The storm caused by the European Debt Crisis has loomed like a dark cloud over much of the world. But certain sectors of the economy, the transport manufacturing industry in particular, have weathered the turbulent markets. It is the rise in purchasing manager indexes for the United Kingdom, Switzerland, China, India, and Australia, coupled with the decrease in Germany's unemployment that make economists suggest a boom in the export of cars and machinery for the coming year.
In the last decade, Argentina has undergone a rapid ascension from widespread poverty and a huge budget deficit towards economic prosperity and stability. The government of Argentina, only ten years ago, defaulted on a $100 billion budget, sending over half its population into poverty. Following this economic catastrophe was a period of contraction. This, however, would last only three months and would then give way to economic growth.
The Euro has popped up many times in the news recently. Because of the debt crisis in Europe, many countries were left unable to fulfill the convergence criteria to have the Euro as a currency, leading to many problems throughout Europe. It wasn’t just the current crisis that brought about these issues; they have been rooted in the Euro ever since it was created. So what exactly are a few of these issues and how can they be solved?
Feeding on the strength of European demand and Asian emerging markets, China’s trade surplus rose to its highest level in more than two years during the month of July. The country’s surplus rose to $31.5 billion, the biggest gap since January of 2009. Chinese exports and imports both grew over 20 percent from a year ago and there are a couple key reasons that account for these large increases.
Growth in shipments to Europe has doubled over the last two months granting China higher export numbers. Exports to Japan also rose as Japan surges back after the tragic earthquake that occurred earlier in the year. China’s relationship with developing countries in Asia, such as Vietnam and Indonesia, continues to strengthen providing China with lucrative export markets. Sales of Chinese goods in these markets have increased this past year allowing the trade surplus gap to grow even larger.
After the official unpegging of the Renminbi (Also referred to as the yuan) to the dollar mid-way through last year, China has surprisingly started to increase the flexibility of the Renminbi and is actively encouraging the globalization of the currency. Much of this change has come for two reasons. The first is as China has become the world’s second largest domestic economy, the need for a globalized currency becomes exponentially more important. Also, international pressures on the Renminbi and China, especially from the U.S., have started to force change.
Just recently, on November 8, 2010, gold reached its non-inflation adjusted high of $1,400 per ounce. As shown in this chart by Kitco, gold has been increasing at a very rapid pace in the past year. This has prompted many investors to say that gold could potentially be the next “bubble,” or a security that has a huge increase in price only to suddenly “pop” and decrease rapidly in price. However, there is evidence to contradict these fears, especially in the U.S. bond markets.
The issue of euro-area governments exceeding standards for allowable debt has led to calls for tighter regulations and sanctions against nations that do not exhibit fiscal responsibility. While it is difficult for a large and diverse organization such as the European Central Bank to reach a consensus on any major policy, recent scares have opened the discussion of proposed regulatory changes.
Historically, China has gone to great lengths to shield their currency, the yuan, from the global markets. To coincide with this, the Chinese governments have off and on pegged the yuan with the U.S. dollar. Recently China has made some mini-steps to hopefully open up their currency to outside markets. Last month they said that a handful of foreign banks could invest some of the yuan they hold offshore in local Chinese bonds. Another step was that China ended the peg to the dollar in June. Even though this de facto peg was supposedly removed in June, the yuan has only appreciated less than 2% against the dollar. If you look at historical data you can tell that volatility has increased between the two, but barely enough to even notice. Is China holding back a potentially huge export, their currency, for a particular reason? Many believe that the yuan is artificially being kept undervalued. What kind of pressures is this putting on other economies to devalue their currency, as discussed in a previous post in the series?
Guido Mantega, the Brazilian Finance Minister, has recently came on record declaring that there is currently an “international currency war.” What in the world is Mr. Mantega talking about?
Very recently, all 27 member nations of the European Union (EU) approved the entry of Estonia into the eurozone, meaning that Estonia would adopt the euro as its primary form of currency. At first glance, it seems that tying itself to a widely-used, strongly-supported currency would be a no-brainer for Estonia. However, with Europe’s recent economic woes, the situation becomes a bit more complicated.
Yesterday the Euro hit a four-year low against the dollar. The euro fell to $1.2237 in early trading on Monday and actually fell slightly below $1.22 today. Investors fear that the austerity measures being put in place in many of the eurozone countries will hinder growth. Low growth would also mean low interest rates, so holding the currency would bring about poor returns. A lot of these measures stem from Europe's debt problems, and specifically Greece's recent troubles. This is very ironic because of the fact that their troubles may actually stem from the euro.
Since its establishment in 1981, the Gulf Cooperation Council (GCC) has made its primary priority to be the creation of a monetary union, and subsequently, a single currency across the region. The Gulf Cooperation Council is a trade bloc of six Arab nations residing in the Persian Gulf: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The GCC nations, excluding Oman and the UAE, have aimed for January 1, 2010 as a deadline for establishing a common currency. If the GCC is successful in establishing a single currency among their member nations, what implications could this have for them and the international business world?
The damage the stronger yen is causing to Japan's export reliant economy has been large. The new government in Japan took an anti-interventionist policy, which has caused speculators to strengthen the yen even more. It made sense when the Japanese economy was healthy, but now with deflation and a decline in exports, an intervention is just what they need. While the cheaper imports are good for the consumer, Japanese Finance Minister Hirohisa Fujii sees this steep increase as signs of trouble. His concern may weaken the yen, making it easier for companies to export. While trade protectionism between the U.S. and China is a concern, the yen will keep increasing unless an invervention occurs. This short video explains the situation a little better.