Sunday 23 October 2016

Five reasons fears growing we're on the brink of another financial crisis

Published 20/01/2016 | 14:08

The Barclays building, formerly the Lehman Brothers headquarters, towers over Midtown Manhattan
The Barclays building, formerly the Lehman Brothers headquarters, towers over Midtown Manhattan
The euro area has narrowly avoided entering its third technical recession since the financial crisis

SINCE the New Year world stock markets have been in turmoil and many financial experts believe we're on the brink of another global financial crisis.

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While some economists believe we're not heading for another crash as many Western economies, like Ireland, have stabilised, some indicators are pointing firmly in the wrong direction.

So as world leaders and businessmen meet in Davos, here are five alarm bells:

1. China: Demand from the world's second biggest economy helped bring the world back from the brink last time round but this time there are serious concerns about it.  Its economy grew at a rate of 6.9pc in 2015, compared with 7.3pc in 2014, its slowest rate in a quarter of a century - although it's still big in comparison with other economies There's also talk of a Yuan devaluation. Then there's Europe, glued together post-Communism in a so-called union but with cracks appearing at every turn.

2. Plummeting oil prices: While instability in the Middle East is a factor, this is essentially a supply/demand issue. The US, while not an exporter of crude oil, has nearly doubled production in recent years making it harder for traditional producers to find markets. Oil produced by the likes of Saudi that was once sold in the US is competing for Asian markets pushing prices down lower while others like Canada, Iraq and Russia keep producing. Some are predicting the price per barrel will fall to below $10.

3. Debt: Speaking at Davos this week, William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS), told The Telegraph in an interview that the next task awaiting the global authorities is how to manage write-offs for countries that have run up massive debts without setting off a political storm. Who will pay, he wondered as he warned that Governments are also relying too much on Central Banks to solve solvency problems when all they can do is solve liquidity issues.

4: Banks: While we've been told time and time again that the banks have cleaned up their acts and balance sheets, there are still a number of unknowns. For example, one big concern is the derivative positions of the 'Too big to fail' banks, particularly those on Wall Street. One thing is certain, the financial system is complicated and very fragile.

5. Confidence: A survey of more than 1,400 CEOs released on the eve of the annual World Economic Forum in Davos paints a rather gloomy picture. Only 27pc of business bosses expect world economic growth to improve over the next year - this compares with 37pc at the same time in 2015.

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