The 17 member Eurozone contacted 0.3% in Q4 of 2011. Germany was down 0.2% and France was up by 0.2%, which must be looked at as a wash regarding these two key members. However, Greece’s economy contracted at an annual rate of 7%, while Italy came-in a negative 0.7% for the quarter and a big reason why the overall number dipped into negative territory for the first time since Q2 of 2009. The numbers are not great, nor are they disastrous, but the European cold spell will no doubt create a greater drag on the overall economy. February 20 not only marks President’s Day, but also oil hitting over $105 per-barrel on the New York Mercantile Exchange because of new developments in the Middle East. It stands to reason that unusually cold weather in Europe and $100 plus oil will not act as positive drivers on the U.S. economy in Q1 & Q2 of 2012.
Europe & The Cold & Higher Oil Prices
Snow in Reggio, a city in Southern Italy at this time of year is rare. It is just one example of the hard weather conditions in Europe. While many people in Europe are internet savvy, many still go to stores or showrooms to purchase products like food, appliances, and automobiles. For example, most towns in Southern Italy are not properly equipped to deal with snow like the North, so travel by car almost grounds to halt in some places. In addition, people have to lug their electric heaters around to each room in many cases, which drives-up heating costs. Higher utility costs becuase of more usage will only be exacerbated by higher oil prices. As a result, less money spent on Apple iPods & iPads, along with cars made by Opel, which is owned by GM. In a nutshell, negative or slow growth, unusually cold weather, and oil trading at over $100 per-barrel will hamper America’s exports to Europe over the near-term.
America & $105 Oil
President Obama is right when saying that America needs to reduce its dependency on foreign petroleum products and $105 oil makes his case even more compelling. The domestic auto manufacturers (Chrysler, Ford, and General Motors) are doing their part in building more fuel efficient vehicles. For example, the new Ford Focus, Chevy Sonic, and the Chrysler 200 are three very fuel efficient offerings out of Detroit. New higher fuel standards like Corporate Average Fuel Economy (CAFÉ) will raise the bar, and will only help to reduce our dependency on foreign petroleum products. It stands to reason that measures to reduce petroleum consumption and pollution should continue to be promoted and not abandoned. With oil trading at over $100 per-barrel expect the American consumer to be paying $3.75 - $4.00 per-gallon at the pump by Memorial Day. America’s Q4 2011 GDP was 2.8%, which is a more than respectable clip, but $100 plus oil prices will act as drag on Q1 & Q2 GDP because it will cost more to fill-up at the pump, which means less money to spend on other items.
Europe is dealing with a stalled economy and the cold snap is not helping matters. To make matters worse, oil is now trading above $100 per-barrel and it will cost more for consumers to travel. Bottom line, Europe has Greece, Ireland, Portugal, Italy, and Spain to worry about, so America must reduce its dependency on foreign oil and look to create long-term well paying jobs to maintain a healthy economy.
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