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New Year cheer valid in the UAE but the rest of the world economy looks a wreck for 2013

Posted on 01 January 2013 with no comments from readers

So the US has actually fallen off the ‘fiscal cliff’ today but there was so much hope and optimism that a deal would still be reached tomorrow that stocks actually rose quite sharply. For sheer hubris that took some nerve even by the standards of Wall Street.

Nobody seemed terribly interested in the gloomy New Year’s message from Germany’s chancellor Angela Merkel that Europe’s biggest economy would have a worse time in 2013 than 2012 and that the eurozone debt crisis was far from over. Wall Street pundits said the eurozone crisis was now under control!

Chinese recovery?

China came in with some slightly better than expected figures in its PMI manufacturing index compiled by HSBC but then again is this not merely the impact of stimulus measures taken at the time of the leadership handover? Exports are still on a falling trajectory mainly due to the ongoing crisis in Europe.

There’s also little reason to be cheerful about Japan, except for the money printing promises that are supposed to solve everything that Japan has not solved in 22 years since its property and real estate bubble imploded. Today Japan sits on the world’s biggest public sector debts and has a crisis of a different kind to come if it prints money, a bond market crash.

If the focus comes off the euro in 2013 then currency markets may zoom in on the UK pound as another major economy weighed down by debts second only perhaps to Japan. There is nothing in recent UK economic data to suggest a recovery.

Oil States OK

Only in the UAE, Gulf States and Russia does the latest ArabianMoney investment newsletter (subscribe here) see any reason for cheer. Money printing and economic stimulus packages will keep energy prices high and oil revenues at record levels. Local liquidity is rising as Gulf monarchies spend to keep their populations affluent in contrast to the misery of the Arab Spring.

So we have to hope that the US and China can somehow keep the global economy rolling forward in 2013. Brazil and India are also not going to help and have many problems of their own. Can the US do this or will the bizarre euphoria on Wall Street about going over the fiscal cliff prove to be a moment of monumental hubris?

Irrational exuberance can keep a New Year party going a bit longer but the fireworks will not last forever.

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