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I'm posting up two very recent articles from EIU (Economist Intellgience Unit), no less. No one can predict exactly how the markets will be going in coming months. But its good to know wat is actually going on around the world, with or without any positions in any investments.
If I were to extrapolate from the last paragraph, we might be seeing the first light of a shift in global dynamics of world trade order, ie. simple terms, Asia will emerge stronger out of this turmoil than the Western developed countries.
Cheers.
PS: Jus realised its my 200th post.. and I have to post such a depressing thread. Kinda ironic.
Introduction
Consumer and business confidence has deteriorated, prompted by tremors in the euro zone, evidence of a weaker-than-expected US recovery and other headwinds to the global recovery such as soaring commodity prices. There is a Very high probability of a vicious circle in which sentiment declines further, weakening hiring and spending, and pushing developed economies into recession.
Analysis
The outlook for the global economy has worsened, substantially raising the risk of a new contraction in global output. Spain and Italy are being dragged into the euro-zone debt crisis, raising the risk of a break-up of the single currency - with attendant turmoil that could spark a global downturn. The US recovery has been revealed to be weaker than thought, and the political showdown over the US debt ceiling, followed by an unprecedented downgrade of the US's long-term sovereign debt rating, has further darkened the mood. Business and consumer sentiment has slumped, negatively impacting retail spending, business investment and hiring, and manufacturing output. There is a Very high probability that this will further worsen sentiment, resulting in a vicious downwards spiral, despite underlying progress in recovery, for example on deleveraging. This could push developed economies back into recession.
At the same time, the authorities in the developed world lack the tools to respond to a renewed downturn. It is unlikely that governments in most countries would be able to enact further fiscal stimulus, particularly on the scale of that deployed in the previous downturn, because fiscal and debt positions are already weak. Indeed many countries are having to tighten fiscal policy. That leaves monetary policy, but interest rates are already very low, and monetary stimulus - quantitative easing - is of questionable effectiveness. The ability of central banks to support growth could be undermined by renewed problems in the financial sector, including turmoil in government bond yields, that clog the transmission mechanism from monetary stimulus to higher real output. In the event of a renewed recession it is likely that developed economies would face a prolonged period of stagnation, akin to Japan's experience in the past two decades.
Emerging markets are already showing signs of slowing, and they would suffer sharper falls if developed-world export demand collapsed. Slowdowns would be initially be compouded by a pull-back of recent large capital inflows as risk aversion prompted a flight to traditional 'safe-haven' assets such as US Treasuries. Unlike in the developed world though, emerging-world governments still possess considerable scope for policy action to arrest a downturn. Moreover, leading emerging economies such as China are increasingly able to sustain at least some independent momentum from internal demand. Emerging-market consumers are also less indebted than their western counterparts. Emerging economies would therefore rebound more quickly than advanced economies, and the shift in global economic gravity to the emerging world would continue.
Conclusion
Lacking the scope for more fiscal stimulus, developed countries would level off into a lengthy period of deflation and stagnation. Emerging markets would slow sharply as global trade slumped and confidence collapsed, but, with lower indebtedness, would rebound more quickly, reinforcing the shift in global economic gravity to the emerging world.
If I were to extrapolate from the last paragraph, we might be seeing the first light of a shift in global dynamics of world trade order, ie. simple terms, Asia will emerge stronger out of this turmoil than the Western developed countries.
Cheers.
PS: Jus realised its my 200th post.. and I have to post such a depressing thread. Kinda ironic.
Introduction
Consumer and business confidence has deteriorated, prompted by tremors in the euro zone, evidence of a weaker-than-expected US recovery and other headwinds to the global recovery such as soaring commodity prices. There is a Very high probability of a vicious circle in which sentiment declines further, weakening hiring and spending, and pushing developed economies into recession.
Analysis
The outlook for the global economy has worsened, substantially raising the risk of a new contraction in global output. Spain and Italy are being dragged into the euro-zone debt crisis, raising the risk of a break-up of the single currency - with attendant turmoil that could spark a global downturn. The US recovery has been revealed to be weaker than thought, and the political showdown over the US debt ceiling, followed by an unprecedented downgrade of the US's long-term sovereign debt rating, has further darkened the mood. Business and consumer sentiment has slumped, negatively impacting retail spending, business investment and hiring, and manufacturing output. There is a Very high probability that this will further worsen sentiment, resulting in a vicious downwards spiral, despite underlying progress in recovery, for example on deleveraging. This could push developed economies back into recession.
At the same time, the authorities in the developed world lack the tools to respond to a renewed downturn. It is unlikely that governments in most countries would be able to enact further fiscal stimulus, particularly on the scale of that deployed in the previous downturn, because fiscal and debt positions are already weak. Indeed many countries are having to tighten fiscal policy. That leaves monetary policy, but interest rates are already very low, and monetary stimulus - quantitative easing - is of questionable effectiveness. The ability of central banks to support growth could be undermined by renewed problems in the financial sector, including turmoil in government bond yields, that clog the transmission mechanism from monetary stimulus to higher real output. In the event of a renewed recession it is likely that developed economies would face a prolonged period of stagnation, akin to Japan's experience in the past two decades.
Emerging markets are already showing signs of slowing, and they would suffer sharper falls if developed-world export demand collapsed. Slowdowns would be initially be compouded by a pull-back of recent large capital inflows as risk aversion prompted a flight to traditional 'safe-haven' assets such as US Treasuries. Unlike in the developed world though, emerging-world governments still possess considerable scope for policy action to arrest a downturn. Moreover, leading emerging economies such as China are increasingly able to sustain at least some independent momentum from internal demand. Emerging-market consumers are also less indebted than their western counterparts. Emerging economies would therefore rebound more quickly than advanced economies, and the shift in global economic gravity to the emerging world would continue.
Conclusion
Lacking the scope for more fiscal stimulus, developed countries would level off into a lengthy period of deflation and stagnation. Emerging markets would slow sharply as global trade slumped and confidence collapsed, but, with lower indebtedness, would rebound more quickly, reinforcing the shift in global economic gravity to the emerging world.