Tag Archives: Global Economy

Britain is facing a ground hog year

As the Sterling is edging away from its 9 month low against the euro, it  is still very vulnerable to renewed selling on concerns about its fragile domestic economy.

Yesterday, financial experts warned that Britain is “likely” to lose its AAA credit rating as it seems that there’s another threat of a triple dip recession. The world’s three biggest rating agencies have all put the United Kingdom on a “negative outlook”. For instance, the chief economist at IHS Global Insight predicted that at least one of the three main rating agencies may downgrade Britain this year. Of course,  a lower ranking indicates that the country is a risky alternative for prospective investment. Arguably, such recent economic developments can even push up the borrowing costs for businesses.

Merely last week, the National Institute of Economic and Social Research (NIESR) calculated that the British economy shrank by 0.3% in the final quarter of 2012. The Centre of Economics and Business Research (CEBR) is forecasting that in 2017/18,  the net borrowing will be around £68billion. This amount is more than double the previous £31billion benchmark. CEBR is describing the UK’s deficit as a “three-parliament” problem, as they believe that austerity could possibly stretch beyond the year 2020.

In a similar vein, the annual CPI inflation stood at 2.7 percent in December. This means that it is currently somewhere well above the Bank of England’s 2.0 percent target. A high inflation could worsen an already weak economy by reducing British consumers’ spending power. CEBR is envisaging that the UK economy will grow by a mediocre 0.5% in 2013 and by 1.2% in 2014. Moreover, the unnerving sterling investors are wary of a probable referendum on Britain’s future membership prospects in the European Union.

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Environment and economy on collision course

According to the latest communication from the the World Economic Forum; weak economies coupled with  extreme weather conditions in some places, have brought greater risks and instability in the international markets. In a highly uncertain economic backdrop, the European Union has avoided a euro break-up in 2012. Whereas, the United States stood very close to fall off from its fiscal cliff, merely a week ago. Of course, business leaders and academics are raising their alarm bells as they fear that many politicians and policy makers are not capable of addressing their fundamental problems.

These arguments were mirrored in  the recent ‘Global Risks 2013’ report, which surveyed more than 1,000 chief executives and owner-managers. This report maintained that the industry bosses are more pessimistic about their economic outlook, than how they perceived it a year ago. Unfortunately, many multi-national firms are facing unprecedented wealth gaps and unsustainable government finances in some of the countries, where they carry out their business. In addition, during this year some areas witnessed a marked increase in severe weather conditions, which may have also affected their operations as well as their bottom-line.

This particular report featured an 80-page analysis of risks which are envisaged for the next 10 years. It anticipates the World Economic Forum’s (WEF) annual meeting, scheduled between January 23rd to 27th. It will be held in the Swiss ski resort of Davos. This meeting will once again symbolise the modern globalised world, where business leaders hailing from successful multinational corporations mingle with  politicians and bankers. On the horizon, the economic front indicates that there are some dark clouds which are causing some euro-zone uncertainty. The report suggested that, “the associated risks of  systemic financial failure are limited, yet they cannot be completely discarded”. It transpires that there are rising concerns in the environmental issues, particularly about the greenhouse gas emissions. Apart from the strict European standards, the failure to adapt to climate change is being perceived as the biggest challenge for sustainability.

For instance, superstorm Sandy created havoc and unnecessary costs on the US east coast, in October. This year, the temperatures in China chilled to a 28-year low. Today, south eastern Australia battled scores of wildfires in heat-wave conditions. It goes without saying that slack resources will have to be dedicated to mitigate the rising risk from severe and unforeseen weather conditions. As a consequence, our well-being and the global prosperity of our future generations may be threatened.

Interestingly, on this occasion the theme in Davos has been dubbed, “resilient dynamism”. Inevitably, the governments and the businesses will have to come up with reasonable strategies and approaches to ensure that critical systems continue to respond to such contingencies. Essentially, the regulatory authorities and the business practitioners are expected to successfully weather the economic and environmental storms.

(source: http://reports.weforum.org/global-risks-2013/risk-case-1/testing-economic-and-environmental-resilience/)

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