Financial markets ended the week on a strong note, recovering from Tuesday's big drop amid relief over the Greek bond restructuring and Friday's solid U.S. jobs report. (See: Jobs Report: Trend of Meaningful Growth Emerges)
Beyond those developments, however, this week brought a number of signals suggesting the global economy is hitting a rough patch, including:
- China cut its 2012 GDP forecast to 7.5% from 8% amid a string of weaker-than-expected reports on Chinese retail sales, industrial production and bank loans.
- Brazil reported 2011 growth of just 2.7%, well below what the government predicted a year ago. Brazil also said industrial production fell 2.1% in January, the worst since the 2008 crisis, prompting its central bank to slash rates 75 basis points.
- Manufacturing data in Italy and Spain came in well short of expectations while Markit Economics revised down its index of overall eurozone business activity. (PMI data in India was also disappointing.)
- Canada and Australia each reported unexpected drops in jobs in February.
"In the immediate moment, the outperforming economy around the world seems to the United States," says Neal Soss, chief economist at Credit Suisse.
The direction of energy prices will most likely determine whether that trend can be sustained, according to Soss.
"The effect of gasoline prices on consumer behavior particularly is partly a reflection of shock value," he says, suggesting U.S. consumers will be able to handle $4 per gallon gasoline better now vs. the first time in 2008. (For an alternative view, see: Actually, High Oil Prices Will Clobber The Economy)
"We can live with this level of gas prices," Soss says, stressing another big move up -- say 50 cents or more per gallon -- would be a different story. "That's what you need to worry about," he says, even more than Europe's crisis, which Soss says has been put in a "safety zone" (for now) thanks to the aggressive actions of the ECB. (See: Unintended Consequences: ECB's Effort to 'Save' Europe Will Lead to Its Demise, Mauldin Says)