Debt,the sequel

Portugal

Portugal has come close to needing a bailout. In January,the country sold bonds totalling 1.25 billion euros. The yields were as high as 6.7 per cent before heavy purchases by the ECB pushed it down. Unless borrowing costs come down,Portugal may have to seek rescue funds from the euro zone partners and the IMF. Public finances are shaky. The budget deficit has averaged 4.6 per cent of GDP. Borrowing costs dropped with its entry to the euro zone and consequently,foreign debts rose,mostly borrowed by banks whose creditworthiness depends on the standing of the state. Samp;P lowered Portugals sovereign debt rating last spring and the country is now reliant on the ECB. Portugals economy is likely to shrink twice as much as forecast this year as the government implements additional austerity measures to qualify for an international aid package of as much as 78 billion euros 116 billion. GDP is projected to decline 2 per cent both in 2011 and 2012.

Greece

Greeces economic reforms,which led to it abandoning the drachma as its currency in favour of the euro in 2002,made it easier for the country to borrow money. It went on a big,debt-funded spending spree. When the global financial downturn hit,it could not cope. In July,euro zone leaders and the IMF agreed to a lend Greece euro 109 billion a year,as the country could ill-afford the high market rates. This was done to allow the country to start putting its economy in order so that its bond yields come down. Instead,Greece was downgraded by Samp;P as least credit-worthy. Greek Prime Minister George Papandreou,who had made an attempt to call a referendum on an fresh international bailout of 130 billion euros agreed to at the recently-held EU Summit,has stepped down to make way a new Greek unity government under Lucas Papademos. The main priority for Papademos would be to ratify the package and convince Greeks that the austerity measures are necessary and manage the social unrest that may arise.

Italy

Italys public debt stands at 120 per cent of GDP,and growth is expected to remain 0.3 per cent,meaning that the economy would not generate enough to pay for that debt. This was reflected in Samp;P cutting Italys sovereign rating to A from A. Meanwhile,the Silvio Berlusconi government lost majority and the new government under Mario Monti has to reduce the budget deficit.

Spain

Spains rising public debt likely to stand at 68 per cent of GDP by the end of 2011,on account of deficits,is a source of worry. Its fiscal deficit stands at 6 per cent of GDP. The state may have to pump in more than 25 billion euros 2.5 per cent of GDP to help weather the housing boom and bust.

China

As The Economist puts it,Perhaps the only thing growing faster than Chinas economy is worry about the countrys economy. With GDP growth slowing to 9.1 per cent in the third quarter,the worries for the country considered as one of the last engines of growth reflects problems beyond its borders or the governments control. Chinese sales to the EU,for example,plunged by 7.5 per cent in September,the worst drop since 1995. Chinese stocks listed in Hong Kong have performed dismally. Insurance costs against a sovereign default have risen and there is downward pressure on its currency. Chinese inflation has held above 6 percent for four straight months ,rising to a three-year high of 6.5 per cent in July,limiting Beijings stimulus options should 2012 turn out to be a bad year for the global economy.

India

A stubbornly high headline inflation at 9.73 per cent for October,along with declining industrial production due to rising cost of credit,a result of 13 policy rate hikes by the RBI to combat inflation,and a widening fiscal deficit is largely threatening to derail the Indias growth story in the current financial year. The inter-linkages between the Indian and global economy has the potential to further worsen the prospects. Emerging economies including India are witnessing large volatility in financial markets due to weakness in the US and euro zone.

Japan

After being severely hit by a tsunami and earthquake in March this year,Japan drew up an extra budget worth over 50 billion to help finance post-tsunami reconstruction efforts. The World Bank said it may take five years for Japan to rebuild. While Japan maintains low inflation figures,even as consumer prices rose by 0.6 per cent in April from a year earlier,Fitch has downgraded its outlook on Japans debt to negative from stable. The credit ratings agency said it was worried about the high levels of Japanese government debt.

United Kingdom

Britain witnessed recessionary trends beginning in 2008 and lasted till 2009. The economy came out of recession faster than expected,went downhill in 2010 and remained slow in the first half of 2011. GDP fell 0.5 per cent in the final quarter of 2010 but then rose 0.5 per cent in the first quarter of 2011. The second quarter of the year saw growth of only 0.2 per cent. The State and the private sector are setting right their finances,which could show adverse results in the short-term but necessary for long-term health. Unemployment is likely to increase in the short term,reflecting the slow recovery. Inflation may reign over 2 per cent in 2011 and most of 2012.

Germany

The engine of the euro zone is roiled by the debt crisis and the turmoil in the financial markets. The Ifo business climate index fell to its lowest in September,indicating that business confidence is at an all-time low. Consumer-price inflation rose to a three-year high at 2.6 per cent in September. The OECD projects that the economy will fall sharply in the last quarter,to the bottom level among industrialised countries. Even as the political leadership is committed to the cause of Europe,the general impression is of a nation not quite willing to address the crisis if it involves loosening its purse strings or parting with sovereignty.

Brazil

The economy grew by 7.5 per cent,a rate unmatched since 1986. The government,worried about overheating,has trimmed the budget and in March the Central Bank raised interest rates five times this year to bring growth to a more manageable annual rate of 4.5-5 per cent and interest rates range at 12.5 per cent. High reserve requirements and other safeguards at Brazilian banks mean there is a reduced risk of a debt bubble exploding the way it did in the United States.

Indonesia

Even as the slump in global demand can affect the Indonesian economy,the country is in a better position to cope as it depends mostly on the domestic market for growth,with exports making less than 25 per cent to the GDP. Growth is expected to accelerate in 2011,on the back of low interest rates,and then to slow marginally in 2012. External demand will remain strong,and investment is projected to gain momentum.

Ireland

Bailed-out Ireland is showing signs of a comeback,growing by 1.6 per cent in the second quarter. The country had to endure several rounds of austerity measures to bring down the budget deficit. A default by Greece can also have repercussions in Ireland. Ireland has now planned 17.1 billion austerity measures over the 4 years as it pushes on with a fiscal programme to reduce deficit and insulate it from the crisis in Greece.

France

The euro zones second-largest economy ground to a halt,after a GDP surge of 0.9 per cent in the second quarter. The outlook remains bleak with austerity measures of 12 billion euros to lower public debt. Confidence is at an all time low. Financial markets continue to remain turbulent amid the continents deepening debt crisis and French banks appear particularly vulnerable.

Russia

The global economic situation and Europes debt crisis have taken a heavy toll on the worlds largest energy exporter,which,as per forecasts,will see its economy growing by only 4.3 per cent. Russia is vulnerable to swings in oil prices and if the price falls,the budget will be under strain,the rouble will fall,leading to prices of food and medicine going up as most are imported,and there can be a wave of social discontent.