If President Barack Obama's Democrats and Congressional Republicans are unable to reach a deal, the US government will be living on borrowed time. (AFP)
Volatility in global markets is likely to intensify this week as the United States barrels towards its self-imposed debt ceiling. If President Barack Obama's Democrats and Congressional Republicans are unable to reach a deal by Thursday, the US government will be living on borrowed time. Here is your guide to the events in Washington and elsewhere likely to drive markets in the week ahead.
United States
The United States government entered the 14th day of a partial shutdown on Monday, a public holiday in the country. It will hit its self-imposed debt ceiling (borrowing limit) on Thursday.
If Congress does not authorise an increase to the government's borrowing limit, the US treasury will quickly find itself struggling to meet the country's massive financial obligations.
Most analysts agree that treasury officials will be able to use existing cash on hand, incoming revenues and a variety of accounting gimmicks to honour the government's financial obligations for a few days beyond the deadline, possibly even through the end of the month. But the situation will be unpredictable and destabilising to markets.
Failure to raise the debt ceiling would force government officials to enact deep spending cuts rapidly – a move that would serve as significant drag on the US economy – or default on existing debt payments. Since US bonds are the benchmark for so many other financial instruments, and considered the ultimate "safe" investments, a default would be extremely disruptive to global financial markets.
Speaking on Saturday, Anshu Jain, the chief executive of Deutsche Bank, said that a US debt default would be "utterly catastrophic". His counterpart at BNP Paribas, chairperson Baudouin Prot, said a default would be "absolutely disastrous".
"We need global growth," said Jamie Dimon, chairperson and chief executive of JP Morgan Chase. "We are on the verge of getting it. Please let's not shoot ourselves in the foot."
Europe
Eurozone finance ministers will gather in Luxembourg on Monday. Their non-eurozone colleagues will join them on Tuesday. Although no major policy decisions are expected from their meetings, markets will pay close attention to discussions on the future of policy toward Ireland, Greece and Portugal as well the group's approach to future bank bailouts, should the need arise.
Ireland is on track to become the first European country to successfully exit a bailout by the European Union and International Monetary Fund. Policymakers are expected to discuss what form of assistance – including a possible emergency credit line – Ireland will receive after it formally exits its bailout in December.
Unlike Ireland, Greece and Portugal will not be moving toward financial independence anytime soon. Portugal's Constitutional Court has repeatedly declared externally-mandated austerity measures unconstitutional, forcing Portugal's government and European creditors scrambling to find other ways to cost costs and raise revenues.
Greece is in even worse shape. Over the next 12 months officials will have to agree on a way to close a €3.8-billion to €4.4-billion financing gap in the country's current bailout package, figure out how to bring the country's debt below 110% of gross domestic product (GDP) by 2022 and whether or not to lend the troubled country more money after the EU's current bailout ends in 2014.
On Wednesday, the European Commission will present its 2013 "enlargement package", which is a set of documents explaining its policy on EU enlargement. The commission will simultaneously report on the status of those nations that have applied for EU membership, including Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Iceland, Kosovo, Montenegro, Serbia and Turkey.
Beyond these political events, markets will be on the lookout for economic sentiment readings from Germany's ZEW Institute on Tuesday along with inflation readings from the UK. Britain will also release its latest labour market report on Wednesday and retail sales figures on Thursday.
Asia
China will report third-quarter GDP figures on Friday. Consensus is that the world's number two economy expanded by 7.8% in the third quarter from a year earlier, up from 7.5% growth in the second quarter and 7.7% growth in the first.
China's government is trying to steer the country's economy away from its dependence on investment, credit and exports towards a greater reliance on domestic consumer demand. The process is fraught with risks, and growth is widely expected to slow as a result. Officials have set a growth target of 7.5% for 2013, the slowest rate of expansion in more than 20-years.
Speaking last week, President Xi Jinping said that "the slowdown of the Chinese economy is an intended result of our own regulatory initiatives", adding that a 7% growth rate would be adequate to meet the country's goal of doubling per capita income by 2020.
In addition to GDP figures, officials will report retail sales, fixed asset investment and industrial production on Friday. Analysts expect retail sales growth to have edged up to 13.5% growth in September from 13.4% growth in August. Fixed asset investment is forecast to have grown 20.3% during the first nine months of 2013, unchanged from the level observed for the first eight months of the year.
However, annual growth in industrial production is likely to be moderated. Manufacturing purchasing managers' indices – forward-looking measures of activity – pointed to slower than expected output growth in September. Consensus is that year on year output growth slowed to 10.1% last month from 10.4% growth in August.
Africa
Statistics South Africa will release August's retail sales figures on Wednesday. Wholesale and motor-trade reports will follow on Thursday.
Retail sales in Africa's largest economy grew by 2.8% in July from a year earlier, far less than the nearly 4.0% growth economists had expected. On a monthly basis, sales declined 0.5% from June.
Consumer spending has been squeezed this year by sluggish economic growth, job losses and accelerating inflation. Strikes in multiple sectors and soaring petrol costs have sapped consumer confidence – which slumped to a 10-year low in the third quarter – and most economists believe that consumers pulled back on spending even further in September as a result. Consensus is that retail spending grew by a mere 1.7% from a year earlier.
Consumer purchases account for about two-thirds of expenditure in South Africa, so further declines in spending do not bode well for the country's economy. The South African Reserve Bank forecasts growth of 2% this year, which would mark the slowest pace of expansion since the 2009 recession.
Elsewhere on the continent, Senegal will release last month's consumer price index (CPI) readings early in the week. September inflation updates are also expected from Botswana on Tuesday, Nigeria on Thursday and from Angola and Zimbabwe.
Ghana and Namibia will report M2 money supply tallies for July and August, respectively, over the coming days. Tanzanian officials will report M3.