World leaders are starting to panic

Fear about soaring inflation and plunging growth are becoming increasingly palpable in world leaders both in business and politics.
Today the Bank of England's new chief economist Spencer Dale warned that the UK is facing its toughest economic prospects in over a decade, as unemployment increases at the fastest rate since 1992: See: Bank of England chief sees rocky ride ahead for the economy.
And Spain's finance minister Pedro Solbes stunned markets with an admission that his country faces the worst economic crisis in its history as the full effects of the property crash spread through the economy.
“This crisis is the most complex we have ever lived through given the plethora of factors on the table at the same time,” he told Punto Radio in Madrid, breaking with past efforts to put a reassuring gloss on events.
Mr Solbes said the Madrid bourse [stock exchange] had suffered an “earthquake”, crashing 27pc since the start of June. He blamed the toxic cocktail of high oil prices, the global credit crisis and the sharp slowdown in the key export markets of North America and Germany. See Spain drops reassuring gloss as crisis deepens.
This week the Bank of Canada and our minister of finance gave a fairly upbeat report on the Canadian economy, but both acknowledged that Canada cannot hope to be immune from the ongoing global slowdown and our risks to the downside include:
• Inflation could take root more easily in Canada if potential growth is lower than the bank assumes.
• Global inflation may drive up costs of imports more than expected.
• Commodity prices could tumble.
• The U.S. downturn could be worse than expected and hammer Canadian exports.
• Financial markets could further hurt credit availability in Canada.
As I was explaining in a series of CBC radio interviews across Canada this morning, in the global business cycle Canada is a lagging economy. Our growth and stock market tends to turn down later than the US and other countries. This means that at the end of each cycle while other countries are already in distress we are sort of oblivious to the coming storm even as it hovers over us. Our resource rich and export dependent economy makes our growth greatly tied to the present downturn in world consumption. So Canada is not above or insulated from contraction periods; we're just latent.
A clip of my CBC Calgary “Turbulent Times in the Canadian economy” interview can be heard for a limited time on the CBC Calgary Eye-opener web site here.

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