The Year 2011 Better, Stronger, and Healthier for the World’s Largest Economy |
Budget Concerns Continue to Mount
Concerns over the outlook of the U.S. budget started to mount recently, since the U.S. government continued to provide huge support to the economy through fiscal stimulus plans, which indeed helped the economy gain some momentum, while the budget concerns will continue to mount in 2011, especially after the latest cooperation between President Obama and House Republicans over extending the “Bush Tax Cuts” for another two years, although Democrats objected extending the tax cuts for high income Americans, but a compromise deal was reached and approved in both the Senate and the House of Representatives, since Republicans took the majority in the House of Representatives after the midterm elections.
Extending the tax cuts is estimated to cost the government between $800 and $900 billion in lost tax revenue, however, analysts predict the tax cuts to stimulate economic growth between 0.5% and 1.0% in 2011, while also helping in reducing unemployment, since U.S. companies will have an incentive to hire new workers in order to get tax breaks, while the plan also calls for extending unemployment benefits.
The U.S. budget deficit is already running at unprecedented levels, where the government’s fiscal stimulus strained the budget deficit, nevertheless, without the stimulus the U.S. economy would probably still have been in recession till now, so we can’t argue the fact that the stimulus was beneficial to the economy, but we should be concerned over the outlook for the budget deficit, and the U.S. policymakers must eventually take some tough decisions in order to make sure that the swelling budget deficit doesn’t become a problem over the long term.
The Dollar to Build on its Gains
The U.S. dollar fluctuated heavily against its major counterparts throughout 2010, where the U.S. dollar started to gain some momentum towards the end of 2010, while we do believe that the U.S. dollar will maintain its strength throughout 2011, since we think the U.S. economy will continue to strengthen throughout 2011, and that the recovery will gain further momentum in the second half of 2011, meanwhile the outlook for other major economies around the globe remains somewhat weak.
The Euro Zone for example continues to struggle with its rising debt crisis, where Greece and Ireland so far were forced to seek bailouts from the EU and the IMF, while other economies in the Euro Zone area such as Portugal and Spain are in a tight position especially Portugal. The European debt crisis forced several European countries to take austerity plans in order to control the rising budget deficits.
Accordingly, we expect the U.S. dollar to be able to gain against major currencies, although we can’t really take anything for granted, but given the expectations for global economies and the ongoing uncertainty surrounding the outlook for global growth accompanies by strengthening economic activities in the United States; we lean towards a stronger dollar over the course of 2011.
Companies and Stock Markets to Fuel the Recovery
Most U.S. companies has returned to profitability in 2010, where companies from different sectors managed to reduce expenses and boost profits, although revenues were still rather weak, nevertheless, U.S. companies seem to be on the right course to acquire stronger earnings in 2011, especially since projections suggest economic activities will continue to rise next year.
We certainly have high hopes for the financial sector in particular, since nearly all the major U.S. banks had repaid the money they lent through the TARP, while most of those banks were able to strengthen their financial position and should be well prepared for rising activity in 2011. Technology shares are also tipped for a strong performance next year, and the most obvious choice will be energy shares, since oil prices are projected to continue rising through 2011.
As for stock markets, we believe that the recent rally in stock markets will continue throughout 2011, where our projections are based on expectations of an unchanging monetary policy throughout the year, accompanied by strong performance from U.S. companies, rising economic activities, and rising confidence in global financial markets.
Although we shouldn’t exclude some bearish waves to prevail every now and then over the short term, since stock markets has been rising for some time now, but we don’t believe any of those bearish waves to materialize for a long period of time, as they will be more like corrections than bearish trends.
Conclusion: 2011 Better than 2010 But Challenges Remain
The U.S. economy was projected to be able to recover over a stronger pace in 2010, but the developments throughout last year proved to be more challenging, especially when it came to elevated unemployment, nevertheless, we can’t deny the fact that some progress was made, and that indeed provided a stronger base for growth in 2011.
2011 won’t be the year in which everything goes back to normal, since I believe it’s going to take several years before we reach that phase, but 2011 will be a vital year for the United States economy, since nearly everyone believes that the recession is behind us now, but we are not out of the woods yet, as the challenges are still out there, and the recovery won’t happen overnight but it will take more efforts and more progress, although the United States seems to be on the right track.
The recovery will continue to strengthen and will gain stronger momentum in 2011, and we are hopeful that the second half of 2011 will provide the world’s largest economy with the solid ground needed in order to return back to its long term growth potentials by 2012, for the light at the end of the tunnel is approaching, and it’s just a matter of time before we reach it, so I say don’t give up just yet, 2011 is going to be a better, a stronger, and a healthier year and will mark the true recovery everyone has been waiting for the world’s largest of economies, the United States economy…
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