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BizDay Zimbabwe

Global uncertainty

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The past week was dominated by the possibility of military action Syria. To give a brief summary of the situation, chemical weapons were recently used against civilians, a clear breach of international laws. The US has said previously that should the Syrian government use such tactics, it will face military consequences.  The threat of action caused oil prices to spike and emerging market currencies to fall.  However, the US does not want to act alone and would like the UK and hopefully France to join in any military action. Near the end of the week, the UK and France both said that they would prefer to act with a UN mandate. These significantly reduced the chance of a strike, since Russia and China both have vetoes and are strongly against any action. That said, this problem is not yet over and is likely to flare up regularly over the next few months.
This is not the only issue that can possibly throw a spanner into the works of the global economy. With the US considering an end to its QE policies, we have seen markets around the world react. One of the most significant impacts has been on emerging market currencies. Turkey, Indonesia, India and South Africa have all seen weakness in their currencies. We have also seen a change many emerging economy stock markets enter bear market territory. As to expected the reaction from the Fed has been muted, as their primary concern is the United States. As smaller players in the global system, many emerging markets have to navigate a world where they cannot always steer their own economies but must rather adjust course depending on the actions of larger economies.  Even the larger economies of Brazil and India are not yet large enough to break free from this.
Lest you think that all the world’s issues lie in the developing world, Europe still remains a weak point in the global economy, despite the fact that they have just emerged from their longest ever recession in the Euro era. This time around it is Italy that is cause for concern as Silvio Berlusconi is determined to remain relevant and out of prison even if it brings down the rest of the government. Italy is a much bigger deal than Greece or any other of the troubled Euro Zone economies. Only France and Germany are bigger. Should the political crisis spread into the financial markets, it is not certain that the rest of the Euro Zone has the ability let alone the will to bail them out.

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