Europe's Turn to Pull the Economic Brake

by Kelly Evans

Wall Street Journal
January 3, 2012

In 2008, the U.S. led the global slowdown. Now, it may be Europe's turn.

Talk of such a slowdown may seem at odds with the better tone of recent economic data. Indeed, 2012 is supposed to get off to a relatively good start Tuesday with reports showing an uptick in manufacturing activity worldwide. The U.S. purchasing managers index is seen rising nearly a point to a reading of 53.5 in December, above the 50 level that indicates expansion in the sector. This follows an uptick in similar gauges of activity in China and the euro zone last month.

This has helped calm global growth concerns for the moment.

But investors shouldn't get too complacent. Europe's debt crisis may have been the story of 2011, but the full brunt of its impact on the economy won't be felt until 2012. A tightening of credit conditions reported in the second half of last year will hit with a lag, and a retrenchment by banks is likely to continue given the weak growth outlook and their need to shore up capital.

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