Let’s first start with the bad information coming out from Europe.
Markit Flash eurozone PMI saw a stronger rate of decline at start of second quarter. The flash PMI signaled a faster rate of economic contraction in the eurozone during April, extending what appears to be a double-dip recession into a third consecutive quarter. The situation deteriorated across the region.
Germany saw growth weaken to near-stagnation, while France saw a worryingly steep downturn, linked in part to increased uncertainty due to the upcoming presidential elections.
The rate of decline also regained momentum in the periphery, which will inevitably raise concerns about the impact of deficit-fighting austerity measures.
Prospects also don't look good. Business confidence slumped lower and companies cut headcounts at the fastest rate since early-2010 in order to reduce capacity to meet lower workloads.
With price pressures easing, the PMI survey suggests that policymakers will probably worry more about growth rather than inflation in coming months.
So, Europe faces extremely difficult times as it has boxed itself into a harsh austerity corner. It’s again uncertainty all over the place.
In the meantime, in the United Kingdom, GDP contracted by 0.2 percent in the first quarter of 2012, which is the second successive period of negative economic growth.
The good news comes from the IMF. Industrialized and emerging nations promised another $430 billion to boost the IMF's lending power this weekend, doubling the size of its war chest to fight crises in case Europe's problems worsen.
There are still systemic risks out there but they are now much more limited.
Of course firewalls still need to be strengthened and therefore the extension of the IMF lending power is very positive news.
The HSBC Flash China Manufacturing PMI Manufacturing output was down for second successive month, albeit at marginal rate. As April flash PMI ticked higher, this suggests that the earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown. That said, the pace of both output and demand growth remains at a low level in an historical context and the job market is under pressure. This calls for additional easing measures in the coming months.
The United States is for now the only Western economy that is growing, not withstanding that last week’s employment numbers disappointed. We’ll have to wait and see what the employment numbers tell us in the coming months.
Now, in case the numbers come in weaker, I think we could see a little dip that could be an interesting opportunity to accumulate some gold.
I don’t think we take a big risk expecting to see Chinese growth picking up momentum before long and this, alongside steady U.S. growth, should more than offset the negatives of a weak Europe.
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