a Japanese-style morass of high public debt and slow growth, the rich world’s economies must spur productivity, encourage investment and foster competition. That points to a renewed focus on freeing trade, cutting spending rather than raising taxes and agreeing on new financial regulations.

Some of today’s nervousness comes from “policy risk”. Nobody – neither firms, banks nor individuals – is quite sure where government policy is going. The more that government can do to reduce such uncertainty, the stronger the recovery is likely to be.

(“The Economist”, February 13^th 2010)

Exercise 7. Decide if the following statements are true (T) or false (F):

1. Big emerging economies are in the worst shape, with weak growth in domestic demand and scant spare capacity.

2. Though exports are recovering, Japan has slipped back into deflation.

3. This disparity between the rich and emerging worlds should be reflected in their microeconomic policies.

4. America's latest, buoyant, GDP figures are misleading.

5. The rich world’s economies must spur productivity, encourage investment and foster competition.

Exercise 8. Comprehension check. Answer the following questions:

1. What factors will determine whether fears of removing monetary and fiscal props are justified?

2. Is China’s economy considered to be vulnerable?

3. What should emerging countries do before inflation takes off?

4. Why is it too soon to tighten for big, weak, rich economies?

5. What did G7’s finance ministers conclude at their gathering on February 6^th?

6. How many countries have laid a credible medium-term fiscal plan?

7. What should the rich world’s countries do to minimise the risk that they fall into a morass of high public debt and slow growth?

8. Where does some of today’s nervousness come from?

Exercise 9. Study the report again (Exercise 6) and find the adequate English equivalents of the following words and phrases: 1) самостоятельный (независимый), 2) государственный долг, 3) потерять уверенность, 4) государства с большой задолженностью, 5) внутренний спрос, 6) недостаточные резервные мощности, 7) уязвимый, 8) ужесточение, 9) обманчивый (вводящий в заблуждение), 10) процентная ставка, 11) процентная ставка в годовом исчислении, 12) потребительские расходы, 13) уменьшать (подчинять), 14) мрачный, 15) слабеть (спотыкаться, запинаться), 16) несоответствие, 17) финансовая строгость, 18) неопределенность (слабость), 19) убирать стимулирующие меры, 20) план, заслуживающий доверия, 21) повышать пенсионный возраст, 22) искусственно повышать спрос, 23) пересмотр (модернизация), 24) повышать эффективность производства, 25) содействовать конкуренции.

Listening

Exercise 10. Listen to the report on supply chains in China and answer the following questions (“The Economist”, March 6^th 2010):

1. What report did Apple commission make public?

2. What violations were stated in Apple report?

3. Was it Apple free will or obligation to make their findings public?

4. Is Apple willing to make their entire supply chain public? Why?

Exercise 11. Listen to the report again and fill in the gaps in the script below using the phrases from the box.

to be renowned for something to take remedial steps to verge on to make something public to be rife to violate standards minimum wage to defuse concerns to elude scrutiny