The crisis cycle of economic trends

Global economic trends have taken a few knocks, this includes; the US mortgage bubble burst in 2008, the increasing rise of China despite a decreasing global economy, the fall of Greece as well as the decreasing economies of Spain, Italy, Portugal, France and Ireland; and lastly the fall of the European Union. The fact that the growth rate of consumption of China is much higher than the rest of the world only contributes to an unequal global economy. This has led to a few arguments on whether the European Union should be disbanded or whether they should be busted out of their horrific situation.

In addition economists agree that there are a few trends that should be watched this year. These trends include; the United States political polarization between the two parties which could lead to a smaller budget for federal functions and a lower lending rate to fund normal operations, the increase in global volatility which is centered on the European crisis, the fact that China’s growth rate has decreased in 2012 and could lead to the problem that China may not reach all its goals, the increasing shortage of AAA rated assets which will only lead to a widened gap between the preferences of savers and the needs of borrowers, and lastly the shift in investor’s appetite for risk which would rather invest in financial markets rather than in countries’ debt such as Spain or Italy who might not be able to repay its obligations.

With regards to the dispute between the Democrats and the Republicans continuing in the United States, the budget deficit will most likely increase which will only lead to more foreign debt that cannot be repaid, thus slowing down economic trends and growth in the world. The European crisis is another major issue regarding economic trends of the world. It has not only affected Europe but also other countries which includes South Africa. Europe was one of the top importers of countries such as South Africa, Kenya, Brazil, Argentina and Mexico which has led to a decrease in their economies and thus created a spill-over effect of decreasing economies in emerging markets and third world countries.

Some economists argue that Europe could bust out of their crisis by learning from China. China ran the world’s biggest economy stimulus while maintaining a sustainable budget deficit of below 3% of GDP.  China therefore did not have to choose between continuing fiscal stimulus measures and prioritizing budget consolidation.

Popular blog author John Ross made a good point when he wrote: “China’s authorities have always rightly clarified that it is not arguing for its economy to be a model for others. It rightly insists every country is specific and therefore no country can or should mechanically copy another. But nevertheless China learned many things from other countries. For its own sake, Europe should start to learn from China”.

Although China is a good example of how to manage a difficult economic climate, they are not without flaws. The question should be asked on whether they are to be seen as a future prediction of what might happen to the European Union, or whether the European Union should increase their capital and focus on targeted investment to try to solve the crisis internally while affecting the rest of the world to a minor extent.

J.A. Scholtz

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One comment

  1. Very nice post. Your second paragraph is exactly the quality that you should be aiming for throughout. Also, nice use of links and references to other sources. There are however a few ideas that have to be tied down a bit more. Towards the end of the first paragraph, it is not clear how inequalities in the world economy are releted to the possible dissolution of the EU. As for the lessons that the EU can learn from China, the ideal would be to go into more details in an additional paragraph. At the moment countries in the EU cannot borrow or spend more in the why that China can afford to do. We’ll get back to this point when we talk about the limits of fiscal policy.

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