One Last Look at 2015

This is what the year 2015 looks like to date. Europe, due to influx of great migrations that began with the voyage of the displaced persons from the stormy civil war in Syria and the extreme poverty in North Africa, is setting back its planned strengthening of its political union, true cornerstone of the European Union dream. In fact, many countries have installed border controls, which had been suppressed when the Schengen Treaty was signed. France, after the Paris attacks of November 13, declares war against the Islamic State. Russia imposes commercial sanctions against Turkey for an air space violation incident, annexed Crimea and threatens Ukraine invoking theories that bring to mind Nazi Germany’s vital space (Lebesraum). Governments prefer to focus on fiscal union (European and not national bonds, common control of bank deposits, unified workers benefits) than in unifying foreign policy and pooling Europe’s armed and police forces.

Latin America’s case is special. In South America, the Caudillo style currents, which have governed Brazil, Argentina, Venezuela, Ecuador and Bolivia for more than a decade under the flags of the 21st century Socialism, are stumbling, while the region sees its people’s having to readjust as adverse times arrive because of the end of the era of high prices for raw materials and other resources that were consumed by the tremendous economic growth China had during these last years.

It is predicted that the region’s growth will be zero or negative in this year and the next. Now, as opposed of what occurred in 2008/2009, the situation is different. Then, Latin America was able to unfasten itself from the global crisis that mainly affected the developed economies, due to the fact that China suffered from it way less than those, and, as it became the substitute engine for world growth, it required the basic raw materials that Latin America provided, and also the fact that substantial investment flowed to it while fleeing from the fall of the first world financial systems.

The current scene has changed. China decelerates and consumes fewer quantities of raw materials, which also affects their price due to excess offer. The decline in oil prices has put the coffers of the net exporting countries (Venezuela and Ecuador) in a critical situation. Investments flow back to the great global financial centers, which offer fewer risks due to their States’ political stability and juridical safety. Their fiscal savings have reduced or disappeared, having been spent in increased fiscal spending measures that generated the increase of the region’s GDP. Obviously the fiscal deficits that appear in this scenario will be harder to finance with credits, since investors will require higher yields due to the bigger recovery risk. This will surely lead to reduced public spending measures, which in countries in which the state has been the engine of the local economy, such as Venezuela, Argentina and Ecuador, will deepen the deceleration or reduction in their GDP’s. Ultimately, with economies in recess and less taxing capacity, plus hungrier coffers for maintaining higher social expenses, the ghost of confiscation appears again, this time, hiding behind demagogical measures of equal distribution of already generated wealth.

This dark perspective, which seems to lighten for regional and world investors, who see in Macri’s new government in Argentina opportunities for the return of capitals to this economy, with the subsequent improvement in employment and growth levels, and who hope for the possibility that in Venezuela, which has near parliamentary elections which are in fact a referendum on the current system a result that can rescue said country can be achieved and upheld, so that it becomes reinserted into the financial and securities system, receive, on the other hand, the news that on this already turbulent year Brazil (First Latin American Economy and the world’s seventh) already facing a two year prognosticated recession, may have also to cope with a political crisis of turbulent trajectory and uncertain end, which would affect its economy very negatively, if the political trial against its President Ms. Rousseff prospers.

All of the above are geopolitical facts that, had they occurred in the past, would have caused economic catastrophes, but instead, what can be perceived at the global level is a slow but sustained recuperation from the Great Recession of 2008 and 2009, leaving behind the debacle that evaporated a big portion of the world’s savings.

Thus, in Europe, Greece is getting ready for a long period of living its reality: it must pay a debt through the savings obtained through an austere life. For that it has already the support of its European partners who surely, in the immediate future, will reduce part of their credits and demands over the lifestyle of a debtor that lived with expenses, which were bigger than its capabilities. Spain sports more democracy: new parties arise with agendas that go beyond the traditional bi-partisanship, which has been accused of unpunished corruption. It doesn’t only answer the question: What was done wrong? But also the more practical: What do we do now? In the macro economical analysis, the Euro zone’s small growth, highlighting the weak foreign trade of its two most important economies (Germany and France) it is awaited that the European Central Bank expands its growth stimulus plan soon and sufficiently. On the other side, in the United States, were the recovery has matured, it is expected that the FED will begin the process of increasing interest rates.

The analysis of the variations, which have been really non-substantial throughout the year, in share value and sovereign bond yields, confirms that, even in the middle of important political events, the world economy slowly and steadily evolves towards recovery from the 2008/2009 recession debacle. The flow and counter flow of fixed yield papers, principally sovereign bonds, as well as in the corporate shares trade, has moved, now as almost always, under the influence of singular events which have generated reactions, which are many times impulsive, and therefore, temporary.

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