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Spain at the head of new eurozone concerns
After a strong first quarter, share prices fell back during April amid renewed apprehension over the outlook for the eurozone and particularly Spain, which took centre-stage against a backdrop of fresh concerns over signs of increasing
Ratings agency Standard & Poor’s reduced Spain’s credit rating to BBB+ and placed the country on “negative outlook”. The benchmark Ibex 35 index fell by 12.5% during the month while share prices in Italy dropped by 8.7%. Elsewhere, in Germany and France, the DAX index and the CAC 40 index fell 2.7% and 6.2% respectively.
Spain’s woes were compounded by the news that the country’s economy had fallen into recession. Meanwhile, according to preliminary estimates from the Office for National Statistics, the UK economy slipped back into recession during the first quarter of 2012, registering a contraction of 0.2%. The FTSE 100 index fell by 0.5% over April as a whole.
In the US, however, confidence at the Federal Reserve appears to be on the rise, with the US central bank increasing its forecast for economic growth and cutting its forecast for unemployment – although policymakers remain cautious about the outlook for the global economy. The Dow Jones Industrial Average index ended the month broadly unchanged, while the S&P 500 index fell 0.7%.
In Japan, the Nikkei 225 index fell by 5.6% during April, with investor sentiment affected by renewed concerns over the outlook for the global economy. In addition, the Bank of Japan’s quarterly Tankan survey of business sentiment indicated that confidence among Japanese manufacturers remains low.
The International Monetary Fund has increased its forecast for global economic growth during 2012 from 3.3% to 3.5%. The organisation appears a little more sanguine – or, at least, a little less negative – about overall prospects for the eurozone and now expects the region’s economy to contract by only 0.3% this year, instead of its previous estimate of 0.5%. Meanwhile, growth in developing economies is tipped to be even stronger than previously expected during 2012 so, in aggregate, developing economies are now forecast to expand by 5.7% during the year, rather than 5.5%.
Elsewhere, the International Labour Organisation (ILO) believes that tough austerity measures imposed by advanced economies are harming global employment prospects and impeding scope to create new jobs. In particular, the ILO believes the “narrow focus on fiscal austerity” in many eurozone countries could lead to another recession in the region.
Paul Dixon FPFS
Chartered Financial Planner