Wednesday, 01 Sep 2010 10:22 AM
By: Ellen Chang
The sovereign debt crisis will result in lower growth and
interest rates for the next decade, said Andrew Milligan, the
head of global strategy at Standard Life Investments in London.
“There are significant long-term risks from high levels of
public debt sector debt. In particular, there are potential
funding problems, crowding out effects and sovereign debt rating
concerns for a decade to come,” he said on CNBC.
Other pressures will linger in the economy, resulting in a
volatile market for investors, Milligan said.
“We warn that a major risk is that so many countries are
tightening fiscal policy at the same time, hence the multiplier
effect could be larger in aggregate,” he said.
The high levels of government will produce stagnant growth
internationally, Milligan said.
“Hence, the fiscal position will remain vulnerable to external
shocks for some time to come; until deficits are lowered from 8
to 12 percent of GDP a year towards say 2 to 4 percent. Even in,
say, 2015, a number of countries will face worryingly high
levels of public sector debt,” he said.
Even modest growth shown in countries in such as Germany has not
alleviated fears that the markets could be in trouble again,
MarketWatch reported.
“The sovereign debt jitters raise the risk that money markets in
general could again deteriorate, clearly putting pressure on the
financial sectors in the vulnerable member states,” said Klaus
Baader, an European economist at Societe Generale in London.
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