As said on this blog previously, Europe will surely be weak economically this year, but probably not as weak as many fear. The reason: the rest of the world—which is stronger—will drag it forward.
A prevailing worldview among economists is that a weak region will “infect” the rest of the world. This can sometimes be true, but usually the opposite is true: a stronger rest of the world keeps the weak region afloat. Europe is big, sure, but the rest of the world is far bigger, and that features the US and Emerging Markets—two relatively strong areas.
Recent data is confirming this notion:
January Eurozone Flash Composite PMI Points to Growth, Beats Estimates
Actual: Manufacturing: 48.7, Services: 50.5, Composite: 50.4
Interest payments will cost the government 3.1 percent of gross domestic product this year, according to Office of Management and Budget and International Monetary Fund data compiled by Bloomberg. That’s down from 4.8 percent in 1991, the highest in the past 50 years, during George H.W. Bush’s presidency. Since 1980, the only incumbent with a lower ratio than Barack Obama was George W. Bush in 2004.
I’m as for fiscal restraint as anyone, but as this blog has maintained for awhile, the notion the US is headed for imminent ruin tied to the deficit/debt simply isn’t true. With interest payments heading down, and near lows, insolvency isn’t on the table—heck, it’s not even the campaign issue it once was.
Bears have been confounded by the global economy’s resilience of late. No double-dips in 2011, and much of the world’s growth is currently accelerating.
As I said on Real Clear Markets in November, the global economy can weather turbulence and weakness in Europe better than most expect. And while many think of EU weakness “infecting” the rest of the world, actually the opposite seems more likely: a stronger rest of the world could drag the EU with it. Check out this headline from Bloomberg earlier this week:
Global Manufacturing Displays Resilience to Euro Crisis: Economy – Jennifer Ryan
Happy New Year everyone!
Andy Kessler’s Op-Ed in Tuesday’s WSJ is a must-read tied to the trends in overall standards of living and availability of products. He touches on income disparity—I’m not going there but you can make your own conclusions. Kessler’s perspective is most useful for putting into context capitalism and the boons it brings to wide swaths of the population over time. My favorite part:
“Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve. It’s the Pages and Bransons and Zuckerbergs who have made the unequal equal: So, sure, income equality may widen, but consumption equality will become more the norm.” The Rise of Consumption Equality – Andy Kessler
And, check out the website to my class at Cal Berkeley here: