PAKISTAN, 28 November 2011 - In 2011, the global economy remained in recession due to the euro zone debt crisis, the instability in American economy due to an increase in the legal debt ceiling, elimination of quantitative easing and stagnant policies of the developed nations.
If the developed nations are unable to solve this crisis, it ultimately will affect Asian economies, including Pakistan. The south Asian economies of China and India face decreasing exports, causing unemployment and significant increases in poverty. Pakistan’s currencies are under pressure, and there is an increasing chance of inflation in Pakistan.
Europe is drowning in its debt. Individual countries are struggling to survive and restructure, while European banks suffer as countries default and the banks and stronger European economies are forced to provide bail out packages to save struggling countries from collapse.
Europe is a major importer of Chinese products. The European debt crisis is causing a decrease in imports of those Chinese products to Europe, resulting in a decreased growth in Chinese economy. If China’s economy slows, it will ultimately slow the Indian economy. India is a major economic partner of China, with trade between them valued at 62 billion dollars. Pakistan-China and Bangladesh-China trade will also slow if the Chinese economy faces decrease in its growth.
The European crisis will also case a decrease in exports from Pakistan and Bangladesh. Foreign investment in both countries also is likely to decrease. For Pakistan, decreased trade and foreign investment can cause problems in raising development funds, as Pakistan did not issue Bonds in June 2011.
If the world economy slows, it will result in a decrease in oil prices, which would impact economic activity in the Middle East. Pakistan currently has millions of citizens working in the Middle East who send remittances back to Pakistan. Any disruption of activity in the Middle East will undercut those remittances and cause problems in the balance of payments of Pakistan.
If Pakistan does not increase its regional trade to make up for losses to Europe and the United States, it could face recession. The delegates of the countries of SAARC (South Asian Association for Regional Cooperation) are meeting in Maldives in the 17th SAARC summit to increase their regional trade. If SAARC countries want to avoid recession, they need to remove tariff and non-tariff barriers and introduce free trade in South Asia.
India should take first steps towards free trade in south Asia and then other smaller countries of SAARC can gain confidence and so can avoid the effects of the world economy in recession.
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