Overview of the Global Economy

How is the Global Economy after the Great Recession…?

As the global recovery unfolds, the countries’ economic performances slowed down as it goes through the uncertainties brought about by the external shocks and natural disasters since the beginning of 2011. From the MENA crisis that caused an uptick in the oil prices consecutively, up to the devastating natural disasters of Japan & Thailand which ruined mainly the supply chain affecting the whole economy. Hence, the overall production of Japan and Thailand receded to -1.7 and -9.0, respectively. Moreover, the numerous credit rating downgrade and the weaknesses in the US and Euro zone greatly contributed to the sluggish recovery.

Euro zone lags behind as its dilemma continues

Though the recovery is already solidifying in many countries, the Euro zone is still not over with its debt crisis. Last February, the European commission announced that the euro zone will be heading to its second recession in three years. "The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession," the Commission said in its interim forecast report.

Meanwhile, the Greek took the crucial aversion of their first ever sovereign default as they meet the bailout conditions. as seems fall short of the required amount by the deadline. Furthermore, the credit rating agencies warned the Greece and its banks that they would be barred from the European Central Bank’s (ECB) funding. Thus, ECB would no longer accept Greece government bonds if the Greece were to loan again.

China looks for a more sustainable growth

Despite having the highest growth, China looks for a more sustainable expansion as it cut its growth target to 7.5% for 2012. Having a high growth rate has caused problems to China, mainly a high inflation rate, wherein the Chinese authorities had to implement monetary policies to ease the burgeoning inflation. Furthermore, as they regularly grow more quickly, this year China prioritizes more for economic stability, change in leadership and endures the impact of the global slowdown. A more efficient growth would lessen the painstaking efforts of China to achieve its goals and would be more realistic of their capability.

The US recovery is gaining strength

Confidence jumps as Dow Jones breaks 13, 000 basis points…

The US stock market went back to its pre-crisis level as it breached the 13,000 basis point mark for the first time since May 2008. Hence, indicating a surge of confidence and a positive outlook in the health of the US economy after the recession. The stock market, as a leading indicator, plays a pivotal role in the growth of an economy. Hence, a movement in the stock market is a reflection of what is happening in an economy. Thus, a rising stock market is a sign of a growing economy. The United States, the world’s largest economy, contributing about $15,000 trillion or almost 30% of the total global output, clearly shows how influential the US is to the world economy. Hence, any boom or crash in its state could affect the rest of the world.

…and the strengthening jobs market adds up…

After being stagnant for a couple of months, the US unemployment rate moved out of the 9% level and dropped to 8.3% this January, the lowest in three years. It was also the first time that the unemployment rate has fallen for five-consecutive months since 1994. "The drop in the unemployment rate may make them a little less antsy to pull out the big guns, but there is still not enough evidence of sustained, above-trend growth to get them to stop worrying about downside risks," said Michael Feroli, an economist at JPMorgan in New York.

Moreover, the jobless claims or the number of people seeking for unemployment benefits, also dropped to 352,000, the fewest since April 2008. Thus, indicating a strong hiring that pushes down the unemployment rate.

The jobs market improved much faster than expected, which gives a good impact to the US President Barack Obama’s re-election this November. The Payroll tax cut bill –Obama’s jobs agenda to alleviate the fragile recovery and prevent the worst economic downturn. The bill grants those who are unemployed for more than six months an average of $300 a week jobless benefit. While the workers would still continue to receive a two-percentage increase in their paychecks. The US Congress recently approved the renewed bill for the 160 million workers and jobless benefits for millions more, the last significant bullet of Obama before the election.

"Our job now is to keep this economic engine churning. We can't go back to the same policies that got us into this mess," Mr Obama

…but the stability risks remain because of the escalating oil problem that could spill over to the world economy.

Explain oil situation (include oil price graph) Iran is the world’s fourth largest oil producer and is OPEC’s second-largest producer after Saudi Arabia. But due to their nuclear program, the United States and the European Union decided to impose sanctions and boycotts on Iran’s oil. The Obama administration shift alliance with other oil-rich countries such as Saudi Arabia to offset the loss of Iran’s oil to the global market. Doing so would effectively cut off Iran’s oil sector and increase Saudi Arabia’s production. Subsequently, Iran responded as they threaten to halt crude tankers by closing the Strait of Hormuz, the main Gulf oil shipping lane. “Iran depends on the strait to export its own oil, which generates about $80 billion in earnings and about 60 percent of its budget,” Daniel Yergin, the chairman and founder of IHS Cambridge Energy. If Iran would cut oil shipment which would definitely lead to a spike in oil prices, Iran would be hurt also.

The rising oil prices, pump prices

"In a preemptive move, Iran announced last month that it will cut its oil exports to some EU countries because of the sanctions the latter imposed in a bid to stop Iran’s nuclear program. EU initially imposed an embargo on oil, halting further oil contracts and for existing deals to run until July this year," Metrobank said

"Supply concerns further support the elevated prices, as production losses were reported in South Sudan, Yemen and Syria."

"Dubai crude, in particular, has widened its price gap from the global oil average, already trading at three-year highs just this February. Since Dubai crude is the oil benchmark for the Asian market and the monitored global oil price by the Department of Energy, the steep uptrend is a cause for concern for domestic oil consumers," Metrobank said.

Summary & Conclusion