6. Civil War
Effects of civil war. The battle to build democracy in Egypt has badly damaged the nation’s finances, as many businesses have either closed or had sales damaged by the chaos in the country that has still not elected a new permanent government. The situation in Libya is worse, and the problem persists in other nations beset by unrest in the region. The effects are more than trivial. Egypt is the 40th largest economy in the world, based on GDP. Syria, Libya and Iraq are all in the top 70. Protracted civil unrest and the disappearance of an organized economy in these countries will continue to impact exports to these nations.
7. The Poor
Numbers of the impoverished rise. The number of people who live below the poverty line and have poor access to food has risen sharply this year. The UN pointed out as part of the research for its United Nations Conference on Sustainable Development that even though global GDP has increased by 60% since 1992, certain parts of the world have recorded no growth at all. These regions, which account for meaningful global consumption in sum, albeit at a relatively low level, have been hurt further by drought, flood and food prices. At the start of the year, the World Bank reported that, “rising food prices have driven an estimated 44 million people into poverty in developing countries since last June.” Many of the poorest nations need to expand their farming capacity, which could be a source for machinery and seed demand elsewhere. But necessary aid initiatives cannot be funded or circumstances are such that the planting of crops is nearly impossible.
8. Government spending cuts
Economic expansion in the U.S., UK, Greece, France, Italy and Spain depends on government spending, to a large extent. That is especially so when the global economy is poor. Rather than increase spending, many nations have slashed their budgets. The eurozone financial crisis is so bad that Greece, Portugal, Italy, Spain and the UK have all cut or pledged to cut government spending significantly to implement austerity programs. These are meant to offset rises in national deficits. The U.S. has begun a similar process, the first stage of which must be finished by November.
9. Wall St. turns against growth
The largest banks and brokerages, perhaps more than any other group, want businesses and investors to believe that the economy will expand. Their income from M&A transactions, individual investing, corporate debt activity and IPOs are all based on robust expansion. Now, some of the largest investment houses have begun to voice pessimism. Morgan Stanley recently cut its estimates for global growth. The bank said the U.S. and eurozone are “hovering dangerously close to recession.” Goldman Sachs also lowered its global GDP forecast. It focused also on dangers in the U.S. and Europe, listing sovereign debt problems and the lack of government financial support to national economies as cause for concern.
Douglas A. McIntyre