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Section 1. The world economy is in the middle of a balancing act. On the one hand, countries must address the legacies of the global financial crisis, ranging from debt overhangs to high unemployment. On the other, they face a cloudy future. Potential growth rates are being revised downward, and these worsened prospects are in turn affecting confidence, demand, and growth today. Among advanced economies, the United States and the United Kingdom in particular are leaving the crisis behind and achieving decent growth—though even for those two countries, potential growth is now lower than in the early 2000s. Japan is growing, but high public debt inherited from the past and very low potential growth create major macroeconomic and fiscal challenges. Growth nearly stalled earlier this year in the euro area, even in the core. Although this partly reflects temporary factors, the recovery has been slowed by the crisis legacies, primarily in the south, and by low potential growth nearly everywhere. Other threats for worldwide economy are spread of Ebola that reverberated around stock markets and driving shares around the world sharply down and pushing the price of oil to a four-year low. After falls in London and New York , Asia extended the selloff in global equities as heightened concerns about world economic growth sent Japanese stocks tumbling and U.S. Treasury yields down. MSCI’s broadest index of Asia-Pacific shares outside Japan extended early losses and was down 0.6% while Japan’s Nikkei stock average tumbled 2.2%.
“It’s clear that people are avoiding risks,” said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management. “People started to doubt that the Japanese market may not be able to keep rising only on the recovering US economy.” The FTSE 100 closed down 181 points or 2.8% at 6,211, knocking £46bn off the value of Britain’s top companies. This was its lowest level and biggest one-day fall since June last year. It was also close to a 10% decline from its recent peak on 4 September. The stagnating euro zone economy has also been in the spotlight, in particular Germany, where the government this week cut its growth forecasts for the next two years after growing signs that the country could slide into recession. Henk Potts, director of global research at Barclays, said: “The stock market is in fear mode at the moment [over] worries about global growth conditions and normalisation of US interest rates. But if the sell-off continues it could prove to be a strong entry point into an asset class that we think will continue to outperform.” This was evidenced in April 2013 when hackers breached the Twitter feed of the Associated Press and announced the White House had been hit by two explosions and that President Barack Obama was seriously injured precipitating a 143 point fall in the Dow Jones Industrial Average within seconds. While the fake Tweet was quickly corrected and the market recovered after several minutes, it is an indication of how cyber-criminals can wreak havoc on financial institutions and the broader capital markets. A report –“Cyber-crime, Securities Markets and Systemic Risk” – produced jointly in 2013 by CPSS-IOSCO and the World Federation of Exchanges (WFE) found 53 per-cent or 46 exchanges surveyed had been subject to a cyber-attack over the preceding 12 months. Eighty-nine per-cent of those exchanges said cyber-threats presented a potential systemic risk to capital markets.
Cyber-crime is a threat fund managers need to start taking more seriously. Adam Menkes, a director at Credit Suisse in New York, acknowledges that some hedge funds have been subject to cyber-attacks. “I have heard of hedge funds being locked out of their computer files by hackers, with a third party demanding a small ransom in order to unlock the file ,” he says. Ashley Jelleyman, head of information assurance at BT Security, agrees. “Hactivism has been on the rise
