The US employment data came in lower than expected, with the unemployment rate at 9.4 percent, down from 9.9 percent a year ago. Markets were expecting an improvement and the beginning of a recovery in the US economy, and a greater decline in unemployment than was achieved at the end of the year. The US Federal Reserve also expected the US economy to recover and begin the recovery phase by relying on the growth of consumer and investment demand, which reduces dependence on government support and the financial easing adopted by the Central Bank. On the other hand, the Eurozone is suffering from debt and its impact on the region’s growth. The worsening sovereign debt problem and its impact on the growth rate in the Eurozone, its impact on consumer confidence, and the increasing sense of insecurity in the Eurozone are putting pressure on governments to continue to drive economic growth through government spending based on debt, which is a painkiller for the crisis and not a real cure.
With the worsening debt problem in Europe and its impact on the percentage of debt allowed according to the Maastricht Agreement, which reached an average of 90 percent of the GDP compared to the debt allowed according to the agreement, which should not exceed 70 percent of the GDP, European countries called for stopping the revitalization of the economy through government spending based on debt in the hope that this would lead to stimulating private spending, especially family spending. The “US Federal Reserve” lives with the same hope, as stated by Bernanke, Chairman of the US Federal Reserve, in his expectation of achieving growth based on private spending. However, with the continued weakness of Western economies in creating jobs and private investment trends in developing countries, especially in East Asia and Latin America, it is expected, as explained in a previous article, to achieve higher growth in developing countries during the next phase and a slowdown in growth in industrialized countries in industrialized countries.
Since the beginning of the crisis, officials in industrialized countries in Europe and America and international organizations expected these countries to emerge from the crisis by the end of 2009 to create confidence in these economies and encourage investors and consumers to spend domestically, while all economic data at that time indicated that the financial crisis in these countries would continue for more than three years. Some studies have even suggested that the recession that hit industrialized countries may continue for a longer period, similar to what happened in Japan, which is known as the lost decade in the Japanese economy. Because the current financial crisis is the result of a structural imbalance in the global economy rather than just economic cycles, temporary correction through spending will not solve the crisis and may create another crisis that is difficult to get out of. Markets always react to events, and investors in economic tradition are generally rational and their overall predictions, especially in countries where they have a certain amount of information, are closer to being correct. Therefore, in the Foreign Direct Investment Report poll, the majority of investors reported that their investment plan for the next phase targets developing countries, especially those that have the elements of economic growth and enjoy systems and laws that protect investors.
From the available economic data, it is expected that industrialized countries will continue to suffer in achieving economic growth in the coming period and will rely more on government spending and quantitative easing, which will weaken their currencies and further exacerbate the problem. Because there is huge liquidity in the global economy looking for lucrative returns compared to the very low returns in Western economies, this liquidity will go to developing countries, which have the elements of economic growth driven by demand in these countries, which will put pressure on asset prices in these countries and the general price level to rise more than necessary.