Time flies when you're having fun. The first quarter of 2012 has shot by and for those of us in financial circles, a better quarter would have been hard to find. Global stock markets have continued to make gains since the start of the year, as optimism has returned, fuelled by a double whammy of strong recovery-like data from the US and the sugar-fuelled, caffeinated tonic of ECB lending to European banks.
However, with every day of gains, the probability of a slip lower increases. We started 2011 in similar fashion, with strong first quarter figures then being obliterated by fears over the European debt situation. The good news is, I reckon the odds are fairly short on a repeat performance.
The key to whether this prediction stands up lies not with bond traders, currency brokers, economists or central bankers, but with politicians (hence why the odds are fairly short). The most important thing about the ECB loans to Europe's banks is that they are repayable in three years' time. So, to all intents and purposes, European governments have three years to get their houses in order.
Some have already started. For example, the Spanish budget on Friday of last week made all the right noises. But more needs to be done and should politicians shirk from the task then the storm clouds will start to gather quite quickly once again.
From a UK perspective, the economic report card is still not one that you'd want to show the parents, but it is certainly not one that you feed to the dog either. Unlike the eurozone, growth in the UK is likely to be positive in the first quarter, with surveys from business all showing expansion while retail sales have been strong albeit nowhere near spectacular. Unemployment is still on the rise while inflation may take longer to fall back to target than had originally been expected as a result of the jump in oil prices throughout the three months.
As I wrote last week, investment from abroad and the opening and strengthening of trade channels with the rest of the world will be a key factor for the UK's chances of progression. Over 80% of our exports go to the EU, a situation akin to selling snow to Eskimos. Demand is going to be tough to find.
So what are the big risks for the upcoming three months? Nothing stands out in particular, but there are some economic events that I expect we'll be talking about into the summer months.
The Greek elections, for one, will provide ugly scenes with protestors and riot police clashing over austerity measures. I expect Samaras' "New Democracy" party will take power on a campaign of disgruntlement with the PASOK party's stewardship of the debt situation, but it won't be an easy transition.
Meanwhile, China's growth is slowing creating alarm bells for the global economy. A rapid slowdown, although unlikely, has the ability to counter any and all positive momentum for the world's economy, such is the extent of Chinese influence these days. You'll see more and more editorials about the reliance on the Far East and how dangerous this could be for us all, while the People's Bank of China will quietly loosen policy to keep the economy driving onwards at around 7%.
Oil is the final topic to keep your eye out for. The situation in Iran has quietened down and save a conflict between Iran and Israel, I think the oil price will trade lower through into the summer months. Which will come as a welcome respite for all you panic buyers out there.
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