Lance Forman warns European economy ‘bound to crack’
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The global economy could be poised for a “financial earthquake” which will have devastating ramifications across the world, a leading economist has warned.
Harvard professor Ken Rogoff, a former chief economist at the International Monetary Fund, points to rising interest rates around the world and economic uncertainty in the US as he issues a bleak warning for markets.
Professor Rogoff warns that the US government could default on its debt later this year, something which could cause chaos for other leading economies.
Speaking to the Telegraph, he added: “The combination of recession and rising real interest rates is very dangerous.
“We were very fortunate that we didn’t have a global systemic event in 2022, and we can count our blessings for that, but rates are still going higher and the risk keeps rising.
“The risk of over-tightening by the European Central Bank is nothing less than catastrophic and they need to be very careful. Italy is extremely vulnerable.
“But this could pop anywhere. Global debt has gone up massively since the pandemic: public debt, corporate debt, everything.”
He also predicted that it could be Japan that triggers the global crash because the country could hike its interest rates for the first time in 30 years.
Mr Rogoff continued: “The Japanese haven’t had an interest rate rise in three decades and nobody is positioned for it.
“The public debt is 260 percent of GDP and half of that is overnight debt.”
While the UK economy has been in a rough patch for months now, there are signs that some progress could be made.
Experts have pointed to falling inflation and energy costs as a cause for optimism.
CEO of Principality Building Society Julie-Ann Haines told BBC Radio 4 on Sunday that unemployment is not expected to rise as much as was previously feared.
She said: “We haven’t seen across my own business, or indeed others in the sector, any increase in repossessions. We are getting more calls from customers who are concerned and that’s understandable given some of the very difficult increases that we’ve seen in gas, energy, petrol, and food as you’ve just been talking about.
“But certainly cause for optimism, we have a very strong employment market, so in the past whenever recession has come, we’ve tended to see big increases in unemployment and we’re not expecting to see that, so that does give some cause for optimism.”
However, economic decisions in the US could lead to another blow in the summer.
US Treasury Secretary Janet Yellen warned this week that Washington will have to take “extraordinary measures” after the US reaches its $31.4 trillion debt limit.
The debt ceiling in the US essentially sets out the maximum amount the country can borrow.
Politicians in Washington can vote to raise it or suspend it, but without this happening, there is a risk the US could default on its debt.
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