The second wave of the crisis and a new dislocation

The second wave of crisis chart ranks the world soon

In brief: The second wave of recession coming to us from Europe, the global economy can not be resolved in the near future.

How seriously should be considered the threat of the new reecession and the second wave of crisis? The fact that the pace of economic recovery will begin to decline, many analysts have repeatedly predicted, therefore, in a sense, the events of recent months in the stock markets should not surprise anyone. Markets with their usual harshness and inconsistency warn that lies ahead. Last summer, they signal the approach of a tipping point and the beginning of recovery. Now they predict a short pause in growth. As already noted, this often happens during the recovery period: the positive dynamics slows down, the activity also decreases for a while, then to resume with renewed vigor.

However, that slowdown could be worse? There are always people who prefer to see the glass as half empty. Nevertheless, look at the facts and consider the prospects of first world economy, then the UK economy. In the U.S., suddenly noticed that the financial policies of the expansionist gradually becomes restrictive. The program for the exchange of old cars for cash over a few months ago. A program to support home buyers, which eventually brought them up to 8,000 dollars (5,300 pounds), ended in June, which invariably affected the sales and cost of housing. Also, people are beginning to realize that six months later the Americans with high-and middle-income countries will pay income tax at the higher rate. Of course, the U.S. must adjust its budget deficit, but raising taxes will inevitably lead to a reduction in consumption. Given that consumption is responsible for 70% of demand in the U.S., its reduction will result, ultimately, the economic slowdown. However, all these troubles occur in the economy, which started above the trend growth rates. According to analysts Commerzbank, the growth rate in the U.S. and in Canada this year will exceed 3%. Japan, Germany and Sweden also show positive dynamics. As noted by Commerzbank, most problems in countries affected by the debt crisis, especially at the periphery of the euro area and Britain. The signs of sustainable growth are observed only in Germany. If you focus on the experience of the past, the current restoration of the state of recession can not be called rapid. Given the depth of the recession, it is somewhat alarming. Yet the fact remains: the three largest economies of the developed world show growth above its long-term trend. The crisis seemingly does not affect Odessa Ukraine apartments. Demand for them is constantly high and stable.

Europe has another headache: the state of the banking system. Many mainland banks to their ears mired in debt securities of Greece, Portugal and Spain. Now their prices have dropped significantly below the price issue, because these countries do not even-tempered hour, defaulted on its obligations. As a result, if all of these losses would have to reflect on the balance sheet, many banks would simply burst. Not surprisingly, other banks are reluctant to give them credit. Thus, they are kept afloat by loans, European Central Bank, which is ready to take the national debt as collateral. This situation does not cause anybody optimism, including a future commercial borrowers from banks, and, most likely, it will put pressure on growth. What happens in the rest of the world? In fact, the entire growth in the past three years have been fueled by emerging markets, particularly China and India. Now China has changed. It is difficult to judge from the outside, but it is worth noting that after 11% growth last year, a slight slowdown just need, while Chinese authorities have been working in this direction for many months. Why should the people? Just now, everyone is looking for a cause for concern: pessimistic so far dominated.

They predominate in the UK. Last week, the service of fiscal responsibility published their data on the loss of jobs in the public sector, which raises questions about whether the private sector to take the hit. In the Service give an affirmative answer, given the plans to reduce unemployment. However, doubts remain. This theme was even more public attention than the story about the results of auction of government bonds, when the Finance Ministry managed to sell a large number of 30-year securities at a very even decent price. Thus, the benefits of the budget in the context of our ability to finance its deficit and the long-term interest rates are gradually becoming evident. In addition, choose a particularly not from what. Nevertheless, we are waiting for a long and substantial reduction not only because of lower public spending, but also as a result of higher taxes. Richard Jeffrey of Cazenove in its comments clearly stated the current situation. He notes that in 1998-99, before Gordon Brown gave way to cost, total public spending accounted for 37.3% of GDP. As the immersion of the country into a recession had increased to 41.1% in 2009-2010 it reached 47.5% and, according to government’s action plan, to the 2015-2016 year should fall to 39.8%. During this five-year term 80% reductions will be based on spending cuts rather than increasing taxes, but in the beginning of the scheduled period, the ratio will be different. In 2011-2012 (fiscal year starts in April), only 57% reductions will reduce costs.

Thus, next year we will pay much higher taxes. Can we, looking at the truth under such circumstances, to expect that consumers will continue to support economic growth? Or, in other words, the majority experiencing due to cost reductions, however, the tax increase may be much more dangerous. This is because of the monstrous legacy that we inherited from the time of Gordon Brown. Most likely, the economy is set for the second recession, probably not even The length of the drawdown in the first half of next year, when the tax burden will reach its climax. However, if the global economy continues to show growth over the next year and beyond, the United Kingdom will be able to hold onto plavu.Takim way, we have to admit that Britain and some other countries in the developed world is waiting for a double recession in its various manifestations. In the event that the British economy will continue to move the script 1980, it will reach its previous highs not before 2012, perhaps only to its end. By the time the time comes to repay the debts, so the path to recovery will be long and arduous. But this is just the way that, whatever it was, leads upstairs. Thus, the second wave of crisis awaits us.

Ukrainian Globalist
2010-07-25 10:13, Economics.

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