The Federal Reserve is printing more money to try to alleviate economic pressures and encourage consumers to spend. So, too, are the Bank of Japan and the People’s Bank of China. The concerns are global economic slowing and threats of another recession spreading.
The data clearly indicate difficulties ahead. Japan is seeing a decline in its export market for the third straight month due to slowing foreign demand and the strength of the yen.
In China, the government continues to wrestle with stalled economic recovery, rising property values, a higher unemployment rate, and excess manufacturing capacity. The HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) came in at 47.8 in August and continues to show contraction. In spite of all of this, the rich continue to spend lavishly in China. (Read “Luxury Retailers Loving China.”)
In the eurozone, France is finding that things are getting more difficult, as the eurozone tries to dig itself out of its financial mess. France’s PMI shows contraction. On the plus side, Germany showed some positive signs of renewal, but there is a long way to go. Germany’s IFO index, representing a survey of 7,000 German firms on their views toward current economic conditions, fell for the fourth straight month in August to its lowest level since March 2010. The concern is that the weakness in Germany will pressure the eurozone and the desire of the country to continue to want to bail out the weaker countries.
Capital Economics suggested France and Germany will face another recession in 2013. The news is not what you want to hear, especially given the current financial mess and the absence of a resolution to deal with the situation in the eurozone and, specifically, Spain.
The problem is that the eurozone and Europe are in an extremely tight fiscal bind that is hard to break out of. My concern is that the eurozone will fall into another recession. The eurozone’s services PMI is contracting, as both domestic and foreign demand for goods decline.
All of these recent stimulus headlines are great but the global economies are facing slowing that will not be easy to turn around.
A big problem across Europe is the high unemployment. The unemployment rate across the eurozone stood at 11.3% in July. In Spain, about one out of every four working Spaniards is unemployed and things will likely worsen, given the country’s massive debt, slow growth, and inability to turn on its industrial engine. Greece’s unemployment stands at 23.1%, while the rest of the PIIGS are lower, with Portugal’s at 15.7%, Ireland’s at 14.9%, and Italy’s at 10.7%, according to Thomson Reuters.
At the end of the day, you cannot simply print money and hope the situation improves.
The bond buying by both the Fed and the European Central Bank (ECB) will fail. It will take years to fix the eurozone, and if China and Japan worsen, the situation could get even worst.