Recently, the fiscal cliff is one of the most discussed issues in regards to global economic developments. Its impact on international financial markets is expected to be of a significance. In addition to it, however, problematic issues across other countries will intensify the the economic uncertainty.
If we leave aside the fiscal cliff, there are few other events that could put the US economy into recession in the upcoming year.
An election awaits Japan. Of importance here is that the government debt is currently 230% of GDP, with approximately 10% ratio rise per year. GDP ratio might get even higher and along with debt pushing a economic recession driven by the current government sales tax increases for 2014. The crucial concern is that no country has ever survived a debt/GDP ratio above 250% without defaulting. The significance of the elections is related to the possibility of Japan getting a weak coalition. In result, the market could startle and prompt a Japanese government default.
Elsewhere, the European woe continues and is getting even more complicated than it was. France is at risk of putting its economy in a position worse than those of its Southern neighbors Italy and Spain. There might be a solution to the Euro zone problems. The weaker countries inevitably will have to leave the pact. Yet, such development is still unacceptable to the European political elite. In result, the Euro crisis may become more intense and some European banks may collapse, leading a number of European economies into a deep recession.
Brazil, Russia, India, China – all four BRICs – are reaching the end of the road in terms of economic growth. These countries benefited from enormous international investments into their economies.
China’s economy is forecast to slow. Brazil and India may experience governmental changes. Russia’s oil revenues are growing x-proportional to military expenses. These tendencies will worsen in 2013. If the BRIC economy collapses, this will certainly shake financial markets worldwide.
Confrontations in the Middle East continue adding pressure on investors. Media observers discuss two probable scenarios. Iran may lay hands on a nuclear weapon in 2013 or Israel will start military actions to prevent it. It doesn’t matter what exactly will happen, surely it would be bad for the world economy. The question here is how bad?