It seems the media has gone quiet about the eurozone credit crisis, as I don’t hear much about it these days in the mainstream news. Maybe they are relieved about the European Central Bank’s (ECB) announcement about its plan to do whatever it takes to save the eurozone—even if it includes printing more money.
Read it here and read it loud: the eurozone credit crisis is far from over. Its economic slowdown is only going to get worse.
The unemployment rate in the eurozone reached another high in November of 2012—11.8 % compared to 10.6% a year earlier. In October, the unemployment rate in the eurozone was 11.7%. (Source: Associated Press, January 8, 2013.)
Particularly hard hit has been Greece, as its unemployment rate hit a record 26.8% in October. The unemployment rate for youth aged 15 to 24 is 56.6%. A record 1.34 million Greeks are unemployed. (Source: ELAST, January 10, 2013.)
The stronger nations in the eurozone are weakening at an accelerated pace. Consider Germany. Factory orders there fell more than expected, down 1.8% in November of 2012 from October. (Source: Bloomberg, January 8, 2013.) Germany is a major economic hub of the eurozone, but it’s not safe from turmoil in the region.
My question: what happens to the eurozone economy if Germany deteriorates further? The eurozone is in a recession for the second time in four years.
The economic slowdown in the eurozone due to its credit crisis is more severe than it appears on the mainstream news. People are affected across the board. Birth rates are falling. In Portugal, the number of births in 2012 is expected to be at its lowest level in 60 years. (Source: Wall Street Journal, January 7, 2013.)
Coupled with slowing birth rates, Italy, another one of the major economies in the eurozone, has been experiencing a severe slowdown. Car sales in Italy were down 20% in 2012. (Source: The Globe and Mail, January 8, 2012.) It’s important to know that 16.8% of the eurozone’s gross domestic product (GDP) is generated by the Italian economy. (Source: Financial Times, November 16, 2011.)
Suffering for people in Italy has gotten to a point where they are struggling to pay their bills. So many are resorting to selling what gold they have. More and more stores are putting up signs that say, “We buy gold.” According to the Eurispes think-tank, the number of shops buying gold has quadrupled in the last two years. (Source: Telegraph, August 2, 2012.)
The economic slowdown in eurozone is slowly worsening and it is still a major threat to the global economy, especially to the U.S. economy.
Economics 101: if countries trade with each other, it means there is demand in the global economy. On the other hand, if the trade decreases, demand can be construed as slowing and economic growth as uncertain.
Currently, exports from the countries that are known for their trading in the global economy are declining at a staggering pace—it’s not only one or two countries, but rather entire regions across the global economy.
According to a study released by the Inter-American Development Bank (IDB), exports from Latin America to the global economy grew by 1.5% in 2012. Sadly, in 2011, exports from the same region to the world increased by 26% and, in 2010, they saw a rise of 29%. (Source: The Costa Rica News, December 19, 2012.)
Similarly, China has been witnessing a slowdown in its exports, making its economic growth uncertain. As reported by the General Administration of Customs, China’s exports to the global economy in the first 11 months of 2012 grew by 7.3%. In the same period of 2011, the Chinese economy witnessed growth of 21.1% in its exports. (Source: China Daily, January 8, 2013.) The export growth rate for China was more than 65% lower in the first 11 months of 2012 over the first 11 months of 2011.
The Japanese economy, the third largest in the global economy, saw its exports to China decline by 14.5% in November 2012 alone, as demand for products such as automobiles and construction equipment became stagnant. (Source: China Economic Review, December 20, 2012.) The central bank of Japan is now resorting to printing money, to weaken its currency and to promote growth of exports.
At this point, the health of the global economy looks lackluster and any talk of economic growth could simply be a bad joke. If there was increasing demand, or rising exports, then I would consider the dynamics of the global economy to be changing.
On the contrary, a global recession is becoming a possibility from what I see. Let’s not forget: a weakening global economy is very negative for the U.S. economy and its stock markets.
Where the Market Stands; Where it’s Headed:
By the end of this week last year, the Dow Jones Industrial Average was up 4.1% in 2012. So far this year, the same index is up only 2.5%. This January is proving weaker than last January, setting the tone, I believe, for the stock market for the remainder of 2013.
Here’s what investors will figure out in 2013:
U.S. companies have posted great profits since 2009 when the Federal Reserve lowered interest rates to near zero. The borrowing costs of public companies collapsed over the past four years, with a direct positive impact on their earnings. But how do companies grow earnings now that they’ve exhausted cutting expenses? They certainly can’t rely on the poor U.S. consumer.
On Friday, we learned that Japan, the country that keeps moving in and out of recession, has decided to go all out with money printing. The country unveiled a 10.3-trillion-yen fiscal stimulus. Yes, if all else fails, if printing money to get the economy moving doesn’t work, the answer is, “Just print more.”
But the Japanese investors figured out the money printing scam. The main Japanese stock market is down 75% from its high 22 years ago. Food for thought when thinking about the long-term effects of money printing in the U.S. and the eventual direction of our stock market.
What He Said:
“When property prices start coming down in North America, it won’t be a pretty sight, because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It’s only a matter of logic, reality and time.” Michael Lombardi in Profit Confidential, June 23, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.