More Countries Fall into Trouble; Will U.S. Be Able to Avoid It?

Still not convinced about an economic slowdown in the global economy? A significant number of countries are going through economic slowdowns that are picking up steam. One country after another is getting into financial trouble. Declining exports, stagnant local demand, slow business spending, and rising currency value are just a few of the problems faced by a growing number of countries in the global economy.

Yes, we all know how badly the eurozone has been affected by the economic slowdown and how the U.S. economy is nowhere close to seeing economic growth. These pages are filled daily with such evidence.

But what is worrisome is the pace at which other countries are suffering.

Australia is witnessing an economic slowdown similar to the one it experienced in 2009, if not worse. The National Australia Bank’s index of business conditions has fallen to levels that were last seen when the global economy was almost collapsing in 2008. The index tracks goods orders, employment, and the profitability of companies in Australia. (Source: “Australian business conditions weaken, says NAB,” MarketWatch, November 13, 2012.)


Mexico is also experiencing an economic slowdown, as the overall global economy is flattening. The Mexican economy is expected to grow at only 3.6% next year, its slowest growth rate since 2009. (Source: Bloomberg, November 12, 2012.)

In the global economy, it just takes one region to get into trouble and the world experiences ripple effects. In January of this year, I started talking about the eurozone and how its economic slowdown would eventually reach North American shores—while others said the eurozone’s troubles would be isolated to the eurozone. It’s a global economy; as the eurozone economic slowdown deepens, the global economy will suffer.

Currently, the global economy is on pace to grow 3.2% this year. Next year, the global output is expected to decline almost six percent to three percent. (Source: Conference Board, November 13, 2012.)

As the global economy becomes infested with more crises, what this ultimately means is that the recovery for the U.S. economy will be deferred until further down the road. We still haven’t recovered from the financial crisis of 2008–2009. Now another economic slowdown, this time on a global scale, will send the U.S. further away from its path to economic growth.

Where the Market Stands; Where It’s Headed:

Because of Thanksgiving, not much is happening this week. I see the lack of trading volume in the markets as an indication that many traders have already put this week behind them.

This morning, the Dow Jones Industrial Average sits 6.4% below its 2012 high. Given the sharp correction stocks have taken over the past two weeks, it’s a negative that the usual “snap-back” from oversold levels hasn’t happened.

I continue to be negative on stocks, given that I see very weak U.S. economic growth in 2013, while corporate earnings growth is evaporating, the eurozone’s worst days could still be ahead, and China’s economy continues to deteriorate.

What He Said:

“I’ve been writing to my readers for the past two years claiming the decline in the U.S. property market would not be the soft landing most analysts were expecting, but rather a hard landing. My view remains unchanged. The U.S. housing bust will be cut deeper and harder than most realize today.” Michael Lombardi in Profit Confidential, June 13, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for worse times ahead.