Since the latest global crisis in 2008, numerous economists, financiers and other experts and analysts have been pondering on whether there will be another major crisis. Indeed, there are several reasons to speak about the possibility of a double-dip recession (or the 2nd wave of the crisis, as some experts call it):
· The global economic recovery has been too prolonged and unstable.
· The Chinese economy is overheated.
· The Japanese economy has difficulty recovering from last year’s natural disasters and nuclear meltdown.
· The eurozone crisis hasn’t been resolved so far.
These days, nobody denies the possibility of another major crisis. How real is the possibility? When may it happen? Is the world ready for it?
2nd Wave: Analysts Are Divided
We still remember the consequences of the latest global economic crisis, which caused severe damage to the global economy and financial system. Greece has been on the verge of default ever since. In May 2010, Greece received a €110 loan. Most experts though the money would be enough to fill the gap as the Greek economy accounted only for some 2.5% of the eurozone GDP. However, several months later, Ireland and Portugal addressed the EU authorities for financial help as well. Some experts started calling the risky eurozone economies PIGS (Portugal , Ireland, Greece, Spain ). However, when PIGS turned into PIIGS (Italy, the eurozone’s 3rd largest economy, joined the company) everyone started anticipating another major crisis.
According to Nord FX, these days, nobody treats the Greek crisis as a minor or insignificant one anymore. Everybody understands that Greece can undermine the eurozone’s stability and even destroy it together with its common currency.
Over the last 12 months, numerous economists and financial experts have been giving their forecast for another major crisis:
Nouriel Roubini. In early 2011, Mr. Roubini expected another crisis to start from the Chinese economic slowdown. In late summer 2011, he changed his mind, this time giving the US and Europe credit for another major crisis. He used to name 2013 as the time when the 2nd wave will break out. Later, he changed it for mid-late 2012.
Alexei Kudrin, ex-Minister of Finance of Russia, said in Dec 2011 that the financial crisis had already started and the world would feel it in 2012.
Hundreds of other forecasts were similar to the abovementioned theses…
Expert Opinion:
According to (Europe’s Best Forex Training Project 2009-2012), unfortunately, more and more negative factors contribute to the possibility of another major crisis:
USA. The pace of economic recovery is too slow. The US Dollar is volatile. The US authorities do not anticipate a complete recovery within a few years – the Federal Reserve is not going to raise the key interest rate (which is around 0%) till mid 2014. Moreover, the Federal Reserve may well start emitting more dollars in order to achieve minor, temporary success in advance of November’s presidential elections.
The following factors contribute to the US Dollar and economic recovery:
· The situation in the US housing market seems to be improving. April’s new home sales report showed an increase. Despite the fact that the housing market is still weak, it has probably reached the bottom and is expected to contribute to the US economic growth.
· Consumer sentiment improved in May. Most likely, this happened due to lower gasoline prices and stronger dollar. The CCI increased from 76.4 in April up to 79.3 in May.
· As we are getting closer to the US presidential elections, the US authorities are expected to do their best to stimulate the US economy and to strengthen the national currency.
Systemic risks:
· Greece may leave the eurozone. This scenario is getting more probable.
· Operation Twist is about to be over. However, the US economy needs further stimulation. Otherwise, another stock market collapse may take place along with dollar weakness.
· China’s economic growth is slowing down.
Eurozone. The so-called PIIGS (Portugal , Ireland, Italy, Greece, Spain ), which represent one third of the eurozone, are on the verge of default. The crisis may escalate in early July if the Greeks fail to resolve the political crisis after the parliamentary elections.
Japan. The world’s 3rd largest economy has been trying to recover from the devastating earthquakes and tsunamis for over a year. Its public debt keeps growing. Fitch has already cut its credit rating. Obviously, Japan will be of no help to the global economy in the coming years.
China. The world’s 2nd largest economy keeps fighting against multiple problems like fast-growing inflation, housing market bubble, flight of foreign capital, declining export etc. Moreover, the Chinese like to sit and wait.
Emerging economies. Most experts hope that the high pace of economic growth seen in the BRICS economies will make up for the stagnation in the developed economies. However, the forecasts do not sound reassuring.
US Dollar Prospects:
According to , the US Dollar has negative correlation with major US stock indexes (Dow Jones, SP&500, Nasdaq Composite, Nasdaq 100, FTSE 100, DAX etc.), as well as with stocks, commodities (gold, oil etc.)
Currency strategists at start analyzing the market with the mid-scale chart of the USD index, which helps to determine the direction of the following trend:
The chart below shows that in order to resume the rally, the price will have to break above the red sloping axis 1.7018/1.6990. A trend reversal will become possible if the price breaks and consolidates below the blue sloping axis:
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
In your opinion, will there be another major crisis?
