About the author: Desmond Lachman is a senior fellow at the American Enterprise Institute. He was previously a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.
The world economy is in trouble. Not only are there clear indications of a substantial slowdown in a number of the world’s key economies, there are also growing signs that we could be on the cusp of a worldwide wave of commercial property loan defaults. Those defaults could put great strain on the global financial system and trigger a meaningful global economic recession.
The good news is that those developments should bring in their wake lower inflation in general, and lower international energy and food prices in particular. That should help both the Federal Reserve and the European Central Bank achieve their inflation targets, which should encourage those central banks to not delay the start of an interest rate cutting cycle that would provide much needed support to a weakening world economy and a challenged financial system.
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A slew of negative economic data releases provides evidence for the global economy’s troubles. It now turns out that Germany, Europe’s main engine of economic growth, is already in recession. So too are Japan and the United Kingdom, the world’s fourth and sixth largest economies, respectively.