essay

World economy
Global economic is witnessing a slowdown due to sovereign debt crises in euro zone and threat
of recession in United States of America. Because of close link between banks funding and
sovereign crises liquidity came under strain in European leading to Greece and Spain
particularly into deep crises. The turmoil spread across global financial market leading to very
strict monetary policy adopted by financial regulators across the world including Asia and
Australia. European Central Bank has been taking series of action from last December in form of
LTRO where it infused 450 billion pound in order to buy short term instruments and selling long
term bonds in return. Further last week ECB in its meets came out with the very strong
statement that EURO is i
eversible and also announced unlimited bond buying programme
which is being approved by German court with a caveat of 300 billion pound bond buying
programme. United States also remained a zone of concern as economy is slowing down
gradually with all time high inflation of close to 2% and unemployment rate above 8%. Last
week FED ahead of US election announced series of policy measure in the form of QE3, where
FED will buy bonds worth $40 billion each month till December 2012 and will decide upon
future action post election. Similarly In Asia also Japan came up with Qualitative easing
programme where it will pump yen 800 billion into the system in order to infuse growth. As per
IMF estimates world economy is expected to grow between 2.5% - 3% in FY 12-13.
However economist feel that because of series of QE programme adopted by USA, Euro and
other countries would economy will be filled by excess money which contribute to global
inflation in terms of high oil, metal and food prices and have criticized such programme. But
however these countries are left with no choice then to print money in a way they are buying
time and extending their default in hope that growth might pick up and they can avoid.
On the contrary Asian countries have been outperformer and major contributor in the global
growth and countries like China and India have registered healthy growth above 6%. Because of
high yield and growth stability, global funds are being diverted to Asia market against the
negative return in their respective home country. On the back drop of such activity financial
markets remained highly volatile. Asian stocks outperformed compared to its global peers and
chasing high return global funds managers are eying it as an attractive investment destination.
Outlook of Australia Economy:
Outlook of Australia's remains favorable and positive as Australian economy grew around 3.25
percent this year, in line with potential. Investment climate was positive and remained strong.
Cu
ency appreciated against major G7 countries and policy of central bank have remained
accommodative given the benign outlook for inflation, a strong Australian dollar and the
government's fiscal tightening efforts. A per Masahiko Takeda, Deputy Director, Asia and Pacific
Department, Overall, the economy is in good shape and policies are
oadly speaking
appropriately set. It also highlighted that China slowdown possesses a risk as it is Australia's
single largest export market. The RBA in its last policy meet left interest rates unchanged at
3.5%, having cut twice earlier in the year. Thus on
oad parameter considering the global
dynamics, Australian economy has been outperformer and is fundamentally strong and robust.
Investments are picking up, inflation is under control, cu
ency is appreciating trend, and banks
are strong and has not witnessed significant liquidity stress. Some banks with international
presence have been impacted but as a whole banking system remained intact on account of
strong policy decision making and monitoring by Reserve Bank if Australia. The firmness in
ank funding in Australia by larger banks has helped them in raising bonds and especially new
covered bond programs. Spreads remained volatile and wider which led to pricing of some loan
in recent past. Moreover, Australia remains the top investment destination for FDI and total FDI
figure in 2011 grew at USD 507 billion, major contributed by US and Europe accounting for 405...