Emerging Markets Can Hurt The EU

The Eurozone, whose economy has been staggering along is on the brink of its third recession in six years. This could happen in 2014 if we see the emerging markets slowdown more than it is forecasted.
 
Why is this? Economies like Turkey and Brazil are more exposed to policies of the global central banks. If they see any decline in growth, thanks to recent policies, then that will hit the Eurozone hard. Any outside shocks, like emerging market slowdown could see any growth being made slowdown or even reverse. We will then dip back into a recession. The EU economy could be hurt more from slowdowns in Turkey, Brazil, India, South Africa and Indonesia. The Eurozone’s large current account deficit leaves a big vulnerability and high risk of exposure to any falloff in global liquidity.
 
The 17 country bloc which uses the euro is struggling to recover from a double dip recession. We saw the EU economy shrink in 2009 then again in 2012. We saw a further contraction of 0.4 percent in 2013. We also have a risk, thanks to an extremely low inflation rate which is contracting faster than expected, of deflationary pressure in the Eurozone.
 
Going forward, the European Central Bank will be walking a very intricate tightrope. It would be not in their interest to encourage inflation in 2014, as well as a introducing a monetary policy of negative rates to spur banks not to sit on money. In the past, the ECB has shown a track record of ingenuity.
 
Right now the four major central banks, the U.S. Federal Reserve, the Bank of England, The Bank of Japan and the Swiss National Bank are running the largest quantitative easing (QE) program in the global economies. They are buying bonds at a staggering rate and are pumping a staggering $16 trillion in the global economy. This is very close to the record of $1.7 trillion set in 2009.
 
We could see these central banks tapering back its asset purchases next year, which could mean a fall of $1 trillion next year. It will begin with the Federal Reserve sometime in Q1 of 2014 when they scale back its own $85 billion a month in bond purchases. This is not something the global markets will like to see. We are already seeing a rise in interest rates, as the U.S. 10 year rate is above 2.72 percent and climbing, which will hurt the housing recovery. The asset purchase program has also been a great advantage in the emerging markets, as their equity markets have been bolstered by it. When they slow down, when corporate revenues suffer, these outside shocks might be too much for the already weakened Eurozone economy to bear.