Rogoff's Bleak Forecast for the Euro

We have all seen recently what the current Eurozone mess can do to our stockmarkets and to our economy. Therefore, it is in India's interest that Eurozone mess never gets out of control, especially this year when the government's finances are already stretched and it doesn't have the wherewithal for a bailout. Then there is the worrisome current account deficit problem arising from the weakened growth of exports thanks to less-than-satisfactory growth of the global economy and rise in the value of our imports, many of which, we can't do without, chiefly crude oil and edibile oils. To top it RBI has the problem of keeping inflation under check which is still at a fairly high level. In this backdrop, it is further chastening to read eminent economist Kenneth Rogoff's recent article on the euro which has been reproduced in some places http://www.project-syndicate.org/commentary/a-centerless-euro-cannot-hold. Now Rogoff is no ordinary dude. He is famous for having studied recessions and downturns over centuries in his book with his ex-World Banker co-author Carmen Reinhart called  "This Time is Different: Eight Centuries of Financial Folly". He discusses arguments from the theories of two Nobel prize winners James Meade and Robert Mundell to paint a fairly grim future for the euro. Why is an article like this important? Because  you just have to peep into business papers and TV channels to see the plethora of so-called experts who are giving advice and predictions based on the assumption that things will get back to the same old ways of pre-2008. But will they? Has the global economy changed irreversibly by the global economic crisis? Food for thought.

Why the Rupee Could Become Weaker and Impact on Everyone's Finances

Now that the third quarter current account deficit figures of 4.3 per cent of GDP is out a few things are clear to me. We will see a situation in the future where the gap between growth of imports and exports will continue to be yawning. You don't need to be an expert to know that the top items in our imports list are things that we can't do without. I am talking about petroleum and edible oils. With rising international oil prices being the single most important threat to the global economy, especially India, the import bill could go into orbit any moment whether it is tensions in areas such as Iran or another round of currency pumping by some central banks. In the past, the huge amount of cash pumped by central banks found its way to commodities such as crude oil, pushing up their prices. On the exports side, things don't look too great with global economy showing weakness. In the US, joblessness is on the decline but the rate of fall is not brisk enough. We know how things are in Europe and China is now talking about far lower rate of growth. The one thing that government could try and do was checking gold imports which it tried to do in the Budget. But then, jewellers had other ideas with their strike.
Given this situation, one can expect people to seek more dollars and than the rupee or the rupee's value to weaken. This in turn will only mean more inflationary pressures and more stubborn inflation. Less likely will be a cut in interest rates and greater impact on the bottomlines of companies impacting their stock prices. Of course, this will also impact the investments in equity mutual funds and growth funds of unit linked insurance plans (Ulips) this year. Clearly, it looks as if the new financial year of 2012-13 will be fairly challenging.