Worldwide economic growth will likely slacken in the third quarter of 2011 as austerity measures in debt-laden Eurozone nations, particularly Greece, could dampen consumer confidence and hit foreign trade, according to a recent report by Saxo Bank.
Outlook for the global gross domestic product (GDP) in Q3 is seen at four per cent, year on year, declining slightly from the 4.2 per cent forecast in the second quarter, data from the Danish investment firm revealed.
Steen Jakobsen, chief economist at
Saxo Bank, has also expressed concern over the Greek debt fallout’s possible effect on Middle East fiscal performance due to the region’s dynamic trade ties with the European Union (EU).
“The whole world should be concerned – the recent austerity measures in Greece leave the world in no better place. We expect deteriorating domestic data for almost all of EU. The [Eurozone] debt crisis continues to be unresolved and as such, constitute the biggest single event for Middle East growth and export,” Jakobsen explained.
Weighed down by a mountain of obligations amounting to around €340 billion ($485bn; Dh1.8 trillion), Greece has been struggling with a debt-to-GDP ratio of more than 150 per cent, according to international media reports. The Greek debt crisis proves significant as it threatens to derail the recovery of a still fragile global economy.
At the height of the global financial crisis, Athens approached EU and the International Monetary Fund (IMF)
with hat in hand for a €110bn stimulus package that has been released in tranches in exchange for stringent austerity measures, resulting on the other hand to intensified domestic discontent.
Euro debt crisis not just about Greece
In its quarterly report, Saxo Bank noted that the euro crisis goes beyond Greece with the larger picture also focusing on neighbouring countries such as Spain and Italy, which are battling with high unemployment rate and inflation.
“The road for the Eurozone is likely to be a rocky one for the rest of this year – the market is already pricing in a lot of risk for the euro, so the currency could perform very well against the pro-risk trades and even against the Swiss franc if the euro is able to muddle through, which is still the highest odds scenario,” the report said.
Saxo Bank predicts the Eurozone to grow 1.5 per cent in Q3 with inflation rising to 2.4 per cent from 2.1 per cent in the previous quarter. The region will also have to address a significant unemployment level of 9.8 per cent in the third quarter.
Oil remains Middle East’s saving grace
In addition to the European sovereign debt crisis, unresolved turmoil and geopolitical concerns in the Middle East and North Africa (Mena) continue to pose “grey swan” risks to the Middle East’s economic growth. But in the midst of these uncertainties, Saxo Bank’s Jakobsen said oil still offers a silver lining for countries in the region.
“There is a string of events [that] could have material impact on Q3 performance in the Middle East – among them the political strife [in Mena], the [United Nations] vote in September and the [economic] slowdown [in] Europe. For the global economy, we expect a slowdown based on increased austerity, inflation-fighting [strategies] and lower net export volumes,” Jakobsen said.
The Middle East, on the other hand, is expected to register “above-trend growth” due to the influx of petrodollars.
Crude oil prices, which soared the past months due to various factors, have gradually steadied in recent weeks to reach above $111 per barrel as of Monday. Some industry players have even projected the commodity to settle at an average of $90-$100 throughout the rest of the year.
Jakobsen said latest oil price movements appear constructive for oil-producing nations as lower crude cost will eventually boost market demand.
“On the positive side we note that gasoline prices have come down slightly, however, we remain bullish about energy from the demand side,” he said.
In its outlook for the Mena economies published in April, the
IMF forecasted that the region will expand by 4.1 per cent in 2011, up from 3.8 per cent last year.
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