Few stories were as prevalent this year as ongoing debt problems in the European Union (EU). Spillover from issues in Greece and larger, more important economies like Spain and Italy showed an ability to affect economies around the world because of the reliance on the EU’s previous importing behavior. Though some positive news started to flow by the end of the year—largely in the form of Germany finally being willing to back much of the aid needed to bolster a Greece that seemed perennially ready to fall off the euro currency—the problems remain very real. The potential for an enhanced economic recovery on a global scale could be largely in the hands of Italy and Spain as to how each weathers the fiscal story in 2013.
In an FCIB members-only teleconference focusing on the global economic outlook in November, FCIA Vice President/International Economist Byron Shoulton painted a picture in which virtually all corners of the globe are being affected negatively, to varying degrees, by the ongoing euro-zone crisis.
Shoulton noted that recent agreements coming out of the EU designed to bolster debt-hobbled economies represent “the strongest act to date to save the euro,” describing them as “long overdue.” But, as the situation continues to play out with the potential for Greece leaving the euro, and Italy or Spain possibly needing their own bailouts, export-dependent economies are taking a hit.
Shoulton noted that the drop in demand in the EU has affected the economic recovery of nations like the United States and led to growth targets being missed in emerging economies of Asia, notably South Korea, Thailand and Singapore. What’s worse, in places like South Korea, the drop in Europe for demand of its products came during a domestic cool-off period, providing a double whammy. Granted, the inability of China, also affected negatively by a drop in product demand from the EU, to quickly ramp up its economy again after purposely slowing growth to stave off inflation isn’t helping either.
“This region will remain a major driver of the global economy,” Shoulton said of Asia. “But, over the medium term, real GDP expectations will continue their downward shift.”
The crisis is affecting Latin and South American nations in another way, as well. Shoulton noted that European-based banks were known to fuel trade financing, with estimates of 33% and 40% of all trade financing for the region emanating from EU-based banks, especially in France and Spain. That could provide a drag on growth potential for emerging Latin trade markets.
“The banks are obviously pulling back,” he said. “They are having problems with their own liquidity amid the need to slim the balance sheets.”
Granted, Shoulton said there is more reason for optimism in Latin American nations than in the United States, EU and corruption-stricken trading nations in Africa and eastern Europe (primarily Russia). With richness in natural resources, increasing demand for consumer products and status as a key agricultural-product provider, it is “decidedly more upbeat:”
“People are taking a fresh look at Latin America, and it’s making it more attractive for foreign investment and trade.”
Courtesy Brian Shappell, CBA, NACM staff writer