What’s Important in the Financial World (1/25/2012) iPhone 5, Germany Confidence

GDP Worries

International capital market investors and economists continue to sweat as more data and forecasts about the world’s GDP and financial troubles are published. The International Monetary Fund cut its GDP forecasts for most large nations for the 2012. A PricewaterhouseCoopers survey of 1,258 CEOs found that nearly half expect the economy to decline in strength this year. Many believe they will have to continue to cut costs. Usually that means layoffs and drops in capital spending, which means more layoffs by suppliers. The world economic picture, which looked so rosy just a month ago as consumer activity in many nations rose, has now turned the other way.

Greece Faces Default

The rescue of Greece became more complicated again. That means the chance of a default has risen. S&P recognizes this and said the nation could go into an “orderly default.” So private investors probably will lose most of their money. Whether the IMF and eurozone nations will step in to rescue the country becomes increasingly uncertain each time Greece’s financial picture becomes more complex. There are now calls for the European Central Bank to write down some of its Greek holdings. With 55 billion euros at stake, the bank may reject that. German chief Angela Merkel hinted that she does not think that austerity measures added to rescue funds have improved Europe’s financial situation much in the past year. That is a signal that the region’s largest nation by GDP may have tired of making contributions to the rescue cause.

European PMI

The other side of the argument about Europe’s future continues to get more positive. Markit reported yesterday that PMI numbers improved in January in France, Germany and the eurozone in general. Today, German research firm Ifo reported that business confidence in the country moved to a five-month peak. German executives do not seem to think their nation’s economy will pass into a recession. While the case for a destruction in the value of sovereign debt becomes more compelling, the basic economic numbers from the eurozone are improving. A financial debacle may not turn into a economic activity one.

Douglas A. McIntyre