December 09, 2011
The present global crisis started as a financial crisis but now an economic crisis. It is extraordinary in severity of credit and capital crunch with its root in the banking rather that securities market or foreign exchange.
It started in the United States due to certain laxities in the US financial system. It spread to Europe and now become global. Even countries not affected by the financial crisis are now affected by ‘second-round effects’ as the crisis now becomes ‘economic’.
Households faced difficulties in making higher payments on adjustable mortgages as the financial crisis started in the U.S in August 2007 with sub-prime mortgage crisis. By the first quarter of 2008, there was widespread "credit reduction,” as financial institutions in the US tightened their credit standards in light of deteriorating balance sheets. Increased delinquency rates affected not only sub-prime loans but also spilled over into consumer and other credits by the fourth quarter of 2008.
In Europe, debt conflagration is currently blazing across their borders and the world is urging the euro zone’s leaders to staunch it by unleashing the powers of the European Central Bank. Many European leaders are advocating this as well but Germany is single-mindedly opposed to this. Recently, financial regulator 'urges British banks to prepare for the collapse of the euro' as fear is mounting that Europe’s debt crisis could rage out of control, ultimately causing the breakup of the currency union or worse.
At the end of a meeting of finance ministers of the 21-member Asia-Pacific Economic Cooperation forum. US Treasury Secretary, Timothy Geithner, demanded rapid action by Europe to restore financial stability, warning that the region's economic crisis is "the central challenge to global growth." President Barack Obama also spoke with German Chancellor Angela Merkel, French President Nicolas Sarkozy and also called Italian President Giorgio Napolitano on similar ground.
Recent manufacturing data coming out of Spain and Italy spoke louder than any politician. Markit, the financial data providers, says "Spanish manufacturers cut input buying at the sharpest pace in almost two-and-a-half years in November 2011, in line with falling new orders. The latest strong reduction in purchasing was the seventh in as many months."
In effect, Spanish firms took their cue from the European Central Bank and its successive interest rate rises in April and July to say that the brief recovery is over. Italian manufacturers have taken a similar route to retain their solvency by cutting back on production to only those items they can reliably sell. Today, after three months of turmoil in the Euro zone, all European manufacturers are cutting production.
There are hope abound on China to bail out the developed world. Then there are people on the other end of the pole. An economic commentator professor 'Larry' Lang Xianping who has often exposed the problems of the Chinese economy and even been proved right made some very distressing claims which will be mentioned for consideration.
(a) Unlike the official numbers that claim the Chinese economy to be growing at a brisk pace of 9.1%, the economy is actually in recession, declining by about 10%; (b) Again contrary to the official government figures which claim inflation to be at 6.2%, real inflation is nearly 16%; (c) At US$ 5.7 trillion, China's debt burden is higher than its GDP (Gross Domestic Product). If Mr Lang's claims are anywhere close to reality, the world has a big reason to worry and such worry should be left to economists, central bankers and policy makers.
In Africa, the impact of the crisis comes from both direct and indirect channels. The direct effects have been felt mostly through the financial sector. For example, stock market volatility has increased since the onset of the crisis and wealth losses have been observed in the major stock exchanges. In Egypt and Nigeria, the stock market indices declined by about 67 per cent between March 2008 and March 2009. Significant losses have also been observed in Kenya, Mauritius, Zambia and Botswana. Recent analysis showed that the Nigerian stock market indices declined by 20.52% between January 2011 and December 6th, 2011 while similar trend can also be traced to America, Asia/Pacific, Europe, North and South American stock markets. The current effort by the lawmakers in Nigeria to get Telcos and other multinationals listed on the Nigerian Stock Exchange will, however, help deepen the market and make it more attractive to foreign investors.
Amidst all the darkness and chaos, a continent by the name of Africa is quietly on the rise. After centuries of stagnation and political turmoil, the last decade has witnessed a remarkable shift on this continent.
The Economist has shared some interesting statistics. "Over the past decade six of the world's ten fastest-growing countries were African. In eight of the past ten years, Africa has grown faster than East Asia, including Japan.
IMF (International Monetary Fund) expects Africa to grow by 6% this year and by nearly 6% in 2012, about the same as Asia." While a considerable amount of credit for the growth goes to the commodity boom because of region's rich natural resources. But Africa is also progressively gearing up on the manufacturing and services front.
The positives must be taken with a pinch of salt as a large part of the continent (Africa) is still embroiled in poverty, corruption and hordes of social and political issues. But problem also means opportunity as the emerging markets in Asia and Africa would be the shining stars in the dim global economy.
It will be a welcome development if government and its regulatory agencies such as Federal Ministry of Finance, CBN, SEC and other members of the Financial Sector Regulation Coordinating Committee (FSRCC) work towards the realization of Nigeria’s economic development and growth objectives by coming up with implementable policies and laws that will enhance the quality of the overall market.
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