Positive Scenario for the Beginning of the Second Semester

The second semester has started in the middle of a positive scenario with signs that the Great Recession of 2008-2009, at least in Europe, is slowing down. In fact, it is hoped that if the current situation continues, the Eurozone growth can barely reach 1.7% for next year, and that is insufficient to achieve full development and recuperate an adequate employment rate. The problem seems to be concentrated in the little aggregated demand for goods and services on the part of its inhabitants. And in that the measures taken by the economic authorities have delayed effects. Nevertheless, symptoms of improvement can be observed. A survey done by the European Central Bank, which extended lines of credit as low as 0.15% to banks, shows that the Eurozone banks are, for the first time in seven years, loosening the conditions to give commercial credit to small and medium companies, especially in Germany and Spain. But, it is insisted, it is going to be necessary to equilibrate some elements. To impulse internal demand, the monetary mass must be increased and the rich countries, instead of treasuring their current account surpluses, must increase their investments and internal consumption to consume from the countries that still have enormous unemployment rates such as Greece and Spain, and on the other hand, obtain a weaker Euro to be able to export competitively to markets in Asia, Africa and Latin America. In this environment, during the month, shares have had a slight decrease (around 2%), as well as the sovereign bonds yield, which means that investors are willing to pay higher prices for those fixed rate papers, since the ghost of default seems to have dissipated from the emitting countries.

In the United States, the news is mixed. The recuperations rhythm decreased in July. Shares went down around 2.5%. Even though employment keeps rising, this month less people were added that in the previous months (209,000), to put the unemployment index in 6.2%, but it was confirmed that the economy in the 2nd quarter grew an annualized 4%, which compensated the 2.1% fall of the first quarter, a fact attributed to the devastating winter. The prices of homes recuperate slower than expected, as well as wages, even though studies show that the improvement towards the middle and professional classes is general; annualized inflation, cut on the month of June, is 1.7%, under the desirable 2% that is the number that academicians estimate adequate to accompany a solid economic recuperation. In the state of things, what is probable is that the Fed postpones any increase in interest rates and that the Federal Government will try to increase investment and public spending. Contrarily, what has been happening is that families have been becoming current with their debts and the government has controlled expenditures and increased taxes. In reality, the efforts should concentrate in elevating productivity. In the long term, growth potential depends not only of demand, but also on supply. Employment has already gotten better, and there are more workers in the market, but adequate growth doesn’t happen, which means productivity is low. Ultimately the standard of living is going to depend on productivity. If it doesn’t get better, inflation can occur, produced by higher demand without economic growth, that is, without sufficient offer of goods and services. The balance of these variables is, even in theory, complicated. It’s difficult to calculate the economic growth potential and coordinate demand, which is current, with supply, which must be planned in the longer run. In any case, while salaried and prices remain as they are, rates will remain almost at zero.

The BRICS (Brazil, Russia, India, China and South Africa) countries had a meeting to separate themselves from the axis of the International Monetary Fund and the World Bank. Beyond the obvious, which is to create multilateral credit and support institutions for the economic growth of these emerging economies which have their own characteristics and needs, many times obviated or misunderstood by those institutions that answer to developed countries interests, it is possible to look for, in the medium term, the formation of an economic group that points toward making its commercial deals without the use of foreign coins, like the US Dollar and the Euro, in order to privilege the coin proper to those countries, a fact which should be an important subject for observation, to the effect of evaluating the positions of private investors.

Until now the conflicts in Gaza and in Ukraine do not reflect the stock exchanges. The economic sanctions of the European Union and the United States against Russia and the answer of this country surely will bring side effects, which in some way will impact the provision and prices of fuel towards Europe and against the solvency of the Russian banks, the debt papers of which are about to become due, and this will bring them difficulty in renewing their obligations. One must remain alert of these events, because they could affect in an important way the value of shares related to them.

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