Eurozone, then oil lead concerns for investors, says Invesco’s John Greenwood
John Greenwood, chief economist at Invesco, identifies continuation of the eurozone debt crisis and potential disruption of oil supplies in the Middle East as key threats to the global economy.
In December I introduced the Annual Economic Outlook with three key questions: Will the US economy maintain its recent better performance? Will the Eurozone crisis be resolved in a timely and effective manner? And will the Chinese economy avoid a hard landing in 2012?
As of the end of March there are so far only partial answers to these questions.
In the US the recovery continues at a subdued pace. In the words of Dennis Lockhart, President of the Atlanta Fed, depending on which data one looks at the US economy could be described as a glass half full or a glass half empty. There have been encouraging improvements in corporate investment, corporate profits, retail sales and the labour market. On the other hand, housing and the prospects for the federal deficit have not changed much, and continue to pose questions for the future.
In the Eurozone, two large injections of funds into the banking system from the ECB’s two Longer Term Refinancing Operations (LTRO) in December and February aggregating almost €1 trillion have eased the financial squeeze on the banking system, and the completion of the Greek debt exchange in March – albeit with the use of collective action clauses – have markedly improved sentiment across the continent. However, these two measures constitute short-term palliatives, not permanent solutions.
In China, the economy has avoided a hard landing, but it is clearly still slowing. Statements by policy-makers such as Premier Wen Jiabao forecasting only 7.5% real GDP growth in 2012 and the need for further downward adjustments in house prices have been discouraging to stock market investors and to those who had hoped for an early switch to renewed monetary easing. Accordingly, local financial market sentiment has been adversely affected.