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8 Shocks That Await India
8 Shocks That Await India
recession since World War II as governments tried to spur consumer demand by lowering interest rates to record lows and pouring trillions of dollars in fiscal stimuli, but all is not yet well. Having barely managed to survive a prolonged and debilitating bout of economic recession, the world now faces another bout of dangers that threaten growth across nations. A Citi strategist, Guillermo Felices, in a study has enumerated eight shocks that are hitting, or are soon going to hit, the global economy. Check out what are the economic dangers that lurk around the corner for the world.
The other major reason for the rise in the prices of vegetables is more demand and less supply. One more reason,
some suspect, could also be that the local vegetable vendor might be fleecing the customers. Similarly, prices of most pulses too are high due to a supply-demand mismatch. Climate-related changes do affect the availability of food items, but the current rise in the food bill is too steep to attribute only to the weather. Rising food prices have put pressure on governments to act. However, demand in emerging markets has been rising due to a robust economic recovery and thus prices keep on rising.
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Financial markets could suffer additional losses from spikes in investor risk aversion. These could trigger portfolio
outflows from fast-growing emerging markets, causing problems for nations that are heavily dependent on foreign capital. The study said that the shutdown of the nuclear reactors in Japan will lead to a loss of almost 10 per cent of the Asian major's electricity generation capacity, and this could result in Japan importing fuels: coal, liquefied natural gas, and oil, and this would lead to a spike in the prices of these essential commodities. With oil prices already rising the world over, the Japanese disaster will only add to the problem.
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Moreover, some countries will gain from the recycling of petrodollars into spending, especially countries with high
export exposure to oil producers. First, the adverse effects of higher oil prices on economic activity and potential growth appear to be greater in major emerging markets than the G7, because emerging market economies in general are more energy intensive and oil intensive. Second, an increase in oil prices redistributes income between countries (from net oil importers to net oil exporters) and within countries (from oil consumers to oil producers and from those short oil to those long oil). The United States is the world's largest net importer of crude oil and studies tend to find that oil price shocks have their most pronounced effects on the US economy through their effects on demand, in particular for consumer durables and residential investment. Relative to GDP, net imports of crude oil are much larger than in the US in India and South Korea, but are slightly higher in China. Oil production is concentrated in relatively few countries. The world's major oil net exporters in 2009 were Saudi Arabia, Russia, Iran, Nigeria and the United Arab Emirates. But it is important to recognise that income is also redistributed between producers and consumers of oil within a country. This holds true for the largest net oil exporters listed above, but it is also true for the US which, despite being the world's largest net oil importer, remains one of the largest oil producers in the world.
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In June 2011, the American government's quantitative easing 2 (QE2) programme will end. When that happens, that would spell the end of the monetary policy tightening measures for the United States. When the US Federal Reserve's second round of quantitative easing ends in June, experts feel that bond yields might continue to rise. Apart from that the US stock market could take a hit, as financial assets would have become more valuable due to low interest rates. The US's second round of quantitative easing programme had helped the commodity markets to rise. Now the fear is that the rally in commodities could slow down. This could affect the US economy further and consequently the global economy too.
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Fiscal deficit is essentially the difference between what the government spends and what it earns. It is expressed as
a percentage of the gross domestic product. Higher the fiscal deficit, weaker the economy. Also, government spending on social welfare, education, health, poverty alleviation is severely hampered due to high fiscal deficit. If a developing country's resources are deployed properly, deficits are not necessarily a bad thing. But if the revenues keep dropping due to mismanagement and a profligate government lets its expenses get out of hand, disaster is a given. Argentina, Ireland and Greece are just a few cases in point.
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