Global Status Report: Financial Markets

Uncertainty over the continuing European Financial Crisis has investors and global economists on edge. Financial markets have held steady in the last week, though European stock markets have suffered some losses, however Asian and American stock markets have made gains.

In the United States, political deadlock continues with an inability to tackle the country’s long-term fiscal problems in social security and other safety nets. The economy has shown signs of a modest, but significant, recovery with job creation picking up and unemployment falling. Wages and benefits remain depressed, however, and many people are now settling for lower-skilled jobs than they qualify for. Societal pressures from the far right Tea Party and Far Left Occupy Wall Street movement have settled down, though election campaign politics may fuel the fire.

Brazil has been posting strong growth and market indicators have been largely positive. Less reliant on exports to Western markets, there are some hopes that Brazil will be able to weather a global downturn better than Asia and other emerging markets. More people are climbing out of poverty and job creation is shifting away from low-value added production into higher-value sectors. Consumption, especially for luxury goods and real-estate, is on the rise.

Going forward the strength of financial markets around the world will continue to depend on the on-going European Financial Crisis. At the intra-national level there are reasons for optimism. The European Union has been exercising a stronger voice and building more among member-states, in-spite of the many view points and objections to specific policies.

BRICS and other fast-emerging markets have been showing an increasing willingness to take over the reins of the global economy, having contributed more funding the IMF in exchange for increased control over the fund’s management. The increased voice and weight of emerging markets will lead to more plurality in international institutions which should lead to more global stability in the long-run, though the risk short-term instability remains high.

The European Union continues to suffer from a recession and there is still a high risk of it worsening. Continued uncertainty over Greece’s financial problems and social instability persist, while Spain has now joined the list of countries at risk. The S&P has downgraded Spain to Triple B-Plus and assigned the country a negative outlook due to concerns over a prolonged economic contraction and a need to turn to further loans to fund government spending.

The spillover effects of Europe wide recession could spread to the rest of globe could pull other regions into recession, though so far the rest of the world has proven resilient.
At the Nation level however there are increased risks due to mounting societal pressures. In the face of sometimes extreme austerity cuts, national governments are increasingly coming under fire. Even Italy’s fiscally moderate technocrat Prime Minister, Mario Monti is now pushing back against austerity measures.

In France, Greece, the Netherlands, and Finland anti-austerity have made marked gains against political opponents. Should these candidates gain control of national governments and denounce austerity cuts, both already agreed upon and planned for the future, increased uncertainty could cause sharp market declines. This is especially true for Greece in the up-coming spring elections.

Unfortunately, the European Union’s ability to respond to the on-going crisis relies largely on consensus and strong political leadership, both of which may be fractured in the coming months as political leaders are swept from office and replaced with anti-austerity candidates.

If said candidates take over political leadership and do not moderate their views upon assuming office there is a high-risk that political infighting will shake confidence in the global markets and cause a sharp decline. This in turn would destabilize already fragile economies, such as the United States and Japan, which could continue to spread and eventually destabilize the world economy, causing a general recession or global downturn.