10 Threats To Global Economic Stability That Should Be On Your Radar Right Now
If you're just watching the Dow, it may not seem like there is much to worry about in the global economy.
But the reality is, there are forces stirring on the four corners of the globe that could derail the current feel-good environment.
They come in all shapes and sizes: the collapse of a monetary union, inflation gone wild in the emerging world, and the world's emerging power losing its feet.
#10 Will food price inflation topple a key market?
The Threat: It has happened in
Tunisia, it may be happening in
Egypt, but the real worry is that the riots in North Africa are a precursor to a movement In China or India.
Food price inflation in those two key BRICs has been high, and while both countries are throwing every tightening measure imaginable at the problem, little has been accomplished.
While the Indian democracy is more politically robust, the Chinese government is in danger of not living up to one of its key promises to its people: economic stability and growth. If inflation was to rise even higher, which now seems unlikely, China's rural population may move against a government forcing dramatic actions.
#9 Will Spain fall and bring down the eurozone?
The Threat: The Spanish economy is the domino frightening the bulk of Europe. It represents the fourth largest economy in the eurozone. Its economic position is desperate. On the labor side, unemployment is over 20%. On the banking side, its local banks, or cajas, are in need of a bailout. And on its growth side, well, it's weak.
There may soon be a means in place for
Spain to take EFSF aid to support its banks, still troubled by the country's flailing real estate sector. But if its problems arise sooner, the euro could be in trouble as Germany waffles on an
expensive political bailout.
#8 Could China's liquidity problem grow into a full blow crisis?
Image: Stuck in Customs on flickr
If, suddenly, a company or bank was to enter a default scenario, it is unknown how Chinese markets would react.
#7 Could a military conflict in Asia spark a regional slowdown?
The Threat: The Korean Peninsula has been tense for the past few months, after a
North Korean shelling attack on a South Korean island shook the region's stability. The fishing boat incident between
China and Japan also ratcheted up tensions in the region.
And while things seem to be calming down in Korea, the potential for an escalation of conflict remains in the region, with China
posturing through new weapons releases and the U.S. bogged down in Iraq and Afghanistan.
#6 Will the currency war lead to a trade war between the world's most powerful economies?
The Threat: As every economy in the world attempts to build an export led recovery, countries are using their printing presses to devalue their currencies as a means to compete.
Some are clearly losing,
like Brazil. Others are winning, like China with its floating dollar peg.
But if the world is to show signs of contraction, states may become more aggressive and move from currency war to protectionist trade policy.
#5 Will an oil price spike halt the growth of the world economy?
The Threat: Oil prices may have more to do with the health of the global economy than realized. Some say it was the
trigger that caused the recession we just escaped.
With oil prices rising right now,
there's the potential that, if we surge past $100 like we did prior to the last recession, we could see the same result.
#4 Will a war over U.S. spending spark a fiscal crisis?
The Threat: The U.S. government's high level of debt has thus far not been a problem, with markets more focused on issues in the eurozone. That could all change, however, if the run-up to the increase in the U.S.
debt ceiling leads to a conflict over government spending in the U.S..
Markets may
pounce on the uncertainty, sending U.S. treasury yields higher, further endangering the health of the U.S. government balance sheet.
#3 Could a deeper housing double-dip derail the U.S. recovery?
The Threat: The housing double-dip is clearly on in the U.S., with Bernanke's attempts to stave off deflation failing. But with housing already so low, will a further decline actually have much of an impact?
Such a decline would inhibit some of the economy's most reliable spenders endangering the consumer outlook and, in turn, the U.S. recovery.
#2 Could a new Irish government reject the bailout and the euro?
The Threat: Ireland's parliament has
approved its deal with the IMF and EU. But a new government, which will be elected in late February, may not approve of the deal.
And even if that government does, it could be overruled by an more
nationalist Irish government in the long-run, that will reject the bailout and seek broader economic independence, maybe even monetary, for Ireland.
The result would be haircuts for Ireland's banks and a hit to its sovereign debt holders, including key European banks.
#10 What if Chinese tightening goes too far?
The Threat: China could be in store for a hard landing, if it engages in too heavy handed policy tightening to combat inflation in the country. Societe Generale give this scenario a
30% chance of happening.
The result would be a slow down in what has become the world economy's second engine. There's no telling what the contagion would look like, and whether it would create a recession scenario for the U.S.
http://www.businessinsider.com/10-huge-risks-to-the-global-economy-right-now-2011-1?utm_source=Triggermail&utm_medium=email&utm_term=10+Things+Before+the+Opening+Bell&utm_campaign=10Thing_NL_02022011
The Eurozone crisis is one of the biggest threats to the global stability we are all looking for. Most of the countries that used to have a strong economy are now facing recession and are having a hard time to improve their current economic problem.
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