Euro zone crisis 'no nearer resolution' |
John Greenwood, Chief Economist at Invesco, provides his quarterly global economic outlook... |
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Mike Jones
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Beckenham
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United Kingdom
0845 075 0152
investortoday2011@gmail.com
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John Greenwood, Chief Economist at Invesco, provides his quarterly global economic outlook...
"The crisis in the euro zone is no nearer resolution. Without a fiscal union the monetary union will collapse either as a result of accelerating bank runs in the periphery, or as a result of elections that bring radical leaders to power.
"Either set of events could cause moderate leaders in the core to lose control of events, resulting in an exit for one or more of the crisis economies.
"Unfortunately for the monetary union, euro-area leaders are as reluctant as ever to embark on a far-reaching fiscal union because a federal euro zone Treasury with powers to tax, control spending and issue bonds would be incompatible with the retention of national sovereignty.
"The EU represents about one fifth of global GDP. Consequently the crisis in the euro zone is not only generating a recession in the region, but is severely hampering global trade, undermining growth in the UK, eastern Europe, North America as well as growth in export-dependent Asia. Further global economic weakness is unavoidable until a credible, sustainable resolution to the euro-crisis is within sight.
"In the US, which had been enjoying a better recovery than the UK or Europe, real GDP growth appears to be losing momentum again.
"The current policy impasse has shifted attention to the possibility of a 'fiscal cliff' in early 2013 - ie the risk of a sharp cutback in government spending and a simultaneous rise in taxes together creating a hit to GDP of between -3% and -5%. Meantime monetary policy has limited ability to induce households or firms with debt-impaired balance sheets to spend more vigorously. Private investment is slowing - possibly in anticipation of the withdrawal of fiscal stimulus -and consumer confidence has been falling.
"In China, the economy has avoided a hard landing but it is clearly still slowing under the pressure of both domestic as well as external factors. On the domestic side the policy-makers are still trying to bring shadow bank lending and property prices under control, while on the external side there are numerous signs of exports slowing further."
For more information, visit: http://www.investortoday.co.uk/news_features/euro-zone-crisis-no-nearer-resolution
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