January 24

Global markets slump on fear of slowing growth

The Dow sinks 318 points Friday, its biggest one-day drop since June.

By Paul Wiseman And Joshua Freed
The Associated Press

(Continued from page 1)

click image to enlarge

Specialist Vincent Surace works on the floor of the New York Stock Exchange on Friday.

The Associated Press

The South African rand, Russian ruble, Turkish lira, and especially the Argentinian peso — which fell 13 percent Thursday — have been "trounced," said Jane Foley, a currency strategist at Rabobank. "Talk that the U.S. Federal Reserve will announce another reduction in its monthly bond purchases next week ... (is also) contributing to a loss of confidence in some emerging markets," she said.

___

POLITICAL TURMOIL

In some countries, concerns over the local political or financial situation have worsened the market volatility dramatically. That was most obvious in Argentina, where the peso this week suffered its sharpest fall since the country's 2002 economic collapse. The government, running short of reserves it could use to buy the currency and keep it from falling, has let the peso drop instead. The country's economic fundamentals are grim: Inflation is believed to be running at about 25 percent to 30 percent.

The peso fell 16 percent in two days, easily the worst performer among emerging markets.

Turkey's national currency, the lira, hit multiple record lows in recent weeks as investors worried about the fallout of a corruption scandal that threatens to destabilize the government. Having a stable government for the past 10 years has been one of the key ingredients in the country's economic revival.

The lira hit an all-time low of 2.33 against the dollar on Friday — from around 2 per dollar in December — despite a $3 billion-intervention by the central bank in foreign exchange markets.

Beyond political problems, the countries that have seen their currencies fall most are those that rely heavily on exports of raw materials used in manufacturing. The Russian ruble was trading at 34.58 per dollar, from below 34 on Thursday. The South African rand weakened to 11.13 per dollar, from 10.98 the day before.

___

CHINA AND GLOBAL GROWTH

Since the recession, the global economy has relied heavily on China and other emerging markets as the developed economies of the United States, Europe and Japan struggled.

But China's economy is decelerating. It grew 7.7 percent in October-December 2013 from a year earlier, down from the previous quarter's 7.8 percent growth. Factory output, exports and investment all weakened. On Thursday, the preliminary version of HSBC's purchasing managers' index of Chinese manufacturing fell to 49.6, the lowest reading since July's 47.7. Anything below 50 signals a contraction.

China's growth is still far stronger than the United States, Japan or Europe, but is down from the double-digit rates of the previous decade.

Many economists are troubled less by the slower growth numbers than by China's over-reliance on trade and investment instead of spending by its consumers.

"China, and the world at large, would benefit from its shift to a lower but more sustainable pattern of growth that is not so heavily dependent on investment-led growth fueled by bank credit," Cornell's Prasad said.

China's growth is slowing just as the world's rich economies begin to gain momentum.

The 17 countries that use the euro currency appear to be recovering from a debt crisis that tipped them into a double-dip recession in late 2011.

In the United States, households have reduced crippling debt levels and are in better shape to start spending again. The International Monetary Fund expects the U.S. economy to grow 2.8 percent this year, up from 1.9 percent in 2013, and for the eurozone economy to grow 1 percent in 2014 after contracting 0.4 percent in 2013 and 0.7 percent in 2012.

(Continued on page 3)

Were you interviewed for this story? If so, please fill out our accuracy form

Send question/comment to the editors




Further Discussion

Here at PressHerald.com we value our readers and are committed to growing our community by encouraging you to add to the discussion. To ensure conscientious dialogue we have implemented a strict no-bullying policy. To participate, you must follow our Terms of Use.

Questions about the article? Add them below and we’ll try to answer them or do a follow-up post as soon as we can. Technical problems? Email them to us with an exact description of the problem. Make sure to include:
  • Type of computer or mobile device your are using
  • Exact operating system and browser you are viewing the site on (TIP: You can easily determine your operating system here.)