Fiscal Cliff: The Whole World Is Watching

Monday, 17 Dec 2012 07:48 AM

By John Morgan

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Global markets from Mexico and Canada to Europe and Asia are beginning to take note of the U.S. fiscal cliff, the daunting array of tax hikes and spending cuts set to take effect Jan. 1 unless lawmakers find a compromise.

If there is no solution reached, the impact could be devastating to Mexico, America’s third-largest trading partner, Voice of America (VOA) News reported.

“While Mexico is doing relatively well economically, the country would take a hit if debt talks fail,” Eduardo Garcia of the Mexican financial news site Sentido Comun, told VOA.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

The effect would be adverse because Mexico’s economy is highly integrated with the U.S. economy, Garcia said. In fact, approximately 30 percent of the Mexican economy is export-based, and the United States consumes 80 percent of those products, he said.

According to The Toronto Star, almost two-thirds of Canadians are worried that the looming U.S. fiscal cliff will harm the Canadian economy, according to a survey commissioned by Sun Life Financial.

“Canadians are right to be worried about this. If it doesn’t get resolved and the U.S. economy goes into recession, the impact would fall into Canada as well and cause difficulties here,” said Sadiq Adatia, chief investment officer at Sun Life Global Investments.

Meanwhile, the Financial Times noted that going over the fiscal cliff could impact China’s recovery

The Times said that “for all the new found optimism in the Chinese economy, it is feared that any such recovery could be derailed if the U.S. falls off the fiscal cliff. And it is this issue that is arguably still the main driver of broad market sentiment.”

Agence France-Presse, in a dispatch from Hong Kong, agreed, noting that Asian “markets are nervous that U.S. lawmakers seem to be making slow progress on an agreement.

Emerging markets in general are being affected by the talks in Washington, according to Bloomberg.

“Emerging-market equities have run up quite a bit now and investors will keenly watch the U.S. fiscal cliff negotiations and corporate performance in the upcoming earnings season for more cues,” Gopal Agrawal, chief investment officer at Mirae Asset Global Investments in Mumbai, India, told Bloomberg.

In South Africa, Independent Newspaper quoted one banker as saying currency traders there are “adopting the safety of the sidelines until there is more clarity on the fiscal cliff front.”

In the United States, however, not all consumers appeared to be worried about the fiscal cliff.

One recent college grad interviewed by CNBC at a shopping center in Los Angeles said she didn’t know enough about the fiscal cliff to have an opinion. “I’m more concerned with getting my mom the right gift.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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