New Year Begins with Abysmal Performances

New Year Begins with Abysmal Performances

From the very outset, the new year of 2016 has set negative financial and economic dynamics. For the Chinese stock market, 4 January was the worst first trading day of the year in the entire history of the national stock market, which saw the market plunge by 7 per cent. As a result of the sharp fall, meanwhile, trading was halted twice. After the Shanghai Composite fell by 5 per cent, trading was stopped on the Shanghai stock exchange for 15 minutes.

The technical break did not change the situation, however, and the market immediately resumed its tumble. In the end, China’s central bank was forced to stop trading entirely on the first working day of 2016. At that point, the Shanghai Composite index had lost 6.9 per cent. The Shenzhen Composite, another key Chinese stock index calculated based on the results of trading on the Shenzhen Stock Exchange, suffered even greater losses. This index fell by 8.2 per cent.

The baton of financial losses was taken up by the stock markets of the US and Europe, and this despite the fact that according to standard practice, the first days of the year are traditionally characterised by bull campaign. This time, however, it appears that there was nothing to rise. On the very first day of trading in 2016, the Dow Jones Industrial Average, a major US index, fell by 2.5 per cent on opening. It was the worst opening day for the Dow Jones in 84 years.

Similar abysmal performances were also recorded in the European stock exchanges. In particular, the British FTSE 100 Index fell by 2.4 per cent on the first working day of 2016. It was the worst first day of a new year in 16 years, which is to say since the start of the global financial and economic crisis in 2008.

All of these global phenomena suggest that the world in general and Europe in particular are facing the real threat of a second wave of the crisis. Moreover, while the crisis developed amid relative political stability in 2008-2009, these days Europeans can only dream of this kind of stability, given the dramatic refugee situation and rising tensions in the Middle East, where a new phase of confrontation between Saudi Arabia and Iran is taking shape.

Conflicts between Turkey and Iraq are also taking on a military aspect. The Iraqi Minister of Foreign Affairs, Ibrahim al-Jaafari, has already threatened a «military solution» to the problem, stating at a press conference in Baghdad: «If there are no other measures that will help, we will be obliged to resort to military force. If we are left with no other option, we will fight to defend our people, the sovereignty of our country and its riches».

This development of events is reinforcing the panic in European political circles, especially those that are traditionally guided by Washington. The Polish news portal Defence24, discussing the outlook for 2016, sees the threat of the Balkanisation of Europe on the horizon. The portal points out that 2016 «is the final year of Barack Obama’s presidency – the king of social networking who has completely lost his way in his foreign policy and who will be remembered for his withdrawal from Iraq and Afghanistan, after which the jihadists returned and are returning...»

In the first days of the new year, the International Monetary Fund has already had to do its favourite thing – reassess its own previous forecasts and put forward new (still very optimistic) benchmarks. In April 2015, the IMF predicted that the global economy would grow by 3.5 per cent in 2015. By October, this figure had already been reduced to 3.1 per cent. This has not troubled the experts, however, who are once again predicting that the world will begin to emerge from the crisis in the coming months.

Yet the number of negative factors has only increased, including factors of a political nature, notes Princeton University professor Ashoka Mody, describing the IMF’s forecasts as «wrong». «The factors that dragged down the global economy in 2015 will persist – and in some cases even intensify – in the new year. Emerging economies will remain weak. The eurozone, having enjoyed a temporary reprieve from austerity, will be constrained by listless global trade. Rising interest rates on corporate bonds portend slower growth in the US. China’s collapsing asset values could trigger financial turbulence. And policymakers are adrift, with little political leverage to stem these trends», Ashoka Mody points out. «The IMF should stop forecasting renewed growth and issue a warning that the global economy will remain weak and vulnerable unless world leaders act energetically to spur innovation and growth», the professor emphasises.

The problem, however, is that Western leaders are currently absorbed in something quite different – geopolitical games that are not intended to create conditions for stable economic growth. 

Tags: IMF  China  US