Yesterday, I pointed what I perceive to be the greatest danger to the U.S. dollar, the U.S. economy, and the global economy – “The Danger R Us.” We are our own worst enemy. Given that, what is the global picture, regarding any danger to the U.S. economy or the U.S. dollar?
Portugal and Greece talked up the benefits of Lisbon’s decision to accept a multi-billion euro bailout from the European Union and IMF on Wednesday, but the outlook for both countries and Ireland remains highly uncertain. The bailout means three of the euro zone’s 17 countries are now effectively in financial intensive care.
For those who might not know this, the Eurozone, in pure GDP numbers, is actually larger than the United States. Thus, the three mentioned countries are relatively small in comparison to the whole (combined their GDP roughly equals Illinois). Their fiscal issues speak more to perception than any real danger of collapse. In the market, though, perception is often reality (the market overreaction). No, the larger “danger” to the U.S. economy is the EU economic recovery.
Euro zone retail sales fell sharply in March, pointing to weaker household demand, but sales in February were revised upwards, data showed on Wednesday. The numbers are weakish and there is the regional divergence between the core countries where labor markets are improving. On the bigger picture level — first quarter GDP growth should be good, but the recovery remains mainly industry-driven and not broadly based.
Asia (China, Japan, India, and the emerging economies of the Asian archipelago region) have the opposite problem.
According to S&P, the Asia-Pacific economies are poised to post solid growth in 2011, even as the economic picture for Japan following the recent earthquake remains less clear. We expect GDP growth rates in 12 of the 14 major regional economies to moderate from 2010 growth rates, given that US economic conditions remain soft and doubts remain over the sustainability of the euro zone recovery.
The big danger in this economic region is inflation, which is currently worse than in the U.S. China and India, the two largest economies in the region, have been and still are slowing their economies with higher interest rates and stricter banking policies (curbing excessive liquidity). I see little danger to the global economy as of now. In fact, I see the policies, particularly those of China, helping the U.S. and EU economic recoveries. As China slows its economy, so goes its exports, which means the U.S. and the EU can fill the gap. On the currency front, China’s “braking” forces it to let the Yuan appreciate, which is also good for both economies.
More to come tomorrow, as the world is a big place, and there is a whole lot going on “out there” that affects the U.S. economy and the U.S. dollar …
Trade in the day – Invest in your life …
