The departure of any member from the 17-nation European single currency bloc could spell uncertainty and mounting concern of a possible financial contagion, says a commodities analyst.
Over the weekend, leaders of the Eurozone – including 10 countries that comprise the European Union (EU) – met in Belgium to discuss possible solutions to the deepening sovereign debt woes that threaten to put global economy into another recession.
The 17 Eurozone nations and nine EU countries, with the exception of the United Kingdom, have agreed to
draft a new treaty that will ensure deeper fiscal union within the region.
Ole Hansen, senior commodity strategist at Copenhagen-based
Saxo Bank, said the political will among European leaders to save the euro from an imminent collapse and the region from plunging into a massive default has been very strong.
“The political will now is to work out some kind of a solution [and save the region]. I think with politicians, they’re quite often not really prepared to make the unpopular decision until they’re staring down the abyss and we are pretty close to that,” he said.
Some beleaguered Eurozone member states such as
Italy and
Ireland have been forced to comply with multi-billion euro austerity measures in exchange for financial support – a bitter pill to swallow, but something that is inevitable.
“A few months ago, you would not have gotten [those cost-saving measures through] because politicians live off the voters, [who] will not agree with such draconian policies. But everyone can see the gravity of the situation and how it has been developing over the last months,” Hansen said.
The
International Monetary Fund (IMF), in its regional outlook published in October, offered a bleak forecast for the EU economy, which is expected to grow by only 1.7 per cent in 2011 and 1.4 per cent in 2012.
In a bid to prevent its economy from further spiraling downwards, the union organised 18 crisis meetings over the past two years with the recent summit deemed as the most crucial in staving off a possible euro meltdown, Hansen added.
“The [debt] crisis is not getting any smaller so they have to face the music. I think the euro will survive. You can obviously argue that if it’s a weak economy leaving the Eurozone, then the euro in the longer term will be better off. But the initial [reaction to a breakup] will just be one of confusion and worries about contagion,” the Saxo Bank analyst explained.
US economy offers global support
As Europe battles to put off the fire of a ballooning sovereign debt crisis that has engulfed countries such as Portugal, Ireland, Italy and Spain, Saxo Bank’s Hansen said the United States has been offering some level of optimism for the global economy.
“Overall, the figures recently have been pointing towards a pickup in the US, they’re coming back, but unemployment is still very high. [They will have a presidential election next year] so there are further measures to speed up the recovery and give its economy an extra kick,” Hansen said.
IMF projects the US to post a real GDP growth of 1.5 per cent this year and 1.8 per cent next year with inflation seen at 2.5 per cent and 0.9 per cent, respectively.
Earlier reports have also suggested
healthier consumer spending in the world’s largest economy in November and early December following Black Friday, the annual post-Thanksgiving shopping event.
Oil prices seen muted in Q1 2012
Saxo Bank analyst Hansen believes that crude prices will remain subdued at least in the first quarter of 2012 amid a relatively weak financial landscape.
“[Considering] the economic situation right now, global economy is not able to really cope with [oil] prices much higher than $115 (Dh423), at least not above $120 [a barrel]. I think that’s the natural ceiling,” he said.
Hansen added that crude cost could likely settle within the $100-to-$110-per-barrel level during the first quarter and steadily rise by $10 in the second quarter.
During the early trading on Monday in Singapore, Brent crude prices remained
steady at $108 per barrel amid renewed hopes over the EU debt deal and China’s import hikes.
“Don’t expect any big moves, but obviously oil price is oil price. If anything unforeseen happens, then we could see a big move in either [the supply or demand] direction,” Hansen said.
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