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The world economy could forgo $6 trillion US in growth by 2015 if heavyweight countries delay fiscal and currency reforms they promised to implement in November last year, the Bank of Canada said in a publication released on Thursday.
At a summit in Cannes, France, the Group of 20 advanced and emerging economies agreed to a suite of policies to keep the global economy growing and balanced.
The prescription is for the United States and Europe to wrestle down their budget deficits, while China and other emerging markets boost domestic demand by allowing their currencies to trade more freely, and Europe and Japan implement structural reforms.
The global economy will fare far worse if these measures are postponed until the end of 2015 than it would if they were implemented sooner, according to the Bank of Canada's analysis.
"By 2015, the lack of required policy measures produces an 8 percent loss in world GDP ($6 trillion US at 2009 prices) relative to the baseline scenario," said the research paper in the Bank of Canada Review, a quarterly collection of articles by the bank's researchers.
"During the same period, the U.S. GDP is lower by 6 percent relative to the baseline scenario, while the decline in Chinese GDP is 12 percent."
The authors ran three different scenarios through their models to determine the outcome - the baseline scenario in which countries do as they pledged in a timely manner and two alternative scenarios in which reforms are either delayed or only partially undertaken.
The baseline scenario assumes the U.S. federal debt will stabilize at about 80 percent of GDP by 2015 and that there will be some additional fiscal stimulus. The European Union as a whole would see a declining ratio of debt to GDP by 2015.
It also assumes less government intervention in the foreign exchange markets in China and other emerging markets in Asia, leading to a 20-percent appreciation of the Chinese yuan by the end of 2020.