I return from two weeks holiday to find that if economic and market sentiment was poor when I left, it is even worse now.Two examples illustrate this: QE2 in the UK has now become highly likely, rather than just possible, and there is open debate about a double-dip recession in Europe, following another poor set of PMIs. It's hard to recall that at the start of 2011, commentators were actively discussing whether the US economy was growing too fast and what would happen when the Fed and the BOE raised rates.
For us, unless the next recession is of 2008/9 proportions, the "double-dip or no double-dip" question is an oversimplification of the main issue: at best, we are looking at a protracted period of modest growth in the developed world. The 2008/9 recession in advanced economies was not a quick 1980s or 1990s type downturn, which could easily be cured with policy easing, creating a new and vigorous cycle. The build-up of debt had gone on for some decades and each US expansion over the past 30 years has appeared weaker than the last, such that if the US does indeed enter recession within the next year, the latest expansion will have been so shallow to have scarcely been noticed.
The major caveat to all this gloom is found in the emerging market space, which now accounts for the bulk of global growth. These economies have their own problems, but are dancing to a very different tune with respect to growth, inflation and policy options. In short, their inflationary problems look more like those faced by advanced economies in the 80s and 90s, and hence their policy options are less constrained.
|
