The global instability keeps escalating. Financial market are growing volatile, simultaneously becoming less predictable for speculators as European authorities are still desperately trying to resolve the continue eurozone crisis. This is what the IMF thinks on the current economic and financial situation in Europe and around the globe.
As market participants have lost confidence in the eurozone, they start fleeing the union’s peripheral economies in favor of stronger ones. This means that the borrowing costs for those risky eurozone economies have increased, thereby widening the gap between the eurozone’s rich and poor.
Over the last few months, the European authorities have made a range of major steps aimed at stabilizing the situation in financial markets caused by market panic and consolidating the eurozone’s position. In particular, the ECB announced its decision to purchase risky European bonds under certain conditions.
What are the prospects of the eurozone and its common currency in 2013? Let’s try to find the answer to this question together…
IMF on Stabilizing Financial Markets
These measures have helped financial markets to stabilize a little in recent months. However, the European authorities will have to take some extra steps to restore investors’ confidence. Otherwise, it may cause lending cuts and economic decline.
The report was released in Tokyo in advance of the annual IMF summit a day after the Fund published its global economic outlook for 2013. In particular, IMF officials assume that the eurozone needs a banking union along with tax and budget integration in order to come out of the prolonged crisis.
At the same time, the eurozone is not the only source of financial instability on the planet. The USA and Japan also have major budgetary and debt issues. The IMF believes that they also can cause negative effect, thereby undermining the financial stability of the entire world.
The major lesson learned is that imbalances should be eliminated before financial markets start showing concerns.
As for developing economies, so far they have been successful in overcoming global shocks. However, they should take extra steps to secure themselves against future shockwaves.
Most countries of Central and Eastern Europe are vulnerable as their banks are excessively exposed to the eurozone banks. Moreover, their economies have the same issues with the eurozone’s debt-ridden peripheral economies.
At the same time, the IMF assumes that Asian and Latin American countries are exposed to major risks as well. The major reason is that their economies are in the last phase of the current credit cycle.
on Euro Prospects
On the basis of economic and financial data for the eurozone, the bottom line looks as follows:
Most of the economic indicators are in the red zone. However, there is some improvement. In particular, the eurozone’s GDP slowed down its decline (-0.1% in Q3 against -0.2% a quarter before) in 2012. Direct investments boosted from €10,6bn up to €14,1bn.
Still, the year of 2013 most likely promises to become another year of troubles and concerns for investors as the eurozone crisis will still be underway.
Firstly, Spain will reach the record-high level of bond printing - €145bn.
Secondly, experts span to ask for external financial support within the first quarter of 2013.
Thirdly, political risks in the eurozone may grow as well as Italy is nearing elections.
Mario Draghi, President of the ECB, said during his latest speech that the common European currency may show weakness in the first half of 2013. This statement instantly caused a decline in the market of EURUSD.
expects ERUSD to retrace down to 1.32, with a gradual increase up to 1.38.
