Since the beginning of 2016 the world economy has kept its strong negative trend of last year.
Since the beginning of 2016 the world economy has kept its strong negative trend of last year. The increasingly severe situation in China is very likely to expand, sending the world into a fresh large-scale global economic crisis.
This is the warning issued by a rising number of experts, who say there are similarities between the crisis that broke out back in 2007 and the present situation. And while the main cause for the 2007 crisis was the real estate bubble burst in the USA, the new one could be sparked off by a similar burst in the world’s second-largest economy, China. Just like 9 years ago, stock markets have been going down with no signs of improvement, while major investors have been pulling out of stock markets. Other experts on the other hand are only seeing the present situation as some sort of market volatility. Financial adviser Ionel Blanculescu believes these are signs for concern and that the world economy should be bracing up for another crisis:
Ionel Blanculescu: “Several factors of decline have converged in recent years. One of them is the plummeting crude prices, while prices in raw materials have hit an all-time low. And last but not least, it’s the situation in China. All these factors, combined with the dramatic situation in the European Union, regarding both the refugees and the banking sector, which has so far failed to recover, point to the conclusion, and I’d like to say that loudly and clearly, that we are facing a major crisis.”
Panic, which seems to have recently plagued financial markets, has caused major drops in stock market indices all over Europe. Losses are indicative of the worst beginning of the year, with indexes falling to the levels of two years ago. There is no clear ground for investors’ concern, but it’s also true that this concern is bearing on banking operations. A possible explanation is that extremely low interest rates, even negative in some cases, are raising doubts among investors concerning profitability targets, so they may decide to shift towards safer values. The global economy will be living on the edge in 2016, with modest growth in developed countries to offset weaknesses in emerging markets, with inflation and extremely low interest rates, which, pundits say, could pave the way for a major financial crisis.
Can Romania avoid a new financial crisis? According to Dumitru Miron, PhD, a professor with the Bucharest-based Academy for Economic Sciences, Romania is connected to the world economy and cannot remain unaffected by the problems affecting it.
Dumitru Miron: “Romania is no longer detached, it has come to rely a lot on foreign markets, hence the 12 billion dollar trade deficit last year. And that means we are no longer that isolated and all these channels, the export-import, the capital entry and exit, profit repatriation, all are elements of connection with an unsettled environment.”
If a new crisis broke out, we would be hit just as we were last time, along the same propagation channels: foreign capital, exports and panic, says economist Dragos Cabat, in an interview with a financial paper. “Banks will no longer finance the local market and consequently the level of cash will decrease. The effects will become visible right away, in terms of EU fund absorption, because projects will no longer have co-financing funds available. Exports will be affected by the decrease in demand, which will be reduced by panic, particularly on the domestic market. Last but not least, deficits are likely to go up. We no longer have economic imbalances like those in 2008, but we are not completely protected”, the economic analyst explains.
On paper, Romania’s macro-economic situation looks good, with an economic growth rate of over 3%, a rather stable national currency and the complete repayment of the debt to the IMF, made in 2009, at troubled times, reads an analysis made by a company specialised in business information and credit management for the business environment.
However, statistics can be misleading, because, according to the same document, overall economic performances conceal an imbalanced economic progress, with a strong emphasis on trade and a downward trend in the production sector, accompanied by growing geographic polarization.
For the time being, the European Commission has made an upward adjustment of its forecast regarding Romania’s economic growth, stating that this year the country’s economy is likely to reach a 4.2% peak. However, in 2017, the economic growth rate will decrease slightly, to 3.7%, according to the Commission’s forecast. The driving engine of economic growth remains domestic demand, while the net contribution of exports will stay on a negative trend. Should a new economic crisis break out, its first signs, namely a growing unemployment rate, a decrease in wages, and a slow-down in operations, could be felt in Romania in the second half of 2016 at the earliest.
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