Optimism for 2011
In a recent article in the Financial Times, the focus was on new projections from the International Monetary Fund for the world economy in 2011. Those projections said that the most recent stimulus would cause a number of problems for the U.S. in the future. The more optimistic portion of the report said that the U.S. economy would grow by 3%. That is actually a slight improvement over a previous prediction. The extension of the Bush tax-cuts is what gave the fund more reason for optimism.
A projection for 2011 by the firm BlackRock looks for improvement in the unemployment numbers during the year with the U.S. economy creating 2 to 3 million new jobs. They predict unemployment falling to 9%, a number that is still too high, but a slight improvement. The firm’s predictions also include the suggestion that consumers will continue spending as they did during the recent holiday period.
The firm also predicts that real GDP (gross domestic product) will hit a record high. GDP is the value of goods and services produced in the U.S. At least the numbers reported to the government. They also look for more of a shift from bonds to stock. One area that they include in their report that is playing out currently is the prediction that Washington (meaning the House in this case) will begin to address the “fundamental debt and budget problems.”
Now the Potential Downside
Unfortunately, the report also details what could go wrong during the year. One prediction is that credit problems could resurface. This would include states and municipalities, as well as the housing market. The credit market was at the center of the problems that precipitated the recession. Another concern is that commodity prices increase.
Another wildcard is inflation. The net effect of this would be that consumers would stop spending and hoard money. It would also cause investors to leave the equities markets and head for cash. If interest rates rise, any housing recovery is doomed. A marginal rise is expected but anything more could blind-side the economy.
We saw a tech bubble burst in 2000 and we could see an emerging markets bubble burst this year.
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