The Gulf countries have been working on the unified tourist visa – similar to Schengen-style visa – for over one year
uae1 hour ago
Eight years after the financial crisis, the world is coming to grips with an unpleasant realisation: serious weaknesses still plague the global economy, and emergency help may not be on the way.
Sinking stock prices, flat inflation, and the bizarre phenomenon of negative interest rates have coupled with a downturn in emerging markets to raise worries that the economy is being stalked by threats that central banks - the saviors during the crisis - may struggle to cope with.
Meanwhile, commercial banks are again a source of concern, especially in Europe. Banks were the epicentre of the 2007-9 crisis, which started over excessive loans to homeowners with shaky credit in the United States and then swept the globe into recession.
China
A sharp slowdown in China threatens to remove a pillar of global growth. Slackening demand for raw materials there is hitting producers of oil and metals in other countries. Energy exporter Russia, for instance, slid into recession and its currency has plunged.
German automaker Daimler made a record operating profit of 13.8 billion euros last year, helped by a 41 per cent surged in sales in China for its Mercedes-Benz luxury cars. But its shares fell when it announced a cautious outlook for only a slight profit increase for 2016 and "more moderate" growth in China. CEO Dieter Zetsche cautioned that he saw "more risks than opportunities" amid "restrained" global growth.
Emerging Markets, Submerging
Money is flowing out of so-called emerging markets like Brazil, Russia, South Africa and Turkey. Investors pulled $735 billion out such countries in 2015 - the first year of net outflows since 1988, according to the Institute of International Finance.
And emerging markets aren't so emerging any more: they provide 70 per cent of expected global growth.
Central banks led by the US Fed responded to the global recession by slashing interest rates and printing money. That encouraged investors in search of higher returns to place their money in emerging markets.
Now the Fed is trying to push up its interest rates, and those flows have gone into reverse, causing financial markets and currencies in emerging markets to sag. Debt becomes harder to repay.
IMF chief Christine Lagarde has warned of "spillback" effects from emerging markets on more advanced economies.
Stephen Lewis, chief economist at ADM Investor Services International, says there's little the Fed can do but go ahead with raising rates to a more normal level.
"Unless we're going to paralyze monetary policy in the advanced economies forevermore, it is inevitable that the funds that have gone into emerging markets are going to come back out of them," he said.
Uncle Sam
The other pillar of the global economy besides China, the US, is also now showing signs of weakness. Maybe not a recession, yet. But growth was a weak 0.7 annually during the fourth quarter. Factory output has declined.
Though unemployment has dropped, wages have not recovered quickly and companies appear to be unsettled by the global jitters.
A rising dollar - a side effect of expected Fed interest rate increases - could hurt exporters. That's one reason the Fed may in fact hold off raising rates again soon.
Banks
Banks stocks have been plunging in the US and Europe.
In the US, low oil prices may mean companies involved in expensive oil and gas extraction will be unable to repay loans made to dig wells that are no longer profitable.
In Europe, bank shares have been shaken by the bailout of four Italian lenders and fears about 1.2 trillion euros ($1.35 trillion) in bad loans across the 19 country currency union.
John Cryan, co-CEO of Deutsche Bank, had to take the unusual step of publicly reassuring that the bank's finances were "rock-solid" after investors pounded the bank's stock.
The spread of negative interest rates could reduce banks' profitability, since it squeezes the different between the rates at which banks borrow and at which they lend.
Sick banks can choke off credit to companies and dump huge costs on governments, shareholders and creditors.
Out of Bullets?
With interest rates below zero in some cases, it's much harder for central banks to apply more stimulus if needed.
Low rates and stimulus in the form of bond purchases - using some $3.6 trillion in newly printed money in the case of the Fed - have driven up stocks worldwide.
Yet inflation has remained quiescent. US consumer prices fell 0.1 per cent in December. European inflation is only 0.4 per cent annually, despite massive ECB stimulus.
So markets may be realising this is one downturn where the central banks can't ride to the rescue as before.
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