DUBLIN--(BUSINESS WIRE)--Research and Markets (http://www.researchandmarkets.com/research/82938c/market_meltdown) has announced the addition of the "Market Meltdown - Global Economy on the Edge" report to their offering.
The world economy is facing a pivotal moment. With the US reeling from debt concerns, the Eurozone dogged by the ongoing sovereign debt crises, and Japan still suffering from the consequences of March's earthquake, three of the world's four main economic pillars are faltering, threatening to drag the global economy into another recession.
Although it is not yet the core scenario, the US is at risk of a double-dip recession, and weak data from the second quarter of 2011 prompted BMI to revise down the real GDP growth forecast for 2011 to 1.7% from 2.6%, and the 2012 forecast to 2.6% from 3.0%. These projections reflect weaker growth in private and government consumption. Even if a recession is avoided, the US economy will remain weak, thereby delaying the onset of rate hikes beyond 2012. While S&P's downgrade of the United States' credit rating from AAA to AA+ was largely a symbolic move, with little tangible impact expected in the near term, there is no escaping the need for the US to tackle its fiscal and debt problems. Nonetheless, US Treasuries will remain attractive investments, especially given that European and Japanese bonds are hardly safe, and the debt markets of emerging nations are too small and illiquid to offer viable alternatives.
The Eurozone is facing an existential crisis, economically and politically. While too much political capital has been committed to allow the Eurozone to fail, there is a risk that benign neglect by policymakers could exacerbate the crisis. The European Central Bank's purchases of Spanish and Italian debt will provide only short-term breathing room for European leaders. In the long term, the solution may be a tighter fiscal union led by Germany, but peripheral states will resent the loss of sovereignty. Ultimately, the greatest consequence of the current Eurozone crises will be diminished European global influence.
The Eurozone sovereign debt crises could trigger a region-wide banking crisis. If policymakers do not implement a coordinated response to improve long-term fiscal sustainability, Europe could be plunged into a second credit crunch.
Despite suggestions that Greece will leave the Eurozone, it is believed that the costs of exiting the currency union would be prohibitively high and only bring greater economic misery. Elsewhere, although BMI has long warned about the precariousness of Italy's national debt, it is believed that the country need not succumb to the debt-deflationary vortex that has engulfed Greece. Indeed, Italy's relatively favourable debt maturity structure, balanced domestic/foreign creditor composition and healthy private sector balance sheet mean that a more apocalyptic scenario can be avoided.
A simultaneous faltering of the US and Eurozone economies will hurt China's growth badly, since exports are still a key driver. Although China could conceivably implement another stimulus package, this would be risky, especially since it has already had to bail out local governments following the previous stimulus measures adopted in late 2008.
Asian economies are heavily exposed to the Eurozone crisis through European bank lending and their reliance on Europe as an export destination. Although Asian economies are now less directly exposed to the US, the US remains a major driver of intra-Asian trade. Meanwhile, a weaker dollar will reduce Asian export competitiveness at a precarious time.
Key Topics Covered:
Executive Summary
Financial Market Outlook
Double-Dip Scenario Comes Back Into View
Questions and Answers on the US Rating Downgrade
Eurozone Debt Crisis: Preparing For the End Game
European Banks at the Mercy of Policymakers
Political Consequences Of The Eurozone Debt Crisis
Greece: An Alternative Reality outside the Eurozone
Italy: The Debt Dichotomy
Asia: Assessing the Contagion Risk
Ratings Methodology
Ratings Tables
Macroeconomic Tables
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