It may be a new year, but there’s still a lot of unfinished economic business from 2011.
As 2012 gets underway, investors should pay close attention to two particular unresolved economic issues: High Italian bond yields and the ongoing drama of the payroll tax holiday.
These two pieces of unfinished business are likely to dominate headlines and influence markets during the first few months of this year. They both also could send the global economy back into a recession if they’re not solved adequately. What needs to happen for these issues to be resolved? Here’s a quick look at some signs investors should watch for.
High Italian bond yields. While Spanish bond yields have retreated back toward 5%, Italian bond yields remain stubbornly close to 7%. Investors should watch the upcoming Italian auctions for evidence of investor demand, which would help push down yields. In order to avoid a global recession, Italy, and other Southern European countries, must be able to continue to fund their deficits at reasonable interest rates.
The ongoing drama of the payroll tax holiday. In December, the US government extended both the US payroll tax holiday and unemployment benefits for only two months as part of a last-minute compromise. In coming weeks, Congress must extend both of these programs for the rest of the year or risk a potential slowdown in consumption and the overall US economy.
As for my economic expectations for 2012 in general, stay tuned. I’ll be detailing my broader outlook in a post later this week.
