■ Contraction. The depth of the US recession is now also evident in the official growth numbers. The 6.2% contraction of real GDP in the last three months of 2008 was the worst reading in 25 years. And the current quarter is unlikely to be much better with close to -4%.
■ Dry patch. In addition, we do not expect the first quarter of tangible real GDP growth before the end of 2009, once the billions earmarked for the economic programs combined with the ultra-expansionary monetary policy have an impact. But they will not bring anything more than meager growth well below potential in the coming year either, resulting in a 2010 GDP plus of only 1¼% (pages 4-6).
■ Losses. The reasons for the delayed stabilization and the only lackluster recovery in 2010 are the ongoing massive losses of net wealth in the private sector. That is hurting consumption as well as private investment. Since the outbreak of the financial crisis, US households have lost an estimated USD 11 trillion, and are now rapidly increasing their savings.
■ Strain. A rapid trend reversal on asset markets is not in sight. Overall risk aversion remains extremely high and is acting like a lead weight on equity markets, which have been ignored by the Obama administration so far. And house prices will continue to decline well into the coming year, although there is hope that the pace of the decline will moderate gradually (pages 7-10).
■ Further topics:
- Weekly Comment: Quantum of solace (page 2).
- Germany: Auto scrapping premium has an immediate impact (p. 11).
- Data outlook: Industrial production to continue to decline across Europe; US retail sales to decline again (page 14).
- Market outlook: EUR to remain vulnerable; govies in demand (p.20).
