Stocks surged over four percent on Wednesday after some of the world’s central banks decided to link forces and make sure the European debt risk doesn’t worsen. China will also cut the bank reserve requirement to drive more lending and spending.
But don’t be fooled, I’m not convinced the current upward moves in stocks mark the beginning of new bullish leg higher given the debt risk in Europe and issues domestically.
I recently discussed the reality of a recession hitting Europe. I still feel this could be in the works, as I believe there is way too much optimism towards the eurozone debt strategy.
S&P announced that it may cut the outlook of France within 10 days. The problems in Europe are not going away and, even if with a resolution, there will be continued problems.
A major concern of mine is China. The National Development and Reform Commission suggest that China’s GDP will decline to eight percent in 2012 and seven percent in 2013, down from 9.1% in the third quarter. The GDP contraction may not seem to be that big, but for a country the size of China, it’s significant and should be worrisome for its key trading partners in the United States, the eurozone, and Asia.
In Europe, everyone is talking about the debt and how the global central bankers are going to help the eurozone clean up its financial mess. Yet the reality is that we still do not know exactly what the bankers are willing to do. Don’t forget there are still economic growth issues to deal with in many eurozone regions, so just saying you’re going to helpEurope doesn’t mean it’s true.
The reality is that the eurozone and Europe in general are facing high unemployment like we’re witnessing here and lower consumer demand from consumers in Europe and globally. My feeling is that continued muted growth and high debt in the eurozone could drive another recession.
Outside of the eurozone, in the United Kingdom, manufacturing contracted at a two-year high, conjuring up the fear of a recession in a region that is struggling. GDP growth in the UK is predicted to slow to 1.1% this year, down from the previous 1.9% estimate in January, according to The British Chambers of Commerce. The report suggests that the UK’s GDP will rebound 2.1% in 2012. While 2012 and 2013 appear to be reversal points for the economy, the actual growth will be dictated by a best-case scenario. What happens if Italy and Portugal and some of the other weaker eurozone countries fail to reverse their fortune? The impact would be quite negative on theUKand could drive a recession.
According to investment firm Schroders, at its Annual Crystal Ball roundtable, the UKcould enter another recession in 2012 should the eurozone fail to recover. The region’s unemployment rate is predicted to jump to over nine percent with home prices falling six percent. Does this sound familiar?
So while the media talks up a debt resolution in Europe, the reality is that the global economies, specifically in Europe, will continue to lag.
Obviously, I think the eurozone in serious trouble, which you can read about in Get Ready America: All Signs Point to Trouble in Europe.
My top growth area going forward is technology. Read what I have to say in The Next Stock Market Winners: Technology’s the Place to Be.