Even without US ‘cliff,’ world economy on the edge

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SummaryGiven a recession in EU & a contraction in Japan, the US is also set to feel pressure

The global economy is on edge — and that’s without the US “fiscal cliff.” Among rich nations, the US outlook remains the least troublesome. But given a recession in the euro zone and a recent contraction in Japan, that’s not saying a lot.

At the same time, many emerging markets are hurting. India is likely to log its weakest growth in a decade this year and Brazil’s economy is also sputtering. Luckily, growth in China appears to be firming. In the United States, the economy faces growing challenges even without the ongoing political wrangling over the $600 billion in government spending reductions and expiring tax cuts set to kick in at the start of next year.

The coming week brings a slew of reports expected to show the US economy struggling. Data on Friday will likely show employment growth slowed to just 1,00,000 jobs last month from 1,71,000 in October, according to a Reuters poll of economists. The United States’ travails come against a troubling global backdrop.

Europe is still a mess. Greece’s latest debt deal quelled immediate concerns of a financial market meltdown, with terms of the country’s bond buy-back plan likely to be announced early this week. But the country remains mired in a deep depression, with little prospect for recovery, and not everyone is convinced it will be able to remain a part of the single currency.

“We expect the euro to come under pressure again soon, and continue to forecast that the exchange rate against the dollar will tumble to parity next year as Greece eventually leaves the euro zone,” said John Higgins, economist at Capital Economics in London.

The attention of financial markets has also quickly returned to Spain, where the economy continues to worsen despite an improvement in credit market conditions prompted by hopes of eventual help from the European Central Bank. Other global engines of growth also look to be softening.

Not only did growth slow in India and Brazil, but it braked in Canada as well.

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