Global Outlook - Shaking off the Euro flu
11-01-2012The global economy is likely to show more symptoms of Euro ‘flu in the next few months. The Eurozone’s appetite for imports is waning, and its banks are under pressure to shrink their foreign exposures.
The Eurozone’s European neighbours are especially exposed to Euro ‘flu, but Asia’s exporters are also likely to feel the effects. However, Asia and Latin America are certainly better placed to cope, because they have more scope for countercyclical policy responses. Ripples from last year’s ‘Arab Spring’ may also play a role, as a number of emerging markets, not the least China and Russia, face political transitions this year that will place a premium on sustaining economic growth.
For the time being, our financial market strategy remains defensive towards the euro and Eurozone peripheral and high-beta emerging market debt. In the face of a renewed surge in market and political stress, Eurozone policymakers may be forced to take more aggressive action to get on top of the region’s sovereign debt crisis...
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