The Export Finance and Insurance Corporation (EFIC) has predicted further financial uncertainty following political turmoil in the Middle East and North Africa.
And Portugal’s financial crisis is likely to have a major impact on other European countries, EFIC predicts.
However, the economic news is better for trading partners in the wake of the devastating earthquake and tsunami in Japan.
In the April issue of EFIC’s newsletter, World Risk Developments, the Australian Government’s export credit agency examines the continuing impact of three recent dislocations – the Middle East and North Africa (MENA), the eurozone sovereign debt-cum-banking crisis and earthquake and tsunami in Japan.
In MENA, the newsletter notes that the so-called Arab Spring has entered a new phase. Regimes across the region have mounted crackdowns, with Libya entering a civil war and Yemen on the brink.
In the two countries where the old regimes have already been overthrown – Egypt and Tunisia – recent developments are promising.
Constitutional change and elections are being planned. But the situation remains unstable, with the position of security forces and Islamic opposition groups in particular unclear.
What does this imply for businesses trading with and investing in the region?
“In short, more uncertainty,” says EFIC’s Chief Economist, Roger Donnelly. “A lot of upside potential, but also much downside risk. Historical experience suggests that governance and economic performance don’t always improve following the overthrow of an autocrat.”
In Europe, highly indebted peripheral eurozone governments continue to struggle with their public finances. Portugal’s caretaker government sought a bailout from the European Union – the third country to do so after Greece and Ireland.
“The failure of the EU to hold the line at Greece and Ireland won’t affect just Portugal,” says Donnelly. “It could also make life difficult for governments in Spain, Belgium and Italy.”
On the other hand, he says, there was some good news about the impact of the earthquake in Japan from an economic standpoint: purchasing manager indices for March indicated that aggregate world manufacturing production has not suffered a severe blow.
“While the disaster has certainly caused supply chain disruptions, it seems that firms outside the disaster area in Japan, and those in other countries, have rushed to supply the shortfall,” Donnelly says.
“However, Japanese imports have certainly been heavily impacted, with imports going down correspondingly, including from Australia.”
In other stories, the newsletter looks at interest rate rises by China and the European Central Bank, oil price rises and the narrowly-averted US federal government shutdown.
For a full report visit: www.efic.gov.au/wrd
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