I believe Merkel will have dragged the Eurozone into recession in the first half of 2012.
This is the first time I can remember that the ordinary guy in the
street has understood and openly discussed the idea that all economies are
connected: the whiff of 1950s socialism which still pervades much of Europe made
people think as if each country were N. Korea, self-contained. The recession in
Europe will spread, not only across the continent but across Africa, Asia and
America.
Against that, the American economy appears to be in fragile recovery,
and this will generate a certain optimism. Obama may well be re-elected on the
back of this, but if he is it will be principally because the Republicans
couldn’t come up with someone who could kick a ball into an open goal (or
whatever you do in American football).
2012 will see elections in Russia, China, USA, France and Greece (and
quite possibly Italy). Normally the first two of these wouldn’t be worth
worrying about, but there are signs of opposition to Putin which are quite
interesting. China will ‘elect’ another faceless automaton. Sarkozy could be
returned for a second term in France, for the same reasons as Obama, that the
socialist candidate, François Hollande, is character-free. The French are
tempted by Marine Le Pen but not that tempted. Elections in Greece could pose a
threat to European financial stability.
The Arab Spring is at tipping point. The goal line is holding free
elections on a liberalised constitution. The West should offer financial and
commercial incentives to liberalise and grant rights for women, but we haven’t
the money. Tunisia has just about made it, and I am still optimistic about
Egypt, but with less reason. Assad will presumably fall in Syria but we don’t
know what he would be replaced with: the country is close to Iran, and not just
topographically.
2012 may see the demise of Castro in Cuba, Chavez in Venezuela and the
retirement of Christina Fernandez-Kirchner in Argentina, who is ill. All of
these might be good news but probably won’t be. The Pope will go to Cuba and
could even grant Castro the last rights, if he has long enough for the
confessional part, a brutal dictator and mass murderer being absolved by a
former member of the Hitlerjugend.
The oil price rose about 13% in 2011 and is likely to be weakish this
year in the face of a slowing Europe. What could change that is the possibility
of heightened tension or war between Israel (and the West) and Iran. If the
Iranians carry out their threat to block the Straits of Hormuz the sky’s the
limit.
China is slowing, the repercussions of which are more political than
economic. Some are forecasting a ‘hard landing’ for China but I don’t think so.
Currencies: the dollar will look stronger, particularly in the first
half. Further indecisiveness in Europe could induce massive dollar-printing to
save the financial system, which would send it weaker in the second half. If
Britain retains its AAA rating the pound should be fairly strong, but we don’t
know how far the economy will slow in the first half. I am fairly optimistic,
and fairly often wrong, although the Olympics and Queen’s Jubilee will create
some counter-cyclical spending, which is good. As I write the euro is looking
weak and the thing to remember is the Germans won’t mind that: they don’t want
their engineering exports priced out of their markets by a strong currency at
this stage. Many people are saying the euro will hold together, Greece and all,
for another year, but I can’t really believe it. France is likely to lose its
AAA rating, devaluing any rescue package, and Italy has to renew €440 billion
of debt this year.
Most of the world is looking forwards to austerity, rising unemployment and civil unrest. It won't be pretty; I think we’ll all feel the squeeze in 2012. Good luck, keep low and keep
moving.
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