2011 has ended, and we are back to doing what we were some three years ago: contemplating how bad the economy will get before it gets better. There is bad news everywhere. The list of critical countries in the euro-zone grows longer by the day. Greece, Ireland, Spain, and Portugal have been lately joined by Italy. France could be next. Outside the euro-zone, the United Kingdom, with its large financial industry and significant exports to the euro area, is being sucked into recession. The United States is also battling its own problems. High unemployment, low consumer confidence, high government debt, and political deadlock are all hampering recovery. Asian economies played an important role in pulling the world economy of out recession in 2009, but now they are not up to the task. Both China and India have battled high inflation. Interest rate hikes in response to the inflation and the high fuel prices have acted as a dampener on consumer demand. China needs to reorient its economy from export driven growth to domestic consumption driven growth. This is proving very difficult with the current level of interest rates. India has also seen a huge drop in its currency from INR 45.45 to USD 1.00 in December 2010 to INR 51.59 to USD 1.00 in December 2011. Given that India is dependent on oil imports, this is translating into higher fuel prices and still higher inflation. (more…)
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