It has been rightly said that "when the US sneezes, the world catches a cold". Without a shadow of doubt the interdependence between countries has now reached the point where it has become almost impossible for the world to restrict a free flow of fiscal virus between countries.
With the worlds two most developed continents, North America and Europe, in an economic fix, it is difficult for the rest of the world to protect their economies from faltering.
Alike a drowning man, who clutches at a straw, the policy adopted by the infected countries to keep their economies up and running has been one of the prime culprits for creating inflationary trouble across the world.
The improvement in the global harbingers, though not satisfactory, has played an important part in tapering off fears of a double- dip recession in the past few months. But, it seems that a fresh spark of negative surprises is paving the way for the return of pessimism in the minds of policy markers, as markets speculate that the economic situation may get worst.
That is clear from IMFs latest warning to Washington and debt-ridden European countries, demanding greater measures to cut their budget deficits.
"The greater-than-anticipated weakness in U.S. activity and renewed financial volatility from concerns about the depth of fiscal challenges in the euro area periphery pose greater downside risks"according to the recent World Economic Outlook update. The Fund has also trimmed its forecast for U.S growth to 2.5 percent this year (2011) from its earlier forecast of 2.8 percent.
Although, the Funds Chief Economist Olivier Blanchards comments assuaged the fears about a double-dip recession, he clearly tipped off about the presence of risks to the recovery.
On top of that, Professor Nouriel Roubinis latest remarks also painted a bleak picture of the global economic recovery, as he brought attention to a combination of factors, such as fiscal woes in U.S, slowdown in China, European debt crisis and supply disruption in Japan, which might impede global growth.
Also market optimism is sinking on concerns that rising energy cost will severely threaten the economic recovery.
Given this scenario, when the affected countries are still relying on loose monetary policy, the growing debt level in the pockets of developed countries suggest that fiscal virus would continue to spread into other parts of the world.
As world gurus and policymakers are finding it difficult to wind down global fiscal issues that have been piling up for a number of years, the way forward to get things straight is to put ones own house in order.
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