UPDATED : Monday, 27 June, 2016, 12:06pm
It is no exaggeration to say that the world
economy has just entered into a new age of deep uncertainty. Britain’s
decision to quit Europe has sent profound shockwaves around the world at
a very bad moment. The world economy is hardly out of one global
financial crisis and the odds are surging that another worldwide crash
is about to begin.
Britain’s Brexit vote has far-reaching
consequences with the potential to throw the world into even bigger
economic chaos and disorder than the 2008 global financial crisis. The
catastrophic collapse in the UK pound, free-falling global equities and a
dramatic surge in market volatility is just the start of it. The lid
has been lifted off Pandora’s Box of morbid fear. There is no end to the
list of deep concerns in investors’ minds, bringing risk aversion and
market panic to boiling point.
Global financial confidence is a fragile house
of cards at the moment. Global policymakers have worked courageously and
have been extremely inventive to keep the forces of global contagion at
bay over the last seven years. Zero interest rates, creative monetary
engineering and lashings of QE cash have held the line, but there is
precious little left in the central banks’ kitty to deal with what may
come next. The next crisis could be the one that breaks the central
banks.
There is precious little left in the central banks’ kitty to deal with what may come next
What complicates matters is that the world is
already consumed with fear and loathing about unsustainable global debt
levels, the parlous state of global banking, the spectre of a hard
landing in China and growing geo-political concerns. Meanwhile,
supranational bodies like the United Nations, World Bank, International
Monetary Fund, OECD and Group of Seven seem increasingly powerless to
make any difference.
Worries about the health of the flagging global
economy are genuine. Increased uncertainty will hit economic confidence
hard. Consumers will hold back on spending, companies will suspend
output and investment intentions and global trade will slow down even
more. More vulnerable parts of the world economy will risk slipping back
into recession and deflation will continue to get the upper hand.
Major central banks will come under growing
pressure to intervene with even more negative interest rates and extra
QE provisions. Governments will be forced to end fiscal austerity and
open up deficit spending again. Some governments will be tempted down
the road of competitive currency devaluations. The world will be heading
deeper into a bizarre world of increasingly ineffectual and more
dangerous policy remedies.
Increasingly alarmed investors will be looking
for scapegoats, so it is no surprise the contagion spilling out from
Britain is already subsuming European equity markets, peripheral bond
and credit spreads and critically hitting the euro hard. Calls for
similar EU referendums in France, Italy, Netherlands and Denmark have
horrified the markets. Any escalation of the euro crisis could be the
beginning of the end for European monetary union.
The risk of other countries leaving the EU or
the euro zone is the stuff of nightmares. The European Central Bank is
loaded to the gunnels with “derivative” QE assets. Any risk of the ECB
partnership untangling and the ensuing threat to the euro and global
markets would be unimaginably toxic. A sub-parity euro/dollar fx rate is
a strong possibility.
Nessun commento:
Posta un commento