While Europe tries to put a firebreak around Greece, there may be no way to put a firebreak around Europe, nor around the developed world.
This is what happens in a highly correlated world.
A chart from Citi shows the rising correlation of regional economic growth to the global aggregate. For the past decade all regions have been moving in harmony, with correlation peaking right about now. Globalized trade, cross-border financial links and faster-moving information have all contributed to the trend. One major outcome of high correlation is volatility.
Citi warns that spillover from Europe will be the biggest threat to America’s outlook in the months ahead.
Roubini warns that a G7 recession could turn into a global financial crisis as bad or even worse than 2008.
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