by Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager, Columbia Asset Management
July 12, 2012 at 6:07 am
Webster’s defines uncertainty as “a lack of sureness or knowledge about an outcome resulting in an inability to make a decision.” It goes without saying that one’s first reaction to an uncertain future is to hesitate. This is human nature, but it is particularly relevant to business decisions. All business planning relies on a mix of confidence and clarity about the operating environment in the months and years ahead. But an assortment of questions and anxieties cloud the economic future of the U.S. if not the globe.
- U.S. economic growth remains paltry despite enormous amounts of stimulus from monetary and fiscal policy. That fiscal policy is set to reverse come January with the only question being the size of the drag. Further, many are starting to realize that monetary policy can’t fix our problems.
- The upcoming U.S. election period is bound to be ugly but also one of the most important in a generation. It will decide the role and size of government and likely our tax and regulatory structure. The debt ceiling may become a hot button issue again later in the year with a repeat of fiscal brinksmanship and rating agency action.
- Europe is a mess and policymakers there appear in a constant state of trying to “bandaid” temporary or incremental solutions only when pressed by financial market pain. Europe’s recession continues to deepen, financial conditions there tighten, and many question the ultimate fate of the common currency.
- At the same time headlines warn that Emerging Market (EM) growth is slowing, which has served as an engine for global gross domestic product (GDP).
The dataflow has unquestionably downshifted in the last few months after much stronger readings during the winter. The outlook for 2013 remains a wildcard keyed off the unknown size of the fiscal adjustment set to kick in at year end and the hit to global growth from the eurozone crisis. The period ahead appears at risk now due to rising uncertainty and falling confidence. Real and nominal growth trends are already at levels associated with the start of recessions.
What the world will look like a year from now is anyone’s guess. It is no wonder that in these uncertain times many individuals and businesses prefer to wait and collect additional information and data before forming opinions and making economic decisions. But the effect of delayed decision-making interrupts demand, reinforces the weakness and becomes self-fulfilling. Unfortunately clarity only comes with time.
Continue reading our 2013 economic outlook in Perspectives
