March 30, 2012

The Eurozone economic crisis seems to be a continuous trend. This is particularly true for the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Greece is still not out of the woods despite several rescue efforts made by European Central Bank.
 

The most disturbing story now is the health of the Spanish economy. Earlier, most economists were predicting that Italy may be the next Greece. However, the recent rise in Spain's 10-year government bond yield suggests an altogether different story. It has surged to 5.4% at the end of February 2012, 0.4% higher than its Italian counterpart.  The main reason for this is the widening fiscal deficit in the Spanish economy. First, Spain missed its 2011 budget deficit target. Then, it tried to revise its 2012 budget deficit estimate from 4.4% of GDP to 5.8%. This was enough reason for investors to start losing confidence in the Spanish economy.
 

Two day ago, Barcelona-based Caixabank, one of Spain's strongest lenders, agreed to buy Civica in an all-share deal valuing Civica at 980 million euros ($1.3 billion), 27 percent less than the Civica's initial public offering price when it floated in July 2011.  The newly installed Spanish government aims to reduce the number of lenders to around 10 from more than 40 before the economic crisis. 

Not only investors but other European economies, especially Italy are also concerned. Italy has been trying hard to come out of its bad economic phase. Any fallout from Spain would push back the whole region to the crisis situation. And it would hurt the corrective measures taken by the Italian government as well. But will Spain go Greece way? Only time can answer.
 

The world stock markets ended last week on a sour note. The Dow Jones industrial average and the Standard & Poor’s 500 Index both fell by -1.15% and -0.50% respectively. The German DAX fell by -2.27% while the London FTSE 100 also moved in the same direction with -1.86% loss while similar story can also be said about World Market during the week based on available data.
 

The US stock markets were down 1.1% during the week due to disappointing housing data. New home sales fell for the second straight month in February by 1.6% to 313,000. Fall in volumes suggested that the recovery in the US housing market may take longer than expected.
 

Furthermore, the factory data from Europe and China was also disappointing leading to a broader fall in global markets.
 

In early afternoon Wednesday trading, the Dow Jones industrial average fell by 4.20 points, or 0.03 per cent, at 13,237.43. The Standard & Poor’s 500 Index was down by 0.10 points, or 0.01 per cent, at 1,416.41.
 

Nigeria’s Status, Economic? Maybe!
The Nigerian Stock Market was down during the week after closing green at the end of the previous week. The market year to date performance as at 29^th March 2012 stands at +0.41%.
 

Interestingly we remain one of the very few markets yet to record a bounce on the back of favourable economic data and GDP growth figures. Amongst the other world markets, Spain was down by -2.54% while Japan was down -1.2% during the week. France was the biggest loser registering losses of -3.3% during the week.

Europe is crumbling and unfortunately for Europeans things may not improve soon. Much attention has been focused on Greece, Portugal, Ireland, Spain and Italy, but the contagion effect remains a real and present threat.
 

Today, public debt in Britain is about $2 trillion and still growing despite huge cuts in spending. Africans know the ravages of poverty too well to revel at Europe’s misfortunes.
 

Just as Europe’s financial crisis still threatens the United States recovery, Nigeria is not an exception as IMF recently issued a blunt warning that unless the European economic crisis is resolved, the global economy  faces another 1930s style ‘Great Depression’ which would negatively affect frontier markets including Nigeria.
 

The alert therefore is more urgent in the absence of a clear and deliberate plan or communication of a set of steps to address the continuing decline of the capital markets and indeed the import dependent economic policy being pursued. We need to be assured of a safeguard plan/measure to absolve the shock from the economic crisis in Europe. Such measures can only be achieved through economic diversifications and people oriented reforms – both of which we have heard nothing about.