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Has the crisis in the USA come to an end?

Published on February 15, 2012 by: in: Economy

Recent data on American economy may give some cause for optimism. The employment increased at 243,000 in the non-agricultural sector and 257,000 in the private sector. It proves undoubtedly the upturn in the job market. Taking into consideration that the situation has not changed for months, we may be optimistic about American economy. Although the data on the job market seems inaccurate, the employment will continue to increase (from 150,000 to 200,000 a month). It might be safely concluded that the economic growth which increases the employment rate has just begun in the USA.

photo: Images_of_Money

photo: Images_of_Money

The dynamics of the economic growth will be rather slow in comparison to the time of prosperity in the early 21st century. It must be remembered, however, that the abovementioned increase was based on low interest rates and overemphasized boom on the real estate market. Recent situation is far more serious. Firstly, the government debt is substantially higher. It must be repaid. The debt-to-GDP ratio must also be lowered. Secondly, the conclusions drawn from the financial crisis are clear – when the interest rates remain too low, the price of assets increases and another crisis begins. If such optimism is proved by the macro data, the FED will not allow the monetary loosening. Moreover, it is likely that the interest rates will not be changed until 2014. The optimism in question is not only the result of the latest data on the job market. It is also the consequence of the data on GDP as well as LEI. Nevertheless, we must wait a couple of months in order to assume that the tendency is strong.

The FED’s objection to loosening the monetary policy and the decision not to change the interest rates would be understood as essential factors that influence the market parameters. The USA would become the most attractive market with increasing interest rates as well as the hard currency. Such upturn would also help Europe. The relative competitiveness could be increased then. What is more, European entrepreneurs, who desperately want any positive sign, could express some optimism.

Upturns in American economy have always been a good sign for Europe. One could assume then that some cause for optimism would be given if the situation in the USA influenced future data. Unfortunately, when we compare American economy with European one, Europe is undoubtedly presented in a bad light. The major reason for this is not the EBC, which does not undertake as many actions as the FED. The compelling reason stems from the fact that American banking sector has been restructured and recapitalized. European countries have just begun the process. Moreover, we still struggle with indebtedness. Although the EBC reduced the possibility of a credit crunch, the crisis in Greece or Portugal is hanging over our heads like the sword of Damocles. The experts cite the example of current negotiations with Greek government that aim to reduce indebtedness to private entrepreneurs. Even such agreement may not help Greece, which is up to their ears in recession. The indebtedness will grow there because the state is focused on the increase of taxes. Taking into account that the taxes have been substantially increasing for at least ten years, the Greek will not forget about the crisis. Having considered the pace of decision-making, Europe is not likely to overcome the recession in 2012.

2012 will be crucial for European politics due to key elections. France serves as one of the examples. I am worried, however, that decision-making processes will remain slow and Europe will not overcome the crisis as fast as the USA. It should be emphasized here that the entrepreneurs observe politicians. If they notice helplessness, chaos and inconsistent strategies, no sound investments are made.

The optimistic data on American economy is a good sign anyhow. Nevertheless, it will take time before the situation in Europe gives some cause for such optimism. It will not happen in 2012 without any doubt. The impact can be softened by the hope that future decisions may bring positive results.

Translation: Aleksandra Kozłowska

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About Ryszard Petru

Economist, until recently director concerning strategy in BRE Bank. He was also an advisory to Leszek Balcerowicz and a specialist of the World Bank.

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