WORLD ECONOMY, IN BALANCE

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On one hand when USA and Europe economy is strengthening mainly due to Fed tapering program by US and high export growth in Europe respectively, the 2nd world i.e developing economies are facing downward trend in economic growth and equities. Although the main culprit for this downturn is USA’s fed tightening program. When USA is trying to squeeze its liquidity by its bond buying program, the FII’s are disinvesting their equities in foreign markets and has started to bring back the money.

Uncertainty over china’s growth path is more fundamental, and investors are foreseeing the economy more volatile than ever. The growth of china based on high debt is not fascinating for investors. Although the new leadership in china is trying to curb this unsustainable credit-fuelled boom in future.

One of the main causes that have created a tandem in oil market is the shale gas revolution in America. (Shale gas is a type of fuel gas found under sedimentary rocks). The dependency of America on fuel gas has increased from 10% to 46% within a decade. The main cause for this is shale gas revolution. This has led to a downward pressure on export prices of oils and gas in Russia. And at the same time the cheap energy is US is affecting some of the manufactures from Asia. One of the countries that is benefiting highly from this is Mexico. There is abundance of shale gas in Mexico. Although china has the highest reserve of shale gas in the world they have been unable to dig it out efficiently till now.

One of the most important factors underpinning the market confidence in the last year is the stability in euro zone. Most of the countries in Europe are in current account balance and countries like Germany is in massive trade surplus. This has increased the vulnerabilities of emerging market.

In Brazil the government’s effort to weaken central bank’s independence and meddle in energy and lending has adversely affected the growth, on the other hand in India, central bank independence remains reasonably strong. This has also helped in curbing the high inflation that was one of the major problems for the economic growth.

If we look overall there are some economies that remains strong even in this global turmoil while some economies are really been hampered with recent global developments. As world is a balance there needs to be upward shift in some part and downward in some part to keep it in sync.

Contributed by:

SATYAM ANAND

PGDM II SEM.

www.smsvaranasi.com

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