Trends in the world economy: A downward spiral

Bailouts, debt crisis and downgrading of bond ratings – these are just a few of the headlines dominating the news. The eurozone crisis is at the centre of it all.

Greece recently went bankrupt and other European countries seem to be in hot pursuit. The ongoing crisis has forced the major European states of Italy and Spain back into recession. The economic weaknesses of these countries will probably have a negative impact on export developments since these countries are vital trading partners for Germany. Greece, Portugal and Ireland are three of the eurozone nations which have been bailed-out. There have been increased fears that Spain may be next in line for a bailout due to their borrowing costs which have risen to new record highs.

The possibility of Greece withdrawing from the eurozone has contributed to Moody’s decision to lower the credit outlook of Germany, Netherlands and Luxembourg to that of being negative. One of the many risks associated with Greece exiting the eurozone is the possibility that other distressed nations may consider a similar move which could cripple the eurozone as well as result in another global recession .

South Africa is feeling the pinch of the eurozone crisis. Their economic growth could be negatively affected since their manufacturing industry is at risk as the European debt crisis reduces export demand. Concerns about the crisis have contributed to a significant decrease in consumer and business confidence . The rand and local equities have taken strain as investors have become more risk averse, leading them to favour US, UK and German Bonds which are considered to be safer. It is highly probable that some of the buyers of American and German bonds are Spanish and Italian investors fleeing their domestic markets.

The eurozone crisis therefore poses a huge threat for future growth and development. The crisis appears to be intensifying and it serves as a harsh warning that no one is immune from this crisis due to the contagion effects.

riskbusters4

J.M. Shrimpton

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One comment

  1. Nice post, covering all the key points. Saying that, you did miss the topic a bit. Your assignment was to write about what the things that are happening now mean for for the future of growth and development. The key is to relate the slowdown in growth in developed economies, deleveraging etc. to the prospects for growth in developed economies, China, the next 11 etc. Keep up the good work.

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