The latest bout of G3 monetary stimulus is likely to increase capital flows to developing countries, but may be limited by lingering economic uncertainty, and lower interest rate spreads. Notwithstanding the recent easing of financial market tensions, the anticipated rebound in real-side activity is lagging behind.
Euro area banking sector
Latest business surveys for the Euro Area suggest that the nascent recovery in activity in the region may be shortlived. Recent data suggests that Euro-Area deleveraging has had a negative impact on trade finance, but that trade finance availability should firm during 2012.
Euro Area woes have worsened on growing concerns about banking-sector exposures to sovereign obligations and skepticism about the medium-term solvency of several high-spread member countries. A crisis of confidence has taken hold, partly prompted by the apparent inability of politicians to get in front of the crisis. Unlike previous episodes of volatility, contagion to core Euro Area countries and abroad—including developing countries—has taken hold.
- Euro area banking sector