On 27 Nov 2010, the topic by this blog was Euro and the imbalances it causes. The article was concluded saying that as long as Euro exists, there could be troubles. We stand vindicated. Greece issue has re-emerged with vengeance. All those who are involved are in state of confusion. Whilst French banks take a realistic view of part write offs, Moodys and S&P says it will be a default - first sovereign default in Europe since the second world war. (During June 2011,both Moodys and S&P have downgraded Greece to almost default status, is causing upheavals in markets, world over.) A default will have serious issues for Euro.
Third time during the last 20 months (Apr 2010, Nov 2010 & June 2011) the world's markets were rattled by Euro problems.
Europe is likely to be hit the hardest among major economies by a potential global slowdown in 2012. Europe faces the most bleak future among major economies, in part because the sovereign debt crisis in some euro zone countries (say Greece, Ireland, Portugal, etc) is unlikely to end soon, casting a shadow over the euro's future.
The domestic market in Europe is not recovering very fast, so most likely Europe's economy is driven by external demand (but exports are also increasingly difficult - ask China). Strong economies in Europe like Germany is also facing shrinking population resulting in lower economic activities and overall Europe is not a growth story at all, even in long term.
Moreover, the global economy is slowing led by the largest economy in the world. Definitely US is not recovering fast as predicted - if not going back into recession. Many economies (including USA) will have to stop stimulus and others tighten policy. The recent squabble among US politicians on raising debt levels show that US does not much options left.
As to the challenges facing the emerging economies , many has changed their pro-growth policies (due to concerns on inflation), hurting economic performance. India and China have been constantly increasing the interest rates during 2011. More hikes are expected. Overall, emerging markets is expected to continue to raise interest rates and allow their currencies to strengthen, causing a slowdown in economic growth in those countries.
In addition, oil supplies will likely be interrupted by the unrest in North Africa and the Middle East, resulting in high oil prices, which will further dampen the economic recovery of the world.
Be ready for more problems for Euro & rest of the world, which could adversely impact the world's financial markets.
Let us hope for the best; but prepare for the worst.
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