Overview of the Global Economy

Global Economy: After the Great Recession

As the global recovery unfolds, the countries economic performances were running
at a slow and uncertain pace brought about by the external shocks and natural
disasters since the beginning of 2011. From the MENA crisis that escalated the oil
prices consecutively, and the Japan & Thailands natural disasters which resulted to
supply chain disruptions hence pulled their overall production to a negative level.
Moreover, a myriad of credit rating downgrade and the weaknesses in the US and
Euro zone, the two of the worlds largest economies, thus where the global economy
mostly depend on, greatly contributed to the sluggish recovery.
Euro zone lags behind as Greece worsens
Though the recovery is already solidifying in many countries, the Euro zone dip into
a much danger zone as its dilemma continues. Last February, the European
commission announced that the euro zone will be heading to its second recession in
three years. "The EU is set to experience stagnating GDP this year, and the euro
area will undergo a mild recession," the Commission said in its interim forecast
report.
Meanwhile, the Greek are braced to face their first ever sovereign default as their
struggles to reach the target lacks, hence securing the bond swap looks unlikely.
Furthermore, the credit rating agencies also warned Greece and its banks that they
would be barred from the European Central Banks (ECB) funding. Thus, ECB would
no longer accept Greece government bonds if Greece were to loan again.
China looks for a more sustainable growth
Chinas economic growth contributes more than any other economy. But despite
having the highest growth, China looks for a more sustainable expansion as it cut its
growth target to 7.5% for 2012. Having a high growth rate has caused problems to
China, mainly a high inflation rate, which the Chinese authorities wary of the
monetary policy to be more cautious for the easing of inflation. Furthermore, as
they regularly grow more quickly, China prioritizes more for economic stability this
year as it prepares for a change in leadership and endures the global slowdown. A
more efficient growth would lessen the painstaking efforts of China to achieve its
goals and would be more realistic of their capability to service the global economy.
The US recovery is gaining strength

Confidence jumps as Dow Jones breaks 13, 000 basis points

The US stock market went back to its pre-crisis level as it breached the 13,000 basis
point mark for the first time since May 2008, indicating a surge of confidence and a
positive outlook in the health of the US economy after the recession. The stock
market, as a leading indicator, plays a pivotal role in the growth of an economy.
Hence, a movement in the stock market is a reflection of what is happening in an
economy. Thus, a rising stock market is a sign of a growing economy. The United
States, the worlds largest economy, contributing about $15,000 trillion or almost
30% of the total global output, clearly shows how influential the US is to the world
economy. Hence, any boom or crash in its state could affect the rest of the world.
and the strengthening jobs market adds up

After being stagnant for a couple of months, the US unemployment rate finally came
out of the 9% level and dropped to 8.3% this January, the lowest in three years. It

was also the first time that the unemployment rate has fallen for five-consecutive
months since 1994. "The drop in the unemployment rate may make them a little
less antsy to pull out the big guns, but there is still not enough evidence of
sustained, above-trend growth to get them to stop worrying about downside risks,"
said Michael Feroli, an economist at JPMorgan in New York. Moreover, the jobless
claims or the number of people seeking for unemployment benefits, also dropped to
352,000, the fewest since April 2008. Hence, signaling a strong hiring that pushes
down the unemployment rate.
The jobs market improved much faster than expected, which gives a good impact to
the US President Barack Obamas re-election this November. The Payroll tax cut bill
Obamas jobs agenda to alleviate the fragile recovery and prevent the worst
economic downturn. The bill grants those who are unemployed for more than six
months an average of $300 a week jobless benefit. While the workers would still
continue to receive a two-percentage increase in their paychecks. The US Congress
recently approved the renewed bill for the 160 million workers and jobless benefits
for millions more, the last significant bullet of Obama before the election.
but the stability risks remain because of the escalating oil problem that
could spill over to the world economy.

Explain oil situation (include oil price graph) Iran is the worlds fourth largest oil
producer and is OPECs second-largest producer after Saudi Arabia. But due to their
nuclear program, the United States and the European Union decided to impose
sanctions and boycotts on Irans oil. The Obama administration shift alliance with
other oil-rich countries such as Saudi Arabia to offset the loss of Irans oil to the
global market. Doing so would effectively cut off Irans oil sector and increase the
Saudi Arabias production. Subsequently, Iran responded as they threaten to halt
crude tankers by closing the Strait of Hormuz, the main Gulf oil shipping lane. Iran
depends on the strait to export its own oil, which generates about $80 billion in
earnings and about 60 percent of its budget, Daniel Yergin, the chairman and
founder of IHS Cambridge Energy. If Iran would cut oil shipment which would
definitely lead to a spike in oil prices, Iran would be hurt also.

Summary & Conclusion