/ world today news/ Everyone expects the world economy to develop next year better than last year, but there is a serious risk arising from the significant increase in debt to GDP in developing markets. It is currently 195%, up from 150% in 2009. If economic cycles and debt cycles prevail, this is a strong signal that an emerging market crisis may occur.
This is important because these markets currently produce 58% of the world’s gross domestic product – something that has not happened before and could lead to a crisis in the world economy. This was stated by the teacher at UNSS Plamen Dermendzhiev.
According to him, China’s economy is leading among the developing markets. Expectations are low commodity prices, an expensive dollar following rising interest rates in the US. Besides, according to the economist, there will be no cheap capital.
History shows that debt cycles usually end in either a crisis or a recession or lower growth. Dermendzhiev now expects the third option to develop, because not all developing economies are in the same state and the expectations for them are the same, and South Korea, Singapore and China are doing well financially. Lower growth is expected in China, however, they have very serious buffers (a large current account surplus) that compensate for this low growth. The political environment is such that the Chinese, who have a low tolerance for bankruptcies, tend to provide state aid.
Brazil, Malaysia and Turkey currently have greater economic risks, where there is already a political risk. These are countries with negative current accounts, they do not have significant sizes, and their currency is seriously devalued. In addition, they have debts in foreign currency, and when the dollar rises, it will be increasingly difficult for them to service their foreign debt.
India and Russia have already been through the worst, although India is expected to have a 4% recession this year, the same is true for Brazil, but with the devaluation of the ruble, a recession can also be expected in Russia next year, but it is expects to be significantly smaller, the expert pointed out.
Argentina is interesting because there is now a new president and everyone expects him to be more reformist. It is also positive that the country has a very low external debt relative to GDP.
The economy in Bulgaria is expected to grow more than this year, but by a little. The main driver of growth is expected to be consumption, not so much exports as it has been so far. Dermendzhiev also expects that growth will be fueled by investments, especially from the state budget, because the new program period is starting and the absorption of euro funds will be difficult, but they will be compensated by investments from the national budget and from internal consumption, i.e. it is believed that people will consume more than last year.
Unemployment in our country is also expected to fall further. About 43,000 jobs were created this year, and the same number are expected to be created next year. The potential of the economy is for another 220 thousand jobs. All economists expect that if this potential is filled with this structure in the country’s economy, the GDP can grow in real terms by about 6%, i.e. now we expect a growth of 2.5%, if another 200 thousand jobs are created, this means that we are approaching the full potential of the economy, which if it is reached, there will be no inflation and the economy will be able to grow sustainably.
These jobs are created with investments, he believes. Dermendzhiev expects that the effectiveness of these investments will not be as great as this year, because everyone knows that the state does not usually invest very successfully.
From the point of view of international markets, the prices of most goods are falling. Copper is considered a major indicator of economic development in the near future because of the many uses it has in the economy and because its price depends more on market forces than the price of oil.
Regarding the price of oil, Dermendzhiev pointed out that until now the cartel (OPEC) dictated the prices. From here on out, the forces of supply and demand are expected to weigh more and more on the price of oil, while until now the price has been heavily influenced by the decisions of the cartel, he pointed out. According to Dermendzhiev, Saudi Arabia is currently very aggressive and is entering markets where it has not exported oil before, such as Poland and Sweden in Europe. This is how they lower the prices on the European market. They have also supplanted Russia as China’s main oil supplier. Iran is also expected to increase its production after the sanctions are lifted. Iraq is also expected to raise its output. Overall, yields will be strong enough to maintain market share and supply will again outstrip demand in 2016 as well.
This year, Saudi Arabia for the first time issued bonds to cover the budget deficit – something that no one expected, but it is happening. However, this is not a problem for this country because the debt-GDP ratio is the lowest in the world at 1.6%, i.e. the country can issue huge debt and can easily market it. It comes to this because the country gets involved in many infrastructure projects that it has to finance somehow and if it cannot finance them from oil, it finances them with debt.
The chairman of the Bulgarian Oil and Gas Association, Valentin Zlatev, commented on the topic of fuels and what depends on whether their price will rise. He stated that for gasoline, for example, from the retail price for one liter, 52% of the amount is formed by taxes, 26.2% is from the cost of oil, the value of oil refining is 6.2%, the bio component is 2.4% and marketing and distribution is 12.2% , and the profit is 1.1%. For diesel, excise duty and VAT form 49% of the value of one liter, 28.3% is the value of oil, the biocomponent is 2.5%, 6.3% for refining, for marketing and distribution the value is 13% and 0.7% is for profit, explained Zlatev. “Lukoil” has invested between 150 – 160 million BGN in the refinery. Naturally, this figure affects the cost of production, he pointed out. This amount increases the price paid by the end user.
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