Indeed, one of the reasons cited for the depth and length of the recession- a consequence of the credit crunch, was the knock-on effects from one economy to the next and the multinational aspect of banking and finance.
We take this as a given, but it piqued my curiosity and I thought that I would take a look at some financial headlines from around the world to see if there were clear, common threads, or if other countries were experiencing different issues.
I assumed that there would be common themes in western democracies, so I started by looking at some other economies. Reuters ran running an article stating the Reserve Bank of India was planning to impose stricter ceilings on the amount that banks could lend to a single corporate group. Currently, Indian banks can lend 55 per cent of their core capital and the Reserve Bank was looking to limit this to 40 per cent, on the fear that bad debts were on the rise. This was seen as an interim measure on the way to setting the cap at 25 per cent, which is the ceiling set by the Basel Committee on Banking Supervision.
By way of comparison with the struggles that we have here in the UK over recent years with negative and sluggish growth, this upswing in bad debts in India was on the back of two years when growth had not reached 5 per cent, which would seem to clearly show the ‘developing’ nature of the Indian economy.
Next, I had a look at the headlines for Mexico. In a different life I used to work for a Mexican bank and was working on the foreign exchange desk in the mid-90s when the Peso crashed from its peg with the US$ - interest rates went through the roof and inflation took off with a vengeance. In Mexico itself, the locals were all trying to move their savings into Dollars as the route of the Peso seemed to be one way only – it had gone from around 3.50 to the US$ to around 15.
To be honest, I haven’t really kept up to speed with the Mexican economy, but I was very surprised when I again checked the Reuters page to see that the inflation figures had just been announced and that the rate had fallen to an annual rate of 4.07 per cent. Not quite as low as the recent figures in the UK, but by my previous recollections of the Mexican economy, these were incredible figures. The US$ Peso rate was also between 13 & 14, so again the stability was in complete contrast to my experiences. The annual GDP was 1.6 per cent and the unemployment rate was around 5.5 per cent, stats that would not be out of place in any European country – in fact, they are better than most of the Euro zone has been managing over recent years.
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