May 2010
United States and the Developed Economies
Recall, I envisaged a "W" recovery for our economy in my January article, 2010 Global Economic Outlook. My friends, it appears this will unfortunately continue to be the case as we look ahead to 2011. Amid short term government stimulus plans and intermittent spikes in consumer spending so far this year, it does not appear that anything we've done has actually addressed the root of our economic woes. What we've in effect done was place several band aids on a wound that requires stitches. The bleeding was slowed temporarily but will not stop unless properly cauterized. Nothing has been implemented to stop the bleeding. The band aids will eventually come off later this year reopening the doors to a fresh flow recession dip toward the end of Q1 2011.
For the United States, the following indicators reinforce the need to continue precaution as you forge your roads ahead for 2011. Personal income has not improved at all and has remained flat for the past 18 months. Unemployment remains high with a real figure closer to 10.6% nationally. In April, car sales lagged behind their usual average by 35%. Traditionally, car sales touched $17 Million in sales in April. This year car dealerships collectively reported sales of only $11.2 M. Consumer spending did increase, however this is a superficial, artificial and temporary indicator as the spending was the result of short term government stimulus programs that are nearing their end later this year and early next year. Several economists are optimistically projecting a 3% GDP growth for us by the close of 2010 but I don't see how this is possible. I have witnessed nothing over the course of this year to support a growth of this size. Considering small and medium businesses still do not have access to liquidity or leveraged capital, nor has anything stimulated the revitalization of this economic segment it is nearly impossible to exceed a 2% growth in GDP for the U.S. by end of Q4 2010 unless we consider government expansion in the equation. I anticipate the real figure to be somewhere around 1.5% growth, and that is if we are lucky. Furthermore, tightening policy in the face of rising EM inflation puts a double-dip scenario back into play. Asset bubbles may also be forming, as extremely loose monetary policy in the developed states pushes foreign cash that seeks higher yielding returns over to emerging markets. Consequently, I anticipate our double dip recovery to actually begin toward the end of Q1 2011 and remain generally wary of the 2011 outlook, as stimulus packages and monetary aid packages unwind making the basis for a "V" recovery prediction appear less favorable than many anticipated earlier this year.
The developed world as a whole will see an aggregate growth of 1.5%. Eurozone growth specifically will reach.6% in 2010 and 1.7% in 2011. Slow growth and recovery in the Eurozone can be attributed to the uncertainty over the fiscal health of Greece, Spain and Portugal. Conversely, emerging Europe will enjoy an aggregate growth of 3% this year and 4.2% in 2011.
2010 Looking Rosier for Emerging Markets
Emerging markets should outperform developed states with aggregate growth of 4.8% in 2010, compared with 1.5% in developed states. If anything, the risks for the emerging markets for the 2010 forecasts lie on the upside, depending on the base effects generated by potentially strong H209 GDP figures. Emerging markets have proven that they are not only innovative and resilient but highly competitive in the global arena as well. Many of the main emerging market players are going global themselves. The UN world investment report calculates that there are now around 21,500 multinationals based in the emerging world. Additionally, these companies are expected to contribute 70% of the world's growth over the next few years with China and India being the primary drivers. The number of companies from Brazil, India, China or Russia (BRICs) has more than quadrupled since 2006. Still I expect Indonesia to outpace Russia in overall growth this year and next year to potentially take Russia's place among the BRIC nations.
Emerging Asia is projected to grow by 6.9% in 2010, which is up from 6.7% last month. Our China outlook is the driver in this forecast, as we see the country's economy expanding by 8.8% in 2010, on par with my 8% prediction in 2010 Global Economic Outlook, and 7.5% in 2011 on the back of considerable government stimulus. For the region as a whole, we will see a slowdown to 6.4% in 2011 (down slightly from 6.5% previously) before growth picks up again in 2012 and beyond. China is also in danger of a double-dip "W" recovery.
In Latin America, we can expect an aggregate growth projection of 2.8% for 2010 with the most significant performance in the region coming from Brazil, which we can anticipate to grow at 5.0% this year and dip to 4.6% in 2011 in response to a U.S. "W" recovery while aggregate growth in Latin America respectively will dip to 2% growth in response to a strain in U.S.-Mexico trade relations. The global emerging markets are not without risk however. The biggest risk to the emerging markets is their strength to withstand the likely torrent of capital inflows that will occur over the coming years, which could easily lead to an asset price bubble at some point and repeat another Iceland or a Japan of 20 years ago.
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