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Global Scenarios: Trends and risks

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Rising from the ashes

Mon, Sep 14 2009, 07:05 GMT
by Danske Research Team

Danske Bank A/S

Contents

Introduction: In jobs we trust

Alternative scenario 1: Boom-boom

Alternative scenario 2: Boom-bust

US: Out of the woods

Euroland: Ascending to the surface

Japan: A little help from my friends

Emerging Markets: The tail wagging the dog

Introduction

In jobs we trust

• Growth indicators have been even stronger than we envisaged in Global Scenarios in June. Our forecast for global growth is therefore revised higher and we continue to look for stronger growth than consensus.
• We expect the next two to three quarters to be particularly strong. The main factors behind the rapid recovery in the coming quarters are: 1) A very strong inventory cycle; 2) Record stimulus starting to feed through to demand; and 3) Substantial easing of headwinds witnessed by a strong reversal in credit markets.
• While we see some soft patch in mid-2010 we believe that the initial kick start is big enough for job creation to return and hence for consumers to revive. We are therefore cautiously optimistic that the recovery will prove sustainable.
• The rebound is quite synchronous across US and Europe. Hence Europe will not lag this time. Asia will cool a bit but continue to grow strongly and play a more important role in global rebalancing.
• Inflation is not an issue but markets might not be convinced. Disinflationary forces continue from high unemployment rates and passthrough from lower commodity prices last year.
• Exit strategies will come more into focus but exits from governments and central banks are not likely before unemployment has declined for some time. The ECB will be first to hike among G3 central banks.
• The risk factors are the same as three months ago. These mainly stem from higher oil prices, a jobless recovery, renewed financial turmoil or a new sharp rise in the US savings ratio.

The data flow since the last Global Scenarios in June has generally confirmed our view of an earlier and stronger recovery than expected by consensus. We now foresee growth around 4-4½% (q/q annualised) in the US and 2-3% in Euroland over the next three quarters. Asian growth has been very strong in the first half of this year, but this has broadly been in line with our expectations. While we expect the Asian recovery to continue, growth is likely to moderate in coming quarters. Euroland has turned simultaneously with US in this cycle. The normal lag between US and Europe has not been in place this time. This is likely due to the global nature of the shocks hitting the global economies at the same time. The adjustments in the corporate sector shaping the cycle have therefore happened in a parallel move.

• Download full Global Scenarios with charts

Published on  Mon, Sep 14 2009, 07:17 GMT