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Doom and gloom once more?

A new financial crisis may be coming up in the emerging economies that could cause much more damage than 2008 – that is what a World Bank report says after having analysed the international transactions of the central banks of most major economies.

The dark forecast mostly causes concern about fast developing markets such as China, which the experts are showing signs of over-heating. And there is also the problem of backdoor local borrowing, which helps increase debt. They remind of the situation in the US and UK just before the 2008 crisis. Now these new problems could send the whole economy into another downward spiral for a few years. The central banks may find themselves compelled to abruptly raise the interest rates to fight inflation, which would otherwise suffocate economic growth.

China's rising debt, and Trump's promise of economic protectionism are the main causes for concern. Right now, China's debt is 166% of the GDP, which is double its size from a decade ago. The debt in other countries in the Asian-Pacific region is also rising – Thailand and Hong Kong for example.

The global economy is still recovering from the global crisis and the euro crisis from 2008-2010. In both cases, the systematic problems were caused by disproportionately large debt-to-GDP ratios, and this situation looks likely to repeat soon again.

Source: Talk politics.

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