Perfect Storm Predicted for World Economy in 2013  23 Jul 2012

Awareness is growing around the world that the economic troubles of the Eurozone crisis will affect not only Europe, but the world economy as a whole. The limited ability of established businesses to create new jobs and growth has led more people to turn to startups and individual entrepreneurship as a path to future prosperity.

Perfect Storm

Nouriel Roubini predicts a 'perfect storm' in 2013.

Nouriel Roubini, the New York University professor known as ‘Dr Doom’ because he was one of the few economists to predict the credit crunch, has predicted a 'perfect storm' of factors that could derail the world economy in 2013.

The new president of the World Bank Jim Yong Kim has warned that no region of the world is immune from the effects of the Eurozone crisis.

Ben Bernanke, the chairman of the US Federal Reserve, has said that growth in the US has slowed significantly, in part due to the Eurozone crisis, but did not promise fresh stimulus to the economy.

US retail sales fell for the third successive month, which has not occurred since the height of the financial crisis in 2008, giving rise to fears the US could slide back into recession.

China’s economy faces ‘serious and complex’ challenges, and growth has slowed to 7.6%.

Eurozone in ‘critical danger’

The International Monetary Fund has said that the Eurozone is in critical danger, and the European Union should launch quantitative easing. In its yearly report, the IMF raised doubts about the viability and sustainability of European monetary union in its current form, and called for a radical shift in policy.

Germany

Fund managers from across the world have begun to doubt Germany’s ability to withstand shocks from the Eurozone crisis, and German Chancellor Angela Merkel has admitted she is unsure the European project will work. The German Finance Ministry has said that the country’s growth was somewhat slower in the second quarter.

Both Spain and Italy have been feeling the pain of the austerity which was attached to their bailout conditions.

Spain

A 100 billion euro rescue package for Spanish banks was approved, first by the German parliament and then by Eurozone finance ministers in a teleconference, as Spain’s borrowing costs again rose above 7%. Public employees have staged street protests across Spain at the austerity measures, and the regional governments of Valencia and Murcia have sought help from the Spanish government.

Italy

In Italy, the statisticians have insufficient funds to monitor the recession, and are threatening a stats blackout. Prime Minister Mario Monti is considering a takeover of the government of Sicily to avert a financial crisis there. Moody’s has reduced Italy’s credit rating by two notches. More than 11% of Italian families are living in relative poverty.

UK

The UK, which is outside the Eurozone, continues its efforts to deal with public debt, improve conditions for business and restore growth to the economy.

The IMF has warned that the recovery has stalled, the housing slump will deepen, and slashed its forecasts for UK growth, calling on the coalition to draw up a plan B.

UK Debt

UK government borrowing has risen more than expected. The Office for Budget Responsibility has reported that spending reforms are fixing Britain’s long term debt problems, but half a century will be needed to complete this task. The Prime Minister David Cameron has warned that there is no end in sight for austerity measures, which will last until 2020, twice as long as originally envisaged.

Lending

There has been a £3 billion collapse in lending to business. The government has unveiled a £50 billion guarantees and loans scheme for business. The government has also launched a ‘funding for lending’ scheme which will enable banks to swap troublesome debts for cash-like treasury bills, which will initially provide nearly £1 billion of help, but could eventually be as much as £250 billion.

Alternative ‘peer to peer’ lenders are providing a source of lending which by-passes the banks, but there is a risk for these lenders if the government’s plans to stimulate traditional lending are successful.

There has been a shift in UK exports away from Europe and towards growing economies elsewhere in the world. The EU is no longer Britain’s main export market.

Unemployment has fallen in the UK: the London Olympics has helped create thousands of jobs, and the prospect of a cap on benefits has persuaded 1700 people to take up work.

Startups

Julie Meyer, author of 'Welcome to Entrepreneur Land'.

A regulated financing market for start-ups has been launched. Seedrs allows start-ups to raise money from the crowd.

Mike Lynch, the founder of Autonomy, who sold the software company to Hewlett Packard for $10 billion is to start a new technology investment fund in London.

Julie Meyer, the founder of Ariadne Capital, and an online ‘dragon’ in the BBC’s Dragon’s Den, has launched a new book ‘Welcome to Entrepreneur Country’, in which she describes a shift to a new kind of entrepreneurialism in the economy, which has the potential to lead Britain out of recession, and calls on Government, corporations and society at large to support the changes that are taking place, and give entrepreneurs a leading role in the economy. The book is also an introduction to the ‘Entrepreneur Country’ community, through which entrepreneurs share ideas both through regular meetings and online.

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Posted in bizzy blog on 23 Jul 2012.