In the ever deepening and increasingly global economic crisis that continues to envelop us, it can be difficult to identify which countries are suffering the most pronounced financial consequences. After all, even relatively prosperous nations such as the United States and Canada are experiencing diminishing growth, as the former's economy created just 80,000 new jobs during the month of June.
The crisis in the eurozone is wreaking further havoc on the global economy, and the International Monetary Fund (IMF) revealed this week that growth around the world is expected to be weaker than the 3.5% that was predicted during the first financial quarter. With this is in mind, numerous countries throughout the world face a significant challenge to rebuild their economies and achieve financial solvency.
Spain: Why Speculating to Accumulate Is Not Always a Way Forward
This is especially true for nations that have been hit hardest by the global economic downturn, with Spain in particular experiencing unenviable financial hardship. Earlier this summer, the yield on the countries benchmark 10-year bonds soared to a record 6.96% during intraday trading, which is the highest level since the nation entered the euro as a member nation in 1999. In addition to this, ratings agency Moody's downgraded Spain's credit rating from A3 to Baa3, which is renowned as being one level above junk status among international countries. This is a direct response to Spain's failing banking system, which has driven the nations borrowing costs towards an unsustainable level.
With unemployment in Spain reaching a record high level of 24.6% in May 2012, the macro-environment and a vicious cycle of economic decline is also having a significant impact on consumer confidence and their levels of spending. Much more than this, however, there are genuine fears that the $125 million bailout package proposed by the eurozone leaders will be inadequate to repair the country's ailing economy, as it will simply add to an already burdensome and unmanageable level of debt. Indeed, there is even suspicion that the bailout will not be forthcoming, with contributing nations Germany and Finland insisting that Spain comply with more stringent conditions before the nations agree to a financial rescue package.
Zimbabwe: A Nation on the Brink
While Spain's future is decidedly bleak and uncertain, the long-term outlook for African nation Zimbabwe is even less prosperous. Although the exact sum of Zimbabwe's external debt has proved difficult to ascertain, the World Bank has estimated that it stands at an approximate 120% of national income, while a figure of $8 billion was referenced by Reserve Bank of Zimbabwe Governor, Gideon Gono, as recently as May. With this approximate debt level now outstripping the nation's gross domestic product (GDP), its economic decline is likely to be accelerated throughout 2012 and beyond.
This growing level of debt and economic underachievement has created significant social problems throughout Zimbabwe, and acted as the catalyst for rising national unemployment. In fact, the country has the highest level of youth unemployment in southern Africa, which has created a subsequent decline in the average young citizen's general standard of living, health and level of fundamental education. This is fostering a divisive cycle of economic depression and diminishing growth, and prompting continuing concerns of civil unrest in the near future. With this in mind, political reform may well hold the key to transforming the countries fortunes; the proposed elections of 2013 could set this in motion, should the requisite level of funding be sourced to host them.
Italy: Another Victim of the Eurozone Crisis
Rather like Spain, Italy has experienced significant turbulence as the eurozone crisis has taken hold. While its economic decline has not been as widely publicized as the developments unfolding in Greece, it remains uncomfortably close to bond yields that would make an already sizeable public debt suddenly unmanageable. The issues blighting the world's eighth largest economy are at least clearly understandable, however, and once again have its roots in irresponsible government spending and flawed lending practices.
For example, Italy's total debt as a percentage of its GDP stands at a staggering 314%, but despite this, the nation's level of household debt remains relatively low. Instead, it is the government's stringent labor laws and liberal welfare provisions that have created the most significant economic problems and contributed toward a state financial liability that is 111% of the GDP. Although the relatively new government of Prime Minister Mario Monti has now agreed to cut public spending by $32 billion over the next three years, as a way of bridging the cavernous gap between expenditure and income, the consequences for the nation's civil service and healthcare bodies have the potential to cause significant social upheaval.
The Bottom Line
The global economic unrest is being felt in both established and developing economies, with the ongoing eurozone crisis having a particularly significant impact on nations worldwide. When you consider this alongside the consequences of an underperforming U.S. economy and the effect that they have on global trade and the open financial markets, it is clear that nations such as Spain, Zimbabwe and Italy must swim against an increasingly volatile tide, if they are to remain solvent and lay the foundations for sustainable growth.