EFIC still predicts caution
The Export Finance and Insurance Corporation (EFIC) has released its newsletter reporting on the state of finance around the world.
Following on from December’s grim report, EFIC’s updated article looks at the current state of the eurozone which is leaning towards a second financial rescue package for Greece.
“In a word, the outlook has improved – the US economy has strengthened, major central banks have eased monetary policy, the eurozone crisis has subsided, and all three factors have rallied financial markets,” said EFIC’s chief economist Roger Donnelly. “But we still see several risks, and even if none eventuate, the world economy is still likely to grow relatively slowly this year.”
Contributing to growing confidence in Europe’s recovery is the European Central Bank (ECB)’s new leader Mario Draghi’s decision to expand long term refinancing operations, in effect lending unlimited sums of three year, one percent money to eurozone banks which has driven down GIPSI sovereign bond yields for Greece, Ireland, Portugal, Spain and Italy. Growing confidence has resulted in the Bank of Canada Governor Mark Carney to announce “There is not going to be a Lehman-style event in Europe.”
The report listed Donnelly’s six concerns as:
- “US, Japan, UK and eurozone are all travelling at ‘stall speed’
- Monetary policy is not gaining much traction
- The eurozone crisis could still go acute
- Emerging markets may struggle to decouple from a North Atlantic downturn as successfully as after the Lehman bankruptcy
- China could suffer a home grown crisis as its own unbalanced growth model becomes unsustainable
- Risk of conflict with Iran has increased”
With these concerns in mind, Donnelly advises caution in feeling optimistic about 2012′s possibilities.
“For all the recent good news, 2012 still looks as if it will be a year of weak world growth. We will need to remain alert to downside and tail risks,” he said.
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