In hindsight, 2011 will be remembered as a turbulent year for financial markets around the globe. Many indices were hitting highs in late February and early March, only to see the gains erased as the year progressed. The world’s attention promptly shifted to Europe, as the ongoing sovereign debt issues escalated into a full scale crisis and markets around the globe sank on fears of its repercussions.
Canada experienced continued, albeit slower, economic expansion, improved labour markets, and increasing consumer prices. However, this was not enough to avoid an 11.1% decline in the S&P/TSX for the year. Concerns that the European debt crisis would curtail global growth increased downward pressure on many commodities prices, which in turn negatively impacted the TSX.
One of the big surprises of the year was the outperformance of U.S. markets over many of its peers. Economic data gradually improved as the year progressed, which allayed fears of a double dip recession. The Dow Jones Index gained 5.5%, the Nasdaq declined by 1.8% and the S&P500 remained unchanged. As the Federal Reserve kept rates at historic lows through the year, the economy continued to slowly expand, inflation increased and the unemployment rate decreased.
With no surprise, Europe was the epicenter of concern for financial markets as the debt crisis escalated and policy makers were slow to react. The sovereign debt crisis that started in Greece spread to Portugal, Spain, and Italy and threatened to engulf the entire Eurozone. The German DAX, France’s CAC and the U.K.’s FTSE declined 14.7%, 17% and 5.6% respectively. The European Central Bank (ECB) kept interest rates near historic lows in order to spur economic growth and consumer spending. Early in the year it had increase the rate to 1.5%, however, by year end it had decreased the rate to 1.25% as economic data continued to worsen. Unemployment increased as the year progressed hitting 10.3% in October, with Spain and Greece registering the highest rates in the EU. Lastly inflation increased to 3.0% in November, higher than the historical average of 2.2% from 1991 to 2010.
The story remained much the same for South East Asia and Japan with most major indices declining for the year. Japan’s Nikkei, India’s Sensex, China’s Shanghai and Hong Kong’s Hang Seng declined 17.3%, 24.6%, 21.7% and 20% respectively. With the exception of Japan, all the aforementioned economic grew at a slower pace than 2010. The economic and social implications of the earthquake, tsunami and subsequent nuclear crisis in Japan lead to a contraction in GDP during the first two quarters of 1.7% and 0.5%. However, reconstruction efforts and restoration of supply chains helped the economy recover modestly in the fourth quarter.
This commentary is published as an information service for clients. This commentary is not intended to provide, and should not be construed as providing, individual financial, tax or investment advice. The information contained herein is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed. Opinions expressed herein by the author and third parties may not necessarily reflect those of Craig & Taylor Associates and Insurance Agency Ltd.