Are we Headed Towards Another Global Economic Collapse

Why the Sentiment is shifting towards Global Economic Collapse?

The crisis situation in Japan following a strong earthquake, a terrible tsunami, and a complete failure of nuclear reactors, very much put in danger the possibility of a continued recovery.

Then, the Middle East situation which is only getting more complex with each passing day lay fears that economic activity in that region will come to a haul and this may even have a serious impact on oil prices.

Much of the initial unrest has already trickled into oil prices and supply. Key oil importing nations will suffer terrible consequences if this situation is not dealt with soon.

Current State of US Economy is Concerning

At home, in United States the unemployment situation is not getting any better and the double-dip recession in the housing market is once again threatening to derail the course of economic recovery.

With oil prices battling higher grounds the risk of high inflation is creeping into the system and this can again come in way of global growth.

Fears of Globally Interconnected Risks

In this globalized world problems faced in one corner can have a significant impact on the other, so now all depends on how deep the global economies are interconnected.

Let’s take a quick look at major problems that could together lead to a complete chaos in global economic system in 2011 and most part of 2012 and not to mention as sentiment takes a turn it could lead us in to an even severe recession than we witnessed in past.

What will happen when QE2 ends?

The second round of quantitative easing ends in June and the key concern is what will happen when Fed exits the market?

The only thing that is bound to happen is a sharp spike up in interest rates. To escape this scenario Fed may try to play the trick of introducing another QE round, but this time market reaction could be other way round to any such move.

Should you Fear the Rising Commodity Prices?

We cannot ignore the sharp run-up that crude has seen since the start of this year, and this is mainly led by Middle East unrest and the hopes that global recovery will increase its pace. But it’s a growing concern for consumers as rising crude impacts the costs of other commodities as well.

And for the businesses this could impact their bottom line and a situation may arrive where it will become almost impossible to pass on the costs to consumers, and a compression in profit margins is almost a reality they will have to deal with in times to come.

Consumer Sentiment Could Again Come in Play

Consumer sentiment has been a key driver of the economic recovery we have seen so far, and the bad news is that it is in the declining mode once again. It is believed to have hit fresh lows since November 2009 and the key bug is the rising cost of consumption.