Over the past one year global stock markets failed on all attempts to rally as consistent negative news flow continued to trigger selloffs in panic. Fears still loom that debt crisis in Europe will put brakes on global recovery, and this could mean that we will see a volatile 2012 for stock markets globally. I would say that this year won’t be any different than 2011 as similar concerns will continue to rock the sentiment. Even brave hearts fear volatility, and it’s likely that we will witness severe bouts of sentimental shifts if the scenario in Europe does not ease out soon. In this post, I would like to debate on several scenarios that could play out well for struggling European nation in 2012.
In the last two posts of our special coverage on European Debt Crisis we talked about the current situation in Europe and what all could possibly go wrong with some of the debt trapped nations. Now, just to ensure that we do not go wrong in forecasting things with a bias on one side of the coin, let’s see if there is any glimmer of hope for the eurozone?
For the past year or so we have been hearing too much about how crisis in Europe will have its negative impact on recovery in US, but we never saw what’s on the other side of the coin.
So far the data in US has been improving with every passing day, that’s encouraging even so for the European nations dealing with worst of their days. We cannot ignore the fact that US serves as a huge market for European exports and at the same time travelers from US spend plenty dollars shopping in Europe. Now, if US employment data continues to improve further, consumers will readily loosen their pockets for European imports as well as for their domestic products, at a growth in number of travelers from US to Europe is very much likely in such a situation.
Both these factors make a strong case that growth in US will bring in some respite for crisis bitten Europe. Talking about 2012, US is showing strong signs of growing at a faster pace so we should expect some bit of excitement for the Europeans as well.
Economic growth engines of the world “Emerging Markets” will need to keep importing sophisticated machinery and rely technological edge that remains a key advantage for European exports. So, as long as European nation continue to maintain their edge on these two areas there will be a good demand for their exports. Considering that demand situation for European exports does not change dramatically, all emerging markets may it be, India, China, Brazil or smaller growth engines in Asia, all will have a good appetite for European Debt. This is just a small hope for Europe as most of this will benefit already stronger nations in the region namely, U.K, Germany and France.
Although, we can’t be too optimistic on this front but there is a fair chance that leadership in Europe will soon realize that they require radical changes to emerge strong out of this situation. This may push forward economic liberalization and many European nations will benefit from reduced government intervention, private sector will gain strength and global competence.
Now there could be a hard way out of this mess if troubled countries decide to go ahead and face defaults. This could indeed result in collapse of the eurozone, which will then require a start over. We can continue to argue on potential benefits and dangers of such a situation, but what’s the guarantee that everything will get back on track after numerous painful attempts to fix the eurozone? So, there is a 50/50 chance that troubled nations can regain their strength slowly by taking the default route now. Delaying could make the situation much worse for future, and if they stick on this route, they are only buying more time than fixing anything meaningfully.
For global watchers, 2012 may not bring on anything significant to cheer about but we can still be hopeful that things won’t turn much worse. And that’s a positive after experiencing frequent jitters in 2011.