January 19, 2018

The Never Ending Story?

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I wrote in October about the double problem for the global economy – the stagnant US Economy and the Eurozone crisis. Both of these have been fuelling negative business expectations which, as you know, make private consumption and investment lower than they otherwise would be. So let’s re-assess the situation a few months on.

English: Various Euro bills.

Image via Wikipedia

In the US, recent jobs data have pointed to a reduction in unemployment and slow but steady growth in private sector job creation. This is coupled with strong growth in various sectors of the economy such as manufacturing and services. While these only represent single observations in a series of data, there is perhaps reason to believe that the US economy is heading towards better times.

But what’s happening in Europe? The crisis continues. But yesterday afternoon there was hope that there would be agreement from the Greek government to accept the agreement.  Stock markets were rising and the Euro was getting stronger.  Not so this morning. Greek leaders have again failed to agree on the bailout conditions. If Greece defaults on its debt we will see a massive reduction in the money supply in the Eurozone as affected banks try to rebuild their capital bases. The potential for contagion and a series of defaults across southern Europe would increase, something that the markets have seen as less likely of late given the comparatively low yields on Italian and Spanish debt.

Some commentators now believe that a strong recovery in the rest of the world would outweigh the negative impact of current events in the Eurozone.

What do you think?

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